Delayed Gratification Mindset

It has been a while since I blogged. I have been extremely busy for the past few weeks and I hardly find time to relax. It’s like having multiple jobs at the same time, I have to work, teach guitar, do up a video trailer, design a website and create a web application. With all this work that I have to handle, I feel like I am wearing out. Every day is the same routine…

But, the thing that kept me moving on is this mindset: Delayed Gratification.

What is delayed gratification?
It is the ability to wait in order to obtain something that he or she wants, aka 先苦后甜 in Chinese. A simple illustration is, say a man strike 4d and won $1 million. He decided not to spend all the money on things that he wanted immediately, but instead, he invest it into bonds and shares and wait a few years before tapping into it. On the contrary, if he spends all his money, that is called “instant gratification.”

With this mindset of delayed gratification, I have learned to work hard now and not enjoying all of the rewards immediately. But instead, using the rewards to reap even more rewards. There is no doubt that the main reason I am working on multiple projects are for the sake of money. And with the different stream of income coming in, I could have spent more on my wants. But I did not. Instead, I choose to save the additional amount of money that came in. That does not mean I don’t enjoy at all, but I kept it at a minimum.

So why do I want to do that? By saving up first, I can build up a substantial amount of money that acts as my opportunity fund that I can use to invest. It’s like building up my army (capital) to fight and to defend when the time comes (market crash). Imagine not having enough soldiers when your enemy is weak, you miss the opportunity!

Read on how you can do that and apply delayed gratification

Don’t be short sighted, look far ahead and plan beforehand. This will ensure a better future for you and your family.

Time equals Money

When I was younger, I often heard this phrase, time equals money. But I have no clue what it means. To me, what is most important is that the time spent must be enjoyable.

Recently I kind of have a paradigm shift. After certain things that happened in my life and family, I realized the importance of money. I realized without money, one is not able to support his family, let alone bring significant value to the world. I agree that money is not everything; money cannot buy you love and happiness. But certainly, with money, it can bring many factors that can create fulfillment in these areas. For example, with money, you are able to bring your spouse and children for a holiday and that brings a certain extent of happiness.

Now, I am very cautious on how I spend my time. To me, time equals money. Every second I spend must bring value to me and to others. Nowadays, this is how I spend my entire day: School, work, investments, and financial education. I feel as if I do not have a life, but that’s true in a certain extent. I find a need to sacrifice my play time and save it for the future. My mindset now is work now enjoy later.

Each person has 24 hours a day and how he/she allocate each day determine his/her success. To most people, the reason why time equals money is because when you work for 1 hour, you earn $15. 2 hour, $30, so on and so forth. And if you choose not to work, the money stops flowing in.

But there are more reasons. For example, if you spend your time on financial education, it increases your financial IQ. And with that, you are better equipped to increase your wealth.

“A period of time is considered as a resource under your control and sufficient to accomplish something.” You need time to accomplish something. And TIME is the resource for you to do that!

Start spending your time well and make every second worth. An average life expectancy of a Singaporean is 80 years, and that compute to 700800 hours, you only have one life to live, live it to the fullest!

Are you a good steward of your money?

Recently I read this book Creating Wealth by Robert G. Allen; it talks about the seven principles of wealth. One of them I wish to highlight is Wealth Principle 4: Wealth seekers are always on the offensive, not defensive.

Most people are concerned with security, especially with money. Whenever when faced with risk, failure or debt, they tend to go for low-yielding “safe” investments. You need to understand that these kinds of investments don’t produce wealth. Most average investors believe that the worst thing that can happen to them is losing their capital, they are so afraid that they focus their money on the defensive. He is more concerned with saving money, buying ILP or Unit Trusts rather than more lucrative investments.

There is a famous parable in the Bible call “The Parable of the Talents” in Matthew 25:14-26:

14"Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. 15 To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. 16 The man who had received the five talents went at once and put his money to work and gained five more. 17 So also, the one with the two talents gained two more. 18 But the man who had received the one talent went off, dug a hole in the ground and hid his master's money.

19"After a long time the master of those servants returned and settled accounts with them. 20The man who had received the five talents brought the other five. 'Master,' he said, 'you entrusted me with five talents. See, I have gained five more.'

 21"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!'

 22"The man with the two talents also came. 'Master,' he said, 'you entrusted me with two talents; see, I have gained two more.' 

 23"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' 

 24"Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. 25 So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.' 

 26"His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? 

The Lord gives five talents to one servant, two talents to another and one talent to another. Upon returning, the master found out that two of his servants have done very well with their “investments.” But the last one was afraid, he took the talent and buried it in the ground, all because he did not want to take risk! God’s words are explicit, he reprimanded the last servant for not being a good steward of this money. Instead of making it grow, he chose to invest the money in bank, or maybe in his safe?

The profitable servants is on the offensive, they were willing to risk to make their money grow, the unprofitable servant is on the defensive. He only wish to preserve, to protect and therefore he did not grow his assets.

