Building Wealth is Not Only About Investing. I used to think that to build great wealth for myself, I have to read a lot of books, enrolled in expensive courses and spend a lot of time on investing, so that I can build wealth. And when I do not know how to do that, I felt insecure. As an investor, I can share with you that knowing how to invest is important, but for you, that may not be the most important thing to build wealth.

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As you go through life, you encounter friends and family with their own money stories. Why is it that some of your friends was able to become rich, while others, despite their great situation, always do not have enough money to use? Yet there are some who started life with a very average environment, yet end up in a much better financial situation than most of us? Do they all know how to invest, that is why they succeed and why others failed because they do not know how to invest?

Being a practitioner, as well as reading a fair amount of materials from thought leaders in wealth building, what I can say is: Most of the authority and thought leaders are talking about the same thing. There are slight differences, and perhaps in the way we present our concepts, but the magic formula to building wealth is largely the same. What separates those that put themselves in a great financial position from those that didn’t depends mostly on mastering a critically important layer of competency. Mastering this lay is simple. It makes you less reliant on having abundance in luck. It is very systematic and scientific.

And most of all, it means being wealthy is within your reach. Why haven’t your friends start pursuing wealth actively? I believe most of us wants some form of profound change in our lives. Having more wealth is one of them. Not many people are zen enough to say having wealth do not change their lives greatly. I find that the reason people do not start is because:.

They are not motivated to. They live a life very passive about wealth. They do not know how to go about obtaining wealth #2 is knowledge and wisdom. It is hard to discern when so many experts try to sell you various formulas. I will help you address this today. Today, I will help you deconstruct this formula to learn:. The three fundamentally sound things that lay our wealth building foundation that YOU can do too.

We compare how our wealth will differ, if we do more of these three different things. What are the 2 most important factors that greatly impacts your wealth and they just happen to be within your control. The alternative strategy to build wealth if you are not investment savvy. The difference in not saving now but saving later and end up doing just as well. If you build wealth, would you have enough to spend? My Personal Journey to Wealth I wasn’t born with a silver spoon. In fact, due to a lot of circumstance I had to stop taking pocket money from my parents starting from the age of 16.

I went to a local university and came out of university with a degree and only $6,000 in net worth under my name and having to repay $16,000 in student loans that my parents helped me paid off. So I therefore started my working life in Negative Net Worth state as they called it. This may be common in USA but in Singapore, many of my peer’s parents are prudent enough to provide for university education fees that they do not need to repay, so they started off with a clean slate.

Money was hard to come by when I was growing up and this scarcity imbued the mindset that I cannot lose money, I need to watch and save it. Investing is a dangerous form of gambling that will always end in tears.

In the last year of my university, during SARs, I grew disillusioned while studying. What is the use of studying one more year for an honors degree, sapping my family funds, when there isn’t much jobs waiting for me out there. I began to look for something that is safe and better than saving in fixed deposits.

And that is how I descend into this unknown world of investing. For the past 13.5 years, I worked as an engineer, not drawing more than $5,000 in monthly salary at any point in my career. I build a set of Wealth Machine that gives me financial security. In 1.5 years time, I believe I can reach financial independence, where I can afford to take the foot off the pedal and choose how I want to live the second part of my life. Looking back, I realize why I was successful was because I understand this layer of wealth building competency and what made the most impact to my wealth. I called this the Wealthy Formula.

When I talk to the peers who were able to achieve success, they don’t really say their formula out loud, but when I deconstruct their success, it is very much due to this formula. I believe you can do it as well. The Wealthy Formula Explained Building sustainable wealth for the average folk involves doing three things well:. Optimizing your Spending by spending on what you Value and spending less on other things. Earn more.

Build Wealth Wisely Most of the finance advice you read anywhere are likely to distill to this formula. After finishing this article, I am sure most would agree with me. When your wealth is able to reliably distribute an annual cash flow to cover your annual expenses, annual subsistence expenses, you can So how do you spend less, earn more and build wealth wisely? What difference does it make to your wealth by doing these 3 things?

