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A Timeless Secret To Building Massive Wealth – The Slow Way!

September 7th, 2008 by Wai Loong (5 Comments)

Psst!  Recently, I’ve been secretly studying and learning as much as possible on top of my heavy work load in my full time profession.

Without revealing too much, I can say that I’ve learn one of the most important secrets to building massive wealth over a long period of time… and it is very possible for just about any average person on the street, with IQ no more than 125.

If you have been following my articles recently, then you may have understood some very important principles that I’ve already covered.  Perhaps, the most important of them all is buying anything in your life based on value.

It’s a very simple concept, but most people just simply ignore it, or pretend that it does not exist.

If you’re in a hurry to make plenty of bucks, then this article may protect your future wealth, or yourself from getting yourself burned in the next ponzi scheme or scam.  If you’re not in a hurry to make plenty of bucks, then this article is useful as you may begin building your wealth – the slow way!

It’s All About Value, then Price

When was the last time you evaluate the value that you are going to get out from that purchase?

Chances are that you won’t.

Most of your so call necessity is essentially emotionally driven.  How many things do you really need everyday in your life without getting yourself killed or deprived?

Before you purchase anything, do you ever consider alternatives of the same product, or the various choices you have on your plate?  Chances are you will, but what about its value?

Now, don’t confused value over the price you pay.

Value is what you get out of the perpetual (and useful) lifetime of a product.  Price is what you pay or perceived as, and that is what you are enticed to pay.

Price of a product or service, is ideally determined by free market.  In the real world, value can be easily distorted and presented as, or perceived as high value, depending largely on the skill of the marketers behind a sales campaign.  For example, a low value product can be packaged or repackaged, promoted or even lure you with endless freebies.

Many times, the price of a product or service has already been offset.  Think hard again on anything that you are buying infrequently.  Chances are that you can find cheaper, or equivalent alternatives, or if you insist on the original brand, then pick them up only on a fire sales or auctions.

With the powers of general search engine and specialize search engine, it is relatively easy for you to achieve substantial savings on your next big ticket purchase!

Let me use a real life example as an illustration.

Everyone should know what an iPhone 3G is by now.  If you haven’t, then you must have living under the rock for the past 2 months.  The question is, does the iPhone 3G really worth as much as it is priced in the open market, or even that from your favorite retailer?

The average full retail price of its 16GB version is currently priced at about S$1,600 (Singapore dollars).

If you check out what the iPhone 3G really offers, it’s an advanced smart phone that you can touch and interact with.  It has built in WiFi and fast 3G data connectivity.  Fast data connectivity… it’s something most of us shun isn’t it for the price one pays for 3G connectivity?  WiFi is mostly free here in Singapore, unless Wireless@SG is terminated abruptly by Singtel and its partners.

What about GPS and maps?  Do you often need to navigate around in remote locations or some weird retreats in rocky mountains or desert?  If not, then chances that Google Maps and a good WiFi connection on a cheap smart phone is sufficient.

Do you want the iPhone because it can play full length movies and MP3s on the move?  Honestly, most standard 2.5G phone can play music decently.  Otherwise, you can get yourself a real cheap iPod Nano or 2nd hand PSP.  Surely it is not worth $1,000++ for this pocket sized convenience?

Believe me – most of what you think you want is a natural fuel that feeds your unlimited desires.  Unlimited desires can cost you a bomb if you don’t work out your maths to justify that luxury which can often be substituted for cheaper equivalents.

Think about that for a moment!

If you still cannot figure the maths, let me shed you some light.  If you put aside that same $1,600 in a low load value index fund that returns 15% pa compounded for just 10 years, that same iPhone 3G alone would have cost you $6,472!

Mind you, that is not very smart doodad isn’t it?!

Even if you’re convinced on its value and you absolutely must own one, then I recommend that you pick one up on auction sites like eBay.  A good working 8GB model is selling at about SGD$400.  Not bad for a little time taken to do some investigation, provided that you don’t mind having less memory in it!  Still, it should function as well as since it’s original.

Still not convinced about my philosophy of value?

That’s OK with me… you can go ahead and pay full retail price.  it’s YOUR money anyway.  🙂

The Principle of Delayed Gratifications

This is perhaps the hardest to understand and even harder to apply in real life.  If you can master this art, you would have done very well financially in life 20-30 years down the road; while you sit around idly watching all your peers who have not yet figure it out, and still having stuck in a low paid job in their late 50s or early 60s.

If you think of paying that extra airline fuel charges of $400 (conservatively) for that annual holiday trip you plan each year (assuming flat rate $400 for the next 10 years), you are actually paying $15,480 on a 15%pa compounded rate!

To add to the cost, you may be spending on average $3,000 on each trip (air ticket + accomodation + shopping spree).  That works out to be $116,106 at 15% pa compounded!  If you redo the maths for $5,000 as a couple (both of you share the room, but not the flight seating isn’t it?), that comes to around $193,510!

Wow!  I cannot imagine anyone not knowing that they are spending nearly $200k on holidays over 10 years!  If you would have delayed that urge or excuse to release stress overseas (if it ever does!), you would have enjoyed a king and queen holiday treatment for the rest of your life as your money compounds.

Will you be getting more value out from a short term craving/get away, or will you hold off your urge to only enjoy greater and finer things in life 10 years later?

Perhaps, the real killer for most Singaporeans are their car liabilities.

