We’ve all heard of this one. The rich get richer and the poor get poorer. How much of it is mindset and how much of it is circumstance? I think when you fall under a certain threshold of income, it’s really tough to get out of the spiral, and all one can think of is how to put food on the table for the next meal. But for the rest, not languishing in poverty, but somehow living paycheck to paycheck, I think those can be helped with a good dose of mindset shift. How do the rich stay rich, and more importantly, how do the rich get richer? What are some of their secrets?
It’s easy to brush this statement as categorically true, and pin it squarely on the luck of the draw, or that if you start off rich, you will naturally stay rich. Well, just google lottery winners losing all their money, or Johnny Depp, and you’ll know wealth does not automagically beget wealth.
Live beneath your means
I have this as the number 1 item, because this underpins everything else. Again, if you look at lottery winners and how they blew their winnings away, it’s because they let lifestyle creep burst in through the door, and made them a best friend.
They essentially YOLO-ed their way back to poverty. So if you don’t live beneath your means, everything else is moot.
One way to help manage this, is to quickly sock away some money for savings into an invisible account. It should be one that you have no ATM or debit card access to, so that it’s not as easy and liquid to use on a daily basis.
You don’t usually spend what you don’t see. This process should also be automated, so you don’t drop into inconsistency. Aim for 15% – 20% to sock away, and then you can budget the rest.
Make wise purchases
I subscribe to the FIRE movement, but not the Mustachian movement. Hardcore mustachians hold very extreme views on frugality, and often talk about saving up to 80% (?!) of their income, and NEVER getting into debt. Never buying cars and basically cycle everywhere and live like a hobo.
I think in a Singaporean context, that is simply impossible (or at least highly improbable).
Mustachian principles also dictate a strict no debt belief. So, unless you’re cash rich, don’t even think about buying a house.
The truth is, property has been in the past, a huge enabler to wealth. Even today, I believe prudent purchase of property based on certain criteria can bring you great growth in net worth over time. Sure, it’s not a liquid investment, and you need to have a longer time horizon, but you’re talking about returns that can be life-changing and outsized.
I’ve laid out my property investment strategy in a separate post in detail, so please feel free to read this at your leisure later. The key lesson here is, when you’re making a big purchase, make sure to study for upside potentials and weigh that against your long term investment thesis and adjust for alignment and risks before you pull the trigger.
Make leverage your friend
Leverage is seen as a dirty word. In fact, it is simply a tool. And like any tool, it can be used to great effect, or it can totally destroy and upend industries. In the simplest form, leverage means to use money you don’t have to purchase something you want.
The 2 most common forms of leverage, broadly speaking, is credit card debt and property mortgage. Quick, without thinking too much, which is a better debt to have?
If you’ve made the right calculations, studied market factors, and took into consideration location and developmental factors, taking on a mortgage to facilitate the purchase of a property can be your stepping stone to a pretty nice life.
On the other hand, don’t get into too much leverage. For example, over the last few years, as the Airbnb business grew, and travel flew, people were buying up properties and in some cases, “owned” up to 10 properties. The argument was sound. Travel was not going anywhere, and as long as I got positive cashflow from Airbnb to cover the mortgage payments, I can and should keep adding more properties.
But we all know what happened. Covid struck, travel stopped in its tracks, and revenue fell off a cliff.
So make leverage your friend, and not your enemy.
Openness to opportunity
Outside of property, equities and bonds, there are many other classes of asset that are now slowly becoming available to the masses, due to the technological disruption happening. With the concept of fractional ownership, and trustless verification of authenticity via blockchain, there are now so much more access to asset classes that we plebs have previously been denied.
These were how the rich got richer in the past. Access to fine wine, fine art, investment property, a foot into the fiat monetary system. These are all one by one being democratized by technology, and the barrier to accessing them is getting lower by the day.
Keeping an open mind to allocating some of your net worth to these “new” investments could help bring an outsized return. I wrote about 4 alternative investments you can think about in 2020 and beyond.
Openness to opportunity does not end with your investment outlook, but also outlook in life, generally. In 2007, I stumbled by accident into the world of digital marketing, as an ad operations manager working in a 3rd party adserving platform. If you did not understand what my last sentence meant, don’t worry. I didn’t either. But I look a chance on this little known company from Australia, into this little known niche of the digital marketing ecosystem, and down the rabbit hole of opportunity I went, into the world of adserving, campaign operations, programmatic and attribution world. And I never looked back.
If I wasn’t open to trying out new gigs, and just lifting the hood up to sniff things out a little more, I may have missed out on all these opportunities.
So I think it’s important to really take on a positive attitude, no matter how dire things may seem at this moment for many of us, to know that in the darkest of times, also lie the deepest opportunities.
To all affected by and continuing to be affected by Covid, stay safe, stay strong, and stay positive, and I hope riches (in more ways than one) will come your way soon.