But is there a place for defence? Of course, any soccer coach can tell you that a good team must be balanced with both offensive and defensive units. But still, the best defence is a good offense.

Concept of Wealth from Rich Dad

The book Rich Dad Poor Dad by Robert Kiyosaki is an astounding book, it changed certain mindsets I have about building wealth. It is highly recommended especially if you are just starting out. But be warned, the ideology behind it might offend you and you might not agree with it. In fact, most of the principles taught in the book contradict what my parents taught me. Let’s look into some of it:

The Rich don’t work for Money

If you ask most people what is the most important thing in order to build wealth, most of them will tell you the answer is having a good JOB, a great JOB. On the contrary, a wealthy person begs to differ. Having a job is important, but that alone certainly cannot make you wealthy. To a wealthy person, a job is temporary. It helps you in the initial stage of your wealth building plan by generating cash for you to accumulate them in order to propel your portfolio on auto pilot mode (passive income). In fact, the rich believe in money working for them, not the other way around.

It is commonly held in our society that finding a good job, working hard and moving up the corporate ladder will lead us to wealth. But having a job merely supports our necessities (food, shelter). There is a quote saying “Wealth is when small efforts produce large results. Poverty is when large efforts produce small results.”

So the key is not work harder, but work smarter. Your goal is to acquire assets that can generate passive income and in a long run, you ought to be wealthy!

Stacking up your assets

What do you considered as an asset? They are things that can generate income or go up in value. Some good examples of assets are:

• Real Estate
• Stocks
• Bonds
• Unit Trust

Why assets are so important?

A true asset is where your money is working for you and provides you with cash flow. The more assets you have, the more your cash flow grows. As long as your expenses and liability is less than your asset-produced cash flow, you are growing richer. And with that, it can set you up on auto pilot mode which ultimately leads you to financial freedom!

Looking at a simplified version of an income statement, you can understand the differences between the rich and the not-so-rich.

Let’s take John, a fresh graduate as an illustration. John works in a MNC with above average income as compared to other graduates. Every month, after paying off his tax, bills and spending on his wants and necessities, he is happy because he has got more than enough. So he decided to buy a Honda Civic. Few years later, he met his dream girl and got married. At first, everything seemed okay. With the income from John and his wife, they decided to buy a house with a 25 year loan.

Soon after they bought the house, their first child was born and his wife decided to be a housewife. John soon realized that his expenses are catching up and the money that he is earning is not enough to cover his expenditures, worse still, if the second child comes along. His car expenses and mortgages are killing him. With much consideration, he decided to sign up for night classes hoping to get promoted in his job. Few months later, his boss decided to promote him because of his hard work and productivity. But things aren’t getting any better. Soon after that, his second child was born. Expenses are rising and he decided to get another job to support his family.

Sooner or later, John realized that he is stuck in the infamous rat race. The harder he work (and having higher pay), the higher the expenses due to higher tax and higher spending. As you can see from the diagram above, the cycle repeats itself.

Let’s look at the income statement of a high income group. Another illustration is Peter. Peter just got out from the Army, and with a diploma cert, he found a job in a local company. His pay was not that bad as a diploma holder. Every month, with the money he earned, he set aside a certain amount of money first then pays off his tax, bills and necessities. With the remaining cash, he then spends that little money on his wants. With the amount of money he accumulates every month, he went on to buy assets such as stocks and bonds.

After a few years, he began acquiring properties and renting them out. The income generated from his assets surpasses the income from his job. On top of that, his expenses are being paid off by the income generated from his assets. After he got married, he realized he can choose not to work and still have more than enough money in his pocket. He set up a business and invests part of his money into it. A year later, the business grew and he decided to employ staffs to take over his business while he enjoys the reaping of his profits and have enough time to spend with his family.

As you can see, the initial stage might be tough, but after you kick off and set yourself on autopilot mode, you can have all the freedom you want! Always remember to acquire assets that generate cash flow and you are on your way to financial freedom.

Start now and take action. Do not have the mindset that you do not have enough money, you are not prepared or you do not have time. Take responsibility of your finance!

“As you begin to take action toward the fulfillment of your goals and dreams, you must realize that not every action will be perfect. Not every action will produce the desired result. Not every action will work. Making mistakes, getting it almost right, and experimenting to see what happens are all part of the process of eventually getting it right.”

Jack Canfield

How to Set and Achieve Goals

“If You Fail to Plan, You Plan to Fail”

People become what they think about most of the time. And the key to become successful is to set goals.

Some simple steps on setting goals:

1.       Write your Goals on a piece of paper and categorize them into short term goal and long term goal.

Use the three Ps to set your goals:
-Present Tense: Use present tense and set a specific date that you’re going to achieve your goal.
-Positive: Set positive goals. (E.g. “I weigh 45kg” instead of “I will lose weight 10kg”)
-Personal: Write down the goal for yourself. Use “I” when you set a goal.          

A good example is, “I earn $6,000 every month.”