I can’t imagine paying a brand new Toyota car for $45,000 and its value dropping to less than 60% value the moment you drive off from your car dealer.  Again, if you use the simple maths again at 15% pa compounded returns, that same $45,000 would have been worth $182k!

And that does not include paying for maintenance, insurance, road taxes, parking, ERPs and of course the all indespensible petrol cost.

I don’t know about you… I love taking Taxi (Cabs) and MRT, less the inconveniences.  🙂

Value Investing and the 8th Wonder of the World

As I’ve already shown you through many examples, not knowing your maths and spending habits is your single and most powerful financial enemy.  It is also an enemy to your way of living.

I’m not suggesting in any way that you should sacrifice your lifestyle for a better time many years down the road.  What I’m trying to point out is that there are many substitutes in life that you can use to carry out your normal activities and still enjoy life as your wealth grows.

As you’ve already realize by now, I have not mention much about wealth growing techniques.

Indeed, not know where your money leaks off and proceed on to learn the techniques of investment is a pretty dangerous attempt.  I am constantly perplexed by seminars conducted here locally that does not even talk much about the topic of value living, as much as I’ve covered here so far.

Once you’ve fixed that expense problem, you will need to find yourself an adviser on how you can maximize your money on protection.  I can’t possibly cover that here because that is not my main intention here.  But you get the point – it’s as important as managing your expenses!

Ok, the last component in get rich slow formula is compounding.

In fact, Albert Einstein once said that compounding is the 8th wonder of the world!

It’s the single factor that makes your bank account looks nice or not.

All that I’ve shown you are just simple compounding figures at 15% pa.  But if you invest in your own financial education, your long term returns can easily exceed 20% pa.  In fact, the average man and womam like you and I who can understand and apply the art of value living and investing, can do so much more better than many of our higher IQ peers.  Wealth building is not about IQ.  Rather, it is one’s EQ that matters.

In ending, I’d like to quote Warren Buffett, one of the world’s greatest genius in value investing:

Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
– Warren Edward Buffett, American investor & CEO of Berkshire Hathaway

I’m already sold on to the sound principles of value.

What about you?

Thanks for reading!  If there’s anything I can contribute or have not make my point clear, do feel free to drop me a comment.

Stay hungry, stay foolish, and live a life with passion!

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::Comments::

5 Responses:

1
uncle sha on September 7th, 2008 at 10:19 am

Nice summary in Spore context

I too read plenty of Robert Kiyosaki’s stuff

2
Wealth Journey on September 7th, 2008 at 6:03 pm

Nice site… and good entry..
though 15% pa is on the high side for index funds.
A more typical and highly possible range would be 6% – 10%pa.

3
Wai Loong on September 8th, 2008 at 12:21 am

@uncle sha:
Yes, Robert Kiyosaki is a good financial educator. Unfortunately, he cannot teach everything. But that is still a good eye opener to many (like me) who have no idea what financial intelligence is all about… less than 4 years ago.

@Wealth Journey:
I agree that 15% pa is a little over quoted, but not impossible. If we consider hard enough, value index funds should perform at least a little over 10% across a period of 10 years. Otherwise the fund manager is not truly subscribed to the tried and time tested principles in value investing.

4
Yen Thim Wai on September 9th, 2008 at 10:20 pm

Hi Wai Loong,
It is not surprising because nowaday many people are buying condominium and driving BMW in Singapore. That iPhone is nothing.

I think it is good that people buy cars. In a way, the MRT will not be very pack with people during peak hours.

Bro

5
Wai Loong on September 12th, 2008 at 12:41 am

Dear Thim Wai,

From your comment, I can tell that you’ve missed out the true essence of my article altogether!

My humble recommendation is that you seriously need a good financial education to appreciate what I’ve just shared above. No offense, but you have failed to identify the simple difference between asset and liability (according to Robert T. Kiyosaki). I highly recommend that you educate yourself as fast as possible by reading “Rich Dad, Poor Dad” and “The Cashflow Quadrant”.

Not all properties are valued as asset. The truth is, most so call Singaporean condo owners are living pay-check to pay-check to pay off their loans. And that is hefty enough if they only have 1 source of income. Imagine they lose that income to service their loans before they sell… it’s a huge disaster!

What takes money out of your pocket every month is never an asset – according to Robert Kiyosaki. And there is much truth in what he teach!

If you truly figure out how much a car in Singapore really cost you, you’ll never even consider buying a car! Taking Taxi all your life will probably beat the pants off owning a car – unless you pay a dirt cheap price to drive one and you’ve worked out your maths to justify the cost!

Like it or not, the Government is determined to drive the population of Singapore to 6.5mil in the next few years. So if you know what I’m hinting and you’re in at the right time doing the right things, you’ll make a huge amount of money, retire young and retire rich too – probably in the next 15 years! 🙂

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About Insights, Inspirations, Tranquility, Peace and Harmony

Ng Wai Loong

Wai Loong is an electronics engineer by profession. He currently resides in Singapore, a thriving hub at the heart of South-East Asia. When he is not so stress out on the computers or laboratory, he enjoys value reading, jogging at his own pace and blogging in his spare time. Other times, he likes to catch up with some close friends over a cup of latte or teh tarik. As a gift from this friend, you are invited to interact freely with him on his personal blog.

PS: May the person reading this blog transforms his/her businesses, finances, relationships and life for ALL to WIN!