Spend less than you earn – the secret to become rich
I’m a big fan of this Get Rich Slowly blog. I’ve been following this blog for many many months now and the latest article from them is again, very good. The article is actually an interview with a millionaire – about the millionaire’s habit, lifestyle, principles, etc. You can read the article by following the link below:
The Secrets of Financial Freedom: An Interview with the Millionaire Next Door
Once you’ve finished the article, you’ll notice that there’s no magic formula when it comes to becoming rich. The 2 points that I can get from this article are:
- Spend less than you earn
- Invest your money
For the first point, it’s quite straightforward. You don’t buy things which you cannot afford. Spotted that nice and cool car? Can you afford it? Or that nice condo in Mont Kiara? Can you afford it? When I said “afford”, it doesn’t mean taking up a loan which will tie you down for another 40 or even 50 years. It means you have the means to own that something without committing too much. If you can be 100% sure you will live comfortably with the new 30 years long housing loan, then by all means, go ahead. The thing I notice in most people is that, they want all the nice and trendy stuff in the world but they cannot really afford these things. So they take up loans after loans…and delaying all the credit card payments (transferring the outstanding balance here and there just to minimize the interest charges). If only people can start thinking properly and ask themselves this simple question – can I really afford it?
Also, stop going for things like Starbucks and those expensive dining places. I work in KLCC, and I only went to Starbucks for farewell (or free treats). Mmm…I think I only went there not more than 5 times during the 3 years working in KLCC area.
Anyway, for the second point, it’s again a no-brainer. Invest your money. If you don’t invest, it’s likely you are going to spend it away or you will put it in a place where…the value will just depreciate with time. Take note of the inflation rate in your country and try to find an investment type which can give you return HIGHER than the inflation rate. Surely, you don’t want your hard-earned money to become worthless after 10 years or so.
So, there you are, 2 very simple points to remember for anyone who wants to live a comfortable life or to become rich. As you can see, you can still buy your NEEDs and WANTs as long as you don’t spend more than you earn. That’s all. You don’t really need to lock yourselves up in a room so that you can cut away the spending and become rich. 
Just control your spending and only get things you can really afford.
Hope it helps.
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Comments
@ Damien
Maybe that’s why the new gov bond is soooooooooo popular. 5% rate is much better than the FD we have now (and many predict it’s going to drop further).
Realistically? Investment, even with the poor FD rate, is still better than spending them away on the WANTs IMHO. 2% vs 0%?
Also, if people are hardworking enough to do their research, there are still some investment which might bring them a return better than the inflation. But of course, every investment has its own risk.
If i don’t have the money to go for property, I can always go for REITs. They are quite cheap now and I do believe they will pick up after 3rd quarter of this year. But that’s just my prediction. It’s similar to stock market and unit trust, you need to invest for at least a year if you plan to invest in anything now.
I invested in Unit Trust 5 years ago and I got total return of 86%! Simple average 17% p.a. I just can’t believe it!
I didn’t look at my investment after I invested because I am too busy with my works.
My agent told me there are many funds getting more than 10%p.a over 5 years.
Alvin, thank you for the info. I must start looking into my spending habit now.
Spend less than you earn! And Invest!
@ YC Low
that’s very good return u know. mine, -60% but still okay because i invested right before the crash.
Yeap, spend less and invest more. Not a bad thing to buy things u like every now and then, but keep it at a minimal level.
Inflation rate = 3.8%. FD rate = 2.2%. With numbers like that, one’s money will depreciate even if its put in the safest risk-free harbor.
Yes there are property investments etc., but the average wage-earner in his 20′s can’t even afford to buy a decent motorcycle in cash let alone a building of any size. So with a net savings of only $500-600 a month, realistically, where can he go?
Could he take a risk and play the market with $10k capital, make enough to offset inflation (after broker fees) and still have more than $10k left in his hand 6 months later?
I think these are real questions that young salary-earners ask. They fulfill your criteria #1 because they save. But can they fulfill your critera #2. What investment options do they have when all they got is $10k in the bank and the inflation rate is twice the FD rate.