2.       Use the S.M.A.R.T goal setting (Personally as a Christian, I use the S.M.A.R.T.E.R goal setting below) to access every goals you set.

Specific – Be as specific as possible.
Measurable – Targets should be Measurable.
Action Plan – Have your action plan layout.
Realistic – Is the goal realistic? Set goals that are attainable
Time Conscious – Set a time frame for your goal. When you see yourself achieving it?
Expectation Management – Manage you expectations
Revelation – Have you seek God and prayed?

Start planning now and do something about it every day. After a year or so, review your list of goals. I believe you will either be happy or sad. Happy because you have achieved it. Sad because you didn’t set more goals.

Education: A Consumption or Investment?

During my secondary school days, I always wonder why I have to learn geography, Pythagoras theorem and trigonometry. Are those really useful and relevant to my career? The funny thing is most of us will forget what we have learnt after graduation (like how I threw my books away the moment I graduate – I’m serious!)

Don’t get me wrong, obtaining more education is usually a good thing. But we are going to look into it in financial context. Education can be both a consumption and investment depending on what business or career you are in. Taking a dance course would be classified as “consumption,” unless you dance for a living or you’re in a dance business. Basically, consumption makes you a better rounded and perhaps a more interesting person but probably will not bring any economic value.

But if you are a photographer and you take photographs in order to put food on the table, taking up photography courses would be deemed as an “investment.” By taking up courses, you learn skills that can enhance your productivity and increase your economic value in the market.

So is geography, Pythagoras theorem and trigonometry important? The answer is no! Most likely you are not going to apply them in your job (unless you are a mathematician or a scientist…) So why bother going to through primary, secondary school?

The reason is because school is like a training ground which prepares us for the “outside” world. In schools, we learn to be a problem solver, we learn that if we sow hard work, we will reap rewards, and also learn to communicate with different kinds of people. All these are extremely important. It is a place for us to have the right mindset, moral value and equip us with the ability to further improve ourselves.

Also, we study for the sake of qualifications. We can see how little a person with a PSLE qualification earns as compared to how much someone with a Master Degree. The difference is HUGE! So why bother going through education? It is simply so that you can get a higher pay job.

If you are still studying or you intend to further your studies, you need to ask yourselves what is the purpose. Is it to improve your economic value or just to learn something that you are interested in? You need to ask yourselves whether you think it is an investment or consumption.

To me, I enjoyed learning about investments and creating wealth. It is something of my interest and it creates economic value. This kind of education is the best as it is both an investment and consumption. Kill two birds with one stone!

Financial literacy: How important is it?

The key to achieving wealth is financial knowledge!

Financial literacy is essential to everyone. It is a skill that can benefit you for a lifetime. It enables us to make sound and knowledgeable decisions regarding matter on finance. Without sufficient financial knowledge, you may make wrong choices for your investments, insurance and other stuffs like investment linked product (ILP). The other day, my friend was just telling me of this lady who bought an ILP for herself. The sad thing is her average return per annum is only 1%, how pathetic! (I am not going to reveal what ILP she bought and which insurance company) 

But if you are someone with financial knowledge, you are able to compare between different ILP and even explore the idea of buying term insurance and invest the rest yourselves. As a result of having financial knowledge, you are not limited to a few choices. Instead, you are able to weigh the pros and cons of the different choices to make the right judgement.

The problem with the society

The society we lived in right now (especially Asian countries) place little importance on financial knowledge. You don’t get to learn them in school and your parents seldom talk to you about money. Most of the things I‘ve learned from the education system is to prepare me for my future career and profession. And whenever I ask my parents about their salary, net worth and investments, they usually don’t reveal much. The only thing they will say is “Money not enough lah...”

To many people (mainly the older generation), their mindset is to have a good education, find a good paying job and work your way to retirement. I am not saying that is wrong, but it is definitely not enough for you to live a desired lifestyle and you barely will have enough to retire.

Let’s assume your salary is $2500 per month and you save $500 out of it every month.
After a year, you get $500 x 12 = $6000.
You intend to retire in 35 years, your total saving will be $6000 x 35 = $210 000.
If we factor in the bank interest rate of 0.125% p.a, by the end of 35 years, your total savings will only amount to around $264 579.

Honestly, ask yourselves these questions. Is $264 579 enough for retirement? Can you live the desired lifestyle you always wanted? For me, the answer is NO. That is why I am constantly seeking to enlarge my financial knowledge.

For a person with financial knowledge, he or she can choose the right investments to invest the money and let it grow and compound.

Taking the calculations above, total savings after 35 years = $210 000.
Let’s assume you get a return of 8% p.a on your investments, by the end of 35 years, that amount of money will become a whopping sum of $1,110 042!
Look at the huge differences!

I hope you are convinced that financial knowledge is important. We should never feel that we learned enough, but we should never stop learning. I hope that this blog can help you increase your financial knowledge. But remember, you cannot rely on others to help you achieve financial freedom. The only person that can help is YOU. Stop procrastinating, start now! Time is of the essence.