Let’s get to it. Optimizing Your Spending The first part of the equation is that you need to optimize the cash that outflow out from your family or you.

We all started with roughly almost the average amount of privileges. We went through roughly the same education system, and judging by the trend, a large proportion of the people work towards a minimum degree in university. What usually differentiates people are their spending patterns. The wise ones.

Spend within their means. If they earn $2,500, they won’t spend $3,500. What they spend on reflects their values. You will not see them buy the best blenders, television and go for big holidays if their highest value are their kids. You are likely to see them working within what they can spend on and devoting an above average amount compared to other parents on their children. Are conscious about spending and have a systematic spending plan. Some use to be in control where they funnel their income and seldom encounter an emergency spending that catches them off guard.

Sell old stuff before buying new. There is a conscious effort to “liquidate” whatever they can, think thoroughly before buying something and ensuring they get a good value for their purchases (value is not cheap, its quality at an acceptable price).

Will not borrow to pay for things that do not build wealth. Using credit cards or loans to boost spending will mean not knowing what you need to cut in the future to fund purchases that don’t add value How much does your spending affects the wealth you build over time? Lets go through this example. Let’s use Kyith as an example.

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The differences between building wealth at a higher rate is small initially but over time the difference is big. The power of compounding over time makes a big difference.

The interval difference is rather uniform between 0% to 3%, 3% to 6% and 6% to 9%. This may mean that sometimes you don’t have to be pressured to increase your Wealth Growth Rate by taking on more volatility and risk. We will go through this in depth later in what makes the most impact to your wealth building. The counterpoint to #2 is that you are missing out on huge wealth if you do not step up wealth building from 0% to 6%.

Just add up the 2 gap difference and you can see the difference. If we talk about the magnitude of wealth building that makes a difference, 25% difference is big enough, and that usually take place after 20 years. What we can infer is that at certain times, putting more of your disposable income to wealth building have a bigger impact then trying to grow your money through wealth building at greater efforts.

(I written an article on) There are many ways to build wealth, and you require different competencies, different commitment levels, but if you are really good at what you do, and is able to jump from 3% growth rate to 9% growth rate, you realize that you need less money to reach your eventual net worth goal. Lessons Learn: Building wealth by taking different approaches can give you higher growth, but the wealth builder have to take a prudent approach otherwise it will result in more detriment then good result.

What makes the MOST IMPACT to Your Wealth Building? We know that by optimizing your spending and earning more, perhaps taking on some side hustles, we increase our positive cash flow or the wealth gap.

Sars Tax Pocket Guide 2019

We can put this positive cash flow to wisely build our wealth, so that we do not always have to depend on pure savings. You may realize that there are many variables which may determine the size of eventual wealth. Which of these variables matters the most? More importantly, which of these variables are within your control? Some time ago, John Rekenthaler, head of Morningstar research wrote a piece called. It’s a good read. You may need to create an account to login.

John highlights a company that profiles an average aspiring retiree:. 42 years old employee. Makes $40,000 annual. Salary grows 3% annually.

No contribution to company investing account but will contribute 6% of income annually to the company account and the company will match it with 50% of the person’s contribution. The company investment is a passive portfolio with a 0.72% expense and looks to gain 7% per year before this cost. This person looks to retire at age 67 years old (25 years later) What course of action will help this person the most to reach his/her goal?. Start early.

Find a time machine to go back and start earlier. Higher salary. Get a 25% raise to $50,000 a year. Salary growth. Grow his or her salary at 4% instead of 3%. Increase wealth funding rate.

Instead of funding 6% of the annual income, choose to fund 8%. Increase company match. The company willingly increase how much it matches the employee’s contribution rate. Cheaper investment plan. Instead of 0.72% expense, switch to a plan similar but cost 0.22%.

