Personal Finance 101: 4 Pillars for Financial Success
What is Financial Success?
There are no universally agreed definition of financial success. Suffice to say, financial success for someone may be that his debts are under control and that his networth is positive (total assets minus total debts). It could also mean that every year, his wealth is growing faster than his debts. In other words, financial success can be achieved by anyone and it’s very different from becoming a billionaire for example.
Financial success to a working professional may just be getting a promotion every year where his salary would have a huge surplus versus his expenses which had stayed almost the same. We just need to remind ourselves that higher salary is not financial success because the debt level could be higher too. As someone who has worked for 25 years, here are the 4 pillars to that potential financial success. Note though that this is more applicable to working professionals.
#1 Pillar – Earning.
The first pillar is NOT saving, okay? The first thing is earning. If we do not earn enough, there’s no need to talk about savings. As for how much earning is enough, it’s really up to us. We could work hard and smart in the company and soon got good promotions and perhaps becoming a senior manager even before 30 years old. This was impossible then but it’s achievable today. With these higher position levels, the earnings increase too.
If there’s really no choice of higher income at the official work, then it could be after official hours. An office boy could still have his e-commerce business in the evening. A receptionist could become a GRAB driver for a couple of hours everyday after work. Even senior managers could choose to start a blog about an interest and turn it into generating extra second income! These are all examples of working hour earnings and extra after hour earnings.
Pillar for earning higher salary is learning. These days, we could learn many things for free. Question is, are we watching the TV series or reading a book week after week and later year after year? When we improve ourselves, we improve our career outlook and when we improve our career outlook, we improve our earnings. What we choose to do today determines what we will achieve in the future.
#2 Pillar is Saving.
We can earn RM10,000 and we could still be in heavy debt. Or, we could earn RM3,500, rent a cheap room, give our parents RM700 per month, drive a reliable but old second-hand car and still have savings in the bank every month. Oh yeah, IF WE DID NOT buy that iPhone latest edition for just 3 years, it would have saved us easily RM10,000 or more. Crazy but true.
Having nasi ekonomi versus sushi (or similar priced meals) will save us thousands every year too. Even changing the coffee we drink daily saves thousands every year! Do our math and we realise that it’s really possible to save enough down payment for an affordable home of RM300,000 after 5 years. Only 10% of this RM300,000 is needed. A good girl friend or a wife forcing us to save would help tremendously too with the savings. My close friend, Mr. C’s wife SAVED all his and her earnings every month. I think Mr. C has a very good wife.
#3 Pillar is Investing.
Note the word investing. It has nothing to do with speculating (super fast returns, super high risks for example). It has nothing to do with whatever get-rich-quick schemes in the market today. However, it can include buying a property and stretch ourselves to the limit BUT we rent out two of the bigger rooms and we stay in the smallest room. A friend actually did that after listening to me. Yes, he owns the place today.
It’s not even just property and first one may not need to be property. It can also include buying good stocks which we UNDERSTAND and keep them for dividends. Of course, before we start investing, always ensure we know what we are doing. That means studying, learning and implementing what we studied. If we earn good money every month and we ONLY saved it month after month, chances are we may still not be ahead of the inflation. Pillar #3 is super important yeah.
#4 Pillar is Preserving.
My dear friends, regardless of how much we have, an admission into the hospital for a appendicitis surgery with complications would easily cost RM15,000. (I know because I was hit with one before many years ago).
Do we have sufficient medical coverage even if we are currently covered by our company? No one would have any idea if the company shuts down suddenly yeah. What happens if we could no longer work, will our whole family suffer because of this or do they at least be compensated by the insurance company?
Remember, if we stop paying the mortgage, the whole family may lose a place to stay! This is why it is good to have a good insurance agent friend who’s able to provide sound advice on how to preserve whatever wealth we have as we continue to build it up.
My personal story towards financial success (obviously, in my own terms, not yet achieved)
My wife and I saved as much as we could for 5 years so that we could buy a 700 sq ft apartment at RM123,000 and spend RM35,000 on renovations and furnishings. Our savings was wiped out totally then. It was a forced savings and I am glad we did it. Else, we would have spent the money for travel. Well, after buying that first apartment, I worked hard and we have more salary and thus more savings after that.
That apartment in terms of price did not increase by leaps and bounds but after ‘fully utilising’ it for 8 years, we sold it for RM215,000. In those 8 years, we stayed, my brother stayed, my wife’s brother stayed, my sister stayed and later it was rented out too. If we did not invest into this tiny apartment, imagine the money that we would have needed to spend on the rental alone.
RM600 x 12 months x 8 years = RM57,600 yeah. It’s either I get back the money after selling the home or I lose all the money by paying rental and making someone richer every month. What a sobering thought indeed right?
Happy earning, saving, investing and preserving.
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