The Millionaire Next Door by Thomas J. Stanley and William D. Danko

The Millionaire Next Door by Thomas J. Stanley and William D. Danko

Do you know what a real millionaire looks like?

Do you think a millionaire stay in a very big mansion, driving the latest sports car, wear the most expensive suits and went on holiday every weekend?

Well, think again. Only a  very small percentage of the real millionaire actually do all the above. But for the majority, they are nothing like that at all.

In fact, most of the real millionaires are just like us. They drive an average car and stay in an average house. They do what most of us are doing on daily basis.

There are some differences though, in term of their practice. For one, these millionaires live below their means. They budget their money accordingly and even if they got a windfall, they would still maintain their lifestyle like nothing changed. 

Even if you don't want to be a millionaire, you can still learn a thing or two just by reading this book.

You can get it here.

Get out of Debt - Debt Snowball Method

Are you owing thousand of ringgits on your multiple credit cards? Do you feel overwhelmed with these debts and you don't know what you can do with it?

No worries. I was in your same situation and I almost reach the end of my little journey to clear all these debts I have on my credit cards.

Yes, it can be done and I am going to show you exactly what I have done and why it is effective.

Overall, I have debts of more than RM 5000 when I decided to do something with it.

I came across a method call the debt-snowball effect and now, I am more than halfway to my goal of no debts on my credit card.

So, how does this debt-snowball method works?

Start by listing down all your credit cards debt. Every month, when you receive your salary, allocate enough money to pay the required minimum payments and all your additional money, use it to pay off the smallest debts (by Ringgit amount). Once you have clear it, move on to clear the second smallest debts and so on.

So, if you have 4 credit cards with the different amount as below:

    Card A - RM 450

    Card B - RM 1100

    Card C - RM 2100

    Card D - RM 300

Your first aim is to clear Card D, followed by Card A, Card B and finally card C.

Do note that you may end up more in interest charges but the instant satisfaction of eliminating one of the debts will help you to continue moving forward.

Needs and Wants

A need is something that a person must have in order to continue to survive. The basic needs of life are food, water, clothing and shelter. We also need rest, health, love, friends, family, security, etc.

A want is a choice. It is a desire which a person may or may not get and life goes on, whatever the outcome may be.

To differentiate a need and a want, let's us look at the following example.

We need to eat in order to continue living. But when we choose what to eat, it becomes more of a want than a need. For health reason, we should be eating fruits and vegetables but in our mind, we would want to eat steaks and other types of meats.

To be able to differentiate both needs and wants would be essential in your journey to financial freedom. To be able to control and not giving into all your wants, you would be able to save a lot of money.

Inflation Rate in Malaysia

Inflation (Consumer Price Index in Malaysia) is the rate at which the general level of prices for goods and services is rising. The higher the inflation rate the lesser the power. As a result of inflation, the purchasing power of a unit of the currency falls.

For example, if the inflation rate is 3%, a haircut that cost RM10 in a given year will cost RM10.30 on the following year. As goods and services require more money to purchase, the implicit value of that money falls.

Below is the inflation rate for Malaysia since 2010. Do note that for 2017 until 2020, the rate is just a forecast.

          Year           Inflation Rate (%)

          2020*           3.00

          2019*           3.00

          2018*           2.88

          2017*           2.70

          2016             2.09

          2015             2.10

          2014             3.14

          2013             2.11

          2012             1.66

          2011             3.17

          2010             1.72

source: Statista Inc.

In order for us not to "lose" any value of our money due to inflation, we need to make sure our money would "increase" in value by making the money to work for us.

If you think by keeping your money in your saving account is okay, think again. I did a check recently and the standard interest rate for a savings account is 0.35%. In another word, keeping your money in a savings account is actually a "losing" account.

If you just want to keep up with the inflation rate, the better choice would be keeping it in an FD (Fixed Deposit). The interest rate for FD is higher at the range of 3.5 - 3.8% but keep in mind about the illiquidity of the money. You can only withdraw it after a certain period of time.