Better return fund. Get a fund that yields 8% instead of 7%. Retire later. Wait 2 more years to retire, instead of 67. Among these actions, which are the actions that he or she have a direct control over?. 1 – Choosing when to start investing.

4 – Increase funding of wealth building. 8 – Retire later. Partially 7 – a Better return fund. A better way to look at it is taking a more active approach They did a study to determine based on this person’s profile, which would help the person more. The result is below: The great thing is that the top three are the things that are within the persons control. The surprising thing is that cost (cheaper plan) matters so little, which they attribute to the original plan is relatively not expensive in the first place.

In the following section, I will expand on the variables that makes the biggest impact to building wealth. Start Funding Your Wealth Building Early in Your Life The amount of money you need to commit to wealth building, and the amount you build up varies by funding it early versus funding it late. Consider the above 3 scenarios, the first one (Early) where the person funds wealth building with $6,000 of his take home income annually for 16 years from age 20 to 35 years old. The second one (Late) funds his wealth building with $9000 (more than mr Early) of his take home income annually from age 36 to 65 years old or 30 years and the last guy (Early and Continue) who did the same as the first guy (Early) only thing he continued to 65 years old or for 46 years.

All of them build wealth at the SAME RATE OF RETURN. The interesting thing is that Early build more wealth than Late but with LESS MONEY COMMITTED. You can liken this scenario to someone who committed to wealth building early for 16 years and then uses that $6000 for other part of his family’s expenses.

Such flexibility! The third guy (Early and Continue) did the best with the same amount of commitment as Late, and gotten at least $400k more wealth. Hi Kyith, Enjoyed the various strategies that you have illustrated. Most people believe that saving 10% is ealready a huge achievement.

However, it’s pretty clear that this is not enough if one wants to accumulate sizable wealth for retirement. There are many factors influencing wealth accumulation and I agree with you that it’s best to focus on factors that we have direct control over. Since I definitely do not want to delay “retirement”, it’s really about starting young and channelling a higher% to savings. Lastly, a Merry X’mas to you and your family!

Perhaps a lot of your readers are grads where the starting pay is in the high S$2k+ bracket and up. I started at the bottom, with S$400 as allowance for management trainee, then S$1200 then $1600, then $2200 and then $3500 and then.

Last drawn pay was an expat package with housing and home visit on SQ. Since my semi retirement this June, I am back to taking MRT & Buses, flying Jetstar & Air Asia – yes, I missed my Gold Status with Qatar Airways, who greeted me at every turn, served me fresh milk & spicy food, celebrated my birthday 30,000 ft in the air last year. A few kind words and smile on SQ flight, ensured that my Singapore sling glass is always filled. Doesn’t matter that I am in Economy class. Made friends with the crews too. The point is over time, I had learned and adapted to spend within my means. The only credit card I had then, was a sub card from my brother, which is carried only when I am traveling.

To fall back to the roots of being humble, is no issue. At least I can proudly say that I don’t have to wait for the next pay cheque. Can the younglings of today, with access to all the experiences and info from the web, learn and adapt accordingly? Perhaps a lot of your readers are grads where the starting pay is in the high S$2k+ bracket and up. I started at the bottom, with S$400 as allowance for management trainee, then S$1200 then $1600, then $2200 and then $3500 and then. Last drawn pay was an expat package with housing and home visit on SQ.

Since my semi retirement this June, I am back to taking MRT & Buses, flying Jetstar & Air Asia – yes, I missed my Gold Status with Qatar Airways, who greeted me at every turn, served me fresh milk & spicy food, celebrated my birthday 30,000 ft in the air last year. A few kind words and smile on SQ flight, ensured that my Singapore sling glass is always filled. Doesn’t matter that I am in Economy class. Made friends with the crews too. The point is over time, I had learned and adapted to spend within my means. The only credit card I had then, was a sub card from my brother, which is carried only when I am traveling. To fall back to the roots of being humble, is no issue.

