Now, here comes the more controversial part where some may argue my thoughts or strategies won’t work while some may agree. Whichever the case, remember, we decide our own lives and must be willing to accept the consequences of our decisions.
It is a cycle of life where your parents may have supported you and then you support yourself and maybe later you support your kids and maybe (only maybe) your kids support you. But we have to start somewhere. So, let’s start from when you start working. In today’s job environment, there are too many degree holders! Hence, when you have a degree, you still start at the very first rung in your corporate ladder i.e. management trainee or sales rep. Unlike in the past, we started at executives which are merely 1 to 2 grades below the manager.
Most people start their career with nothing. If lucky, the father lends them his car to go to work. Regardless of what, most people try to start their savings at this age. When you are starting at this stage, there are basically 3 important things you need to be clear in your mind:
a) what are the things you cannot afford to lose?
b) when you will break even given your current income?
c) what are you good for?
In the 1st part, you may notice that there is no mention on savings. Most young people attack this point. It is pointless to talk about saving when you have yet to accumulate some depreciating assets (eg. Car, mobile phone, gym membership), leave alone money-making assets. So, it is really not practical to start your working life by savings. Not only that it won’t work, in fact it can be very discouraging when you realize that after a few years of savings, you basically still don’t have any savings! And probably end up with even more debts!!
So as you first start, stop thinking about savings. The time will come but definitely not now. What is important is to focus on things that you cannot afford to lose. Can you lose a job? No! Can you lose your health? Definitely no! So, your first wealth accumulation is your life assurance. We all know, we are worth more when you are dead or sick than when we are alive :(
Then, you begin your journey of accumulating ‘depreciating assets’. These are simple things that you have with a salvage value. For example, when you buy a car and sell it off 5 years later, it still has a residual value. Why is this important? That’s because once you own some of such assets, you basically pay the differences when you change to a new car rather than paying full price. Accumulating such assets is also in a way forced saving. With interest rates for car running at 3% p.a., go for it man! Even your fixed deposit is generating about the same amount of interest. But remember, you must include your maintenance as part of your car purchase. If your car maintenance cost is higher as your salvage value, you are back to square one. House? Yes if it is cheaper than renting after you pay your down payment. Don’t expect to make money on your first house. Treat it as rental. It makes getting the 2nd house easier in the next round as you start paying the difference, not from zero. Remember, consider maintenance cost as well. There are jokers who renovate their house more than the salvage value. Other depreciating asset will be your mobile phone, house air cond, computers but all with the same guideline, make sure maintenance and upgrades do not exceed salvage values.
At this stage, always remember that your savings on your current salary will not get you anywhere. It is time to earn more, not save more. Ask yourself a simple question. If your salary is RM3k per month, and you can save 100% i.e. RM3k, will you have a perfect life ever after? If the answer is ‘no’, then stop talking about saving at this stage! It is a time to make more.
How do you make more? If you are an employee, always remember to upgrade your skills. Ask yourself what you are good for. Never see what you need to learn from your current position. See it from where you want to be. Imagine yourself being in that position, look back to your current position and ask yourself what skills you need to build. Forget about increment, at best it helps you in your inflation. But go for promotions as this is where you quantum leap. Always set your own horizon in your current job. To me, 3 years is good and renew every 2 years. This horizon will help you see what you need to do with your career and also put some urgency in your action plans.
The above principally addressed the 1st stage – accumulating some assets and building what you are good for. This blog is long and so I have decided to put the next stage in my next blog i.e. when can you break even.
Until then, continue accumulating depreciating assets with maintenance cost in mind, and continue upgrading your skills. Good luck!
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