At least I can proudly say that I don’t have to wait for the next pay cheque. Can the younglings of today, with access to all the experiences and info from the web, learn and adapt accordingly? Bro, i am only 10 years ahead of you only lah. Me not CW or some old ginger. Bottom line is, have many out there managed own bills (& rent/mortgages) without a handout from their parents? My last “pocket $” was during NS days when I was doing night classes, (dad) paid for my school fees & that NS concession pass, about S$200/mth.

All others I pay myself. I see my classmates with ipad-carrying kids & maids in the tow.

Good luck to them lah. When they turn 24-30, HDB 3 room will be about S$1m. Go figure lah.

I should be enjoying my Orh Wa Mee Sau in Southern Taiwan. Hi Kyith I have decided to add my 2 cents. I am in my 50s and happy with my financial planning to date. I would like to share what has worked for me.

(1) I am a non-graduate and have been working happily in the same Singapore company since graduation. My wife was a full time homemaker till my children were old enough to care for themselves.

I was the only incomer earner for almost 20 years. (2) We don’t own a car, live in HDB flat (got our second HDB flat few years ago, fully paid for using CPF) surrounded with amenities. My family lives simply and happily with the basic necessities. (3) I am a saver but not a Shylock. My family goes on a holiday once a year lasting 7-15 days. This is our only major annual expense.

(4) I keep track of my Income / Expense and a chart that goes by year showing major future expenses e.g. My children’s education. For each child, I bought $100k education insurance with maturity date at university-age. When my children got into local university instead (and I paid the fees through my CPF), I ploughed the insurance monies into equity market.

If all my children go into local university, I can enlarge my investment portfolio even further. (5) I am a passive and conservative investor, and started equity investment in my 30s. I am still a novice player and go for dividend yielding shares and have built up a portfolio that gives return in all months except 1 todate. It is as good as having a lifelong job. (6) When we hit our limits in using CPF Ordinary funds for equity, my spouse and I topped up our Special accounts with our Ordinary acct funds. We see our Special accts swell over these years. (7) We do not touch our Medisave accounts and would rather pay medical bills in cash.

(8) As my parents / parents in law are retirees receiving monthly CPF payouts, my wife and I top up their CPF retirement accounts annualy instead of giving them monthly allowance so as to get the tax relief. (9) I also contribute yearly into SRS since inception, again to get the tax relief. With the SRS monies, I invest in equities. The investment has grown more than twice the sum I put in. (10) In summary, we live within our means, never on future money, loan-free, avoid being asset-rich but cash poor. I might have done better by monitoring the market more closely but unfortunately this is not of my interest (:)) ). It has turned out well enough for me and my financial state of Nirvana has enhanced my quality of life.

I hope my sharing will help others in their planning for it is never too late to plan. Low just demonstrated that happy life can be achieved, just watch your impulsive buys and stop comparing with the next door neighbors. Perhaps today’s economics requires better dressing instead of 3 Rifles shirts. Heard that my late-father’s fav, CYC @ Bras Basah Rd, is now an atas custom tailor.

Not forgetting that must have smart phone & tablet (for the kids mostly). Some, like an ex gf, demanded should we settle down – a maid to do the housework is a must.

Not forgetting that status symbol of a car. Have to take that bold step to walk away from the job. While my passive income is nowhere as generous as AK’s, I felt that I should have sufficient to walk away. For a while at least and had been for the past 6 months. I will tell you. I am even more busier than when i has at work. Damm, those la kopi & photo shoots & travels & groupons deals buffets really takes up a good chunk of my time.

Yes, my bucket list is relatively untouched. OoooO, my bad.

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If I hadn’t a gf here, I will be writing this from Southern Taiwan, in the mid of the cold weather and while eating mango ice. Thanks for your article!

It certainly was very illuminating, especially since it was written by a local for locals! Just a question, I just touched 30 (and just freshly emerged from the debt-pit of ROM – in fact, reading your post on marriage costs was how I stumbled on your blog), and all along I have been purchasing endowment plans and etc. After reading your article, I would like to funnel my monies into ETFs. As a beginner, where and how should I begin looking at to buy ETFs? Thanks so much!

🙂 I look forward to your advice! Hi Kyith, thank you for sharing all these information as well as the free xls spreadsheets. I am new to your website and have a few questions ( this aunty is not very tech savvy! 1) how do you i find your earlier posts? Is there a blog archive tucked away somewhere that i can go through your posts month by month? 2) found your website through foreverfinancialfreedom. He made a 10 year plan using an excel spreadsheet from you.

May i know where I can download that spreadsheet? The excel you are sharing on this post is fantastic but i am looking for something simpler. Couldn’t get figured out how your xls calculates the total yearly dividend payment and starting capital from year 2/3 onwards. I would like to share my method to financial freedom. I’ve just recently quit my job at almost 40 years of age. Marry the right partner who shares the same money values as you. Simply frugal is good enough.

Leverage is paramount and the only leverage you should use is with Properties. Be damn cheap, scrutinize everything for a better deal.

Do everything direct. But don’t be stingy while outing with friends or functions. No one likes a miser.

You might lose a financial opportunity. Be cheap for the first 5 years as your goal. Have kids later in life like mid 30s. Marry early assuming the partner is the right choice. You can then enjoy economies of scale.

Buy 4rm HDB with wife while being young. If no govt grant. Then buy a HDB flat that has 4 bed rooms like those in Redhill. Rent out 2 rooms or 3 rooms if you have 4 bed rooms.

One of the rooms rented out should be the master bedroom. Many are willing to pay premium for this. YOu should be sleeping in the smallest room with wife.

After 5 years or earlier, you would realise your cashflow has significan’t increased. Do not pay off your HDB loan no matter what.

Refinance for a better deal with private. Assuming it is a buyers property market, buy another property private. Get the most leverage as possible.

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Rent that property out. Do not include all income from HDB room rental to increase leverage. That is supposed to be your buffer. Some banks may not include that. 4.If it is a sellers property market.

Then your only option is dollar cost avg. ETFs with income focus. Depending on your cashflow. You might not be able to invest in ETFs anyways, as you have to decide when the bottom of the property market will come.

Assuming within 3-5 years which makes the time frame too short for the shares market. But usually half of your savings will be invested in income ETFs. These income will boost your borrowing power. Already your cashflow from room rental would have buffered you along the way by heaps. Hence you can start multiplying your properties again. Repeat across 10 years. That is all you probably need.

Lastly, upon retiring, you might want to sell one of your properties to reduce debt. Excess money are then invested in a mix of growth and income ETFs. Some can become so rich that they can continue multiplying properties as their min expenses are already met. So based on the above strategy, tho I started late, wife and I are able to increase our net assets from 40k to 1.5 million from 2008. Unfortunately I didn’t use much leverage, just a mere 233k from HDB.

Wealth came from a mixture in almost equal proportions of property, shares and forex depending on time of opportunity. But I strongly felt, property investment is probably the easiest and safest to grow wealth.

I could have doubled/tripled my wealth due to leveragebut I was too scared then. But realised too late, that my cashflow was so strong because I’m so cheap, that I should not have been scared. Our salaries are moderate. 2k to a final 4k a monthly salary each. Do not leverage too much if you are at risk of losing your jobs. Probably a 40/60 D/E. Hi Cheap Cheap, Thanks for sharing with me!

Congrats for doing it so fast! I think leverage is a double edge sword. You are lamenting because it turned out well. Had the trajectory be different, your opinion might shift. At the end of the day, you need to remove your debts if you are defined as Financial Independent. If you do have debt, and you still need a way to service it, its difficult to termed that as financial dependent. Assuming you are at this current juncture, would you recommend folks to take the same path to purchase a 1.2-1.5 mil condo since it is a buyers market?