If you are more adventurous, you can look for investment opportunities that would give you more returns for your money.

Some of the investment opportunities that we know are unit trusts, buying shares of blue-chip companies, REITs and P2P lending. We will be exploring these investment opportunities one by one in the coming days.

Do you have other investment opportunities that you would like to share with us?

Financial Freedom

Financial freedom is not a myth. It is something achievable but required a lot of discipline.

Financial freedom means that you get to make life decisions with being stressed up by the financial impact of that decision. 

For example, you can make the following life decisions such as quit your day job today and will still be able to support yourself financially. 

Do you want that? I'm sure you do. 

Remember, I'm not asking you to resign from your job today. I'm just telling you to be prepared for a worst-case scenario. 

Step 1 

Make a commitment to

1. Minimise the 'wants' expenses 

2. ‎Minimise debts 3. ‎Increase income

and stick with this commitment. 

Step 2 

Doa financial check-up. List down all your incomes, debts and your current monthly expenses. Go one step further by categorised your expenses as 'wants' or 'needs'. 

Step 3 

Start making a budget. For me, an app that tracks all my money (incomes, expenses plus budgeting) is totally essential. Remove expenses for 'wants' or keep it to the bare minimum. 

Step 4 

Keep to your budget and save as much as you can. The keyword here is frugal - spend less than what you can earn 

Step 5 

Save a minimum of 20% of your total monthly saving for emergency funds and pump in the balance 80% into your lowest amount of outstanding credit card. Repeat until all credit cards outstanding have been paid off. 

To bring this one step further, try not to use your credit card to pay for anything. If there isn't any choice, make sure to clear it off at the end of the month. 

Step 6 

Set aside an emergency fund of at least a month of your monthly salary. The best would be to have a saving of at least 3-6 months of your salary. 

Step 7 

Start investing your additional saving into low-risk investments, such as ASB, ASM and ASW. 

Investing is better than keeping your money in the bank. The interest that the bank is giving now is usually less than 1% per annum whereas our inflation rate is around 3%. 

Step 8 

Stay frugal. 

If you are interested in higher-risk investment, you can check out P2P lending. I am making a roll now with Fundaztic (ROI of 57% now). Read about it here.

8 methods to save money on daily basis

There are a lot of ways to save your money. Some are more efficient than the others.

Below are the 10 methods that help me save a lot of money.

1. Clear all credit cards' outstanding asap.

Do you know that you would be charge a certain amount of interest for all your outstanding payment in your credit cards? Yes, the interest is range between 15 to 18% per annum. And that is really a lot. For people like me who don't receive the monthly statement by post, it is hard to keep track of these interests. It may looks like a small amount but when add up, it is actually a lot in the long run.

The best thing to do is to clean whatever outstanding you have in all your credit cards, you would save up to hundred of Ringgit by doing this.

2. Read news online

There is no doubt that we need to know what is happening all around us but to buy newspaper on daily basis nowadays is a waste of money when you can read the same news online. Furthermore, it is up-to-date. Do you know that a newspaper will cost you around RM1 to RM2 and if you are buying everyday, it would cost you around RM60 per month (RM720 per year).

3. Stop buying lottery

The probability of winning a lottery is extremely low and not worth the money you spend on it. Let us do a simple calculation. If you buy RM10 for every drawing, it would cost you:

Every Drawing - RM30 (There are 3 operators in Malaysia)

Every Week - RM90 (There are 3 drawings every week)

Every Month - RM360 (4 weeks per month)

Every Year - RM4680 (52 weeks per year)

And this does not include the special drawings for special occasion.

You can do a lot of things with RM4680.

4. Quit smoking

This is also another no brainer. How much is a pack of ciggarates? RM20 per pack on my last check.

So, if you take one pack per day, that will be RM7300 per year. 

Or, if you take one pack per week, that will still be RM1040 per year.

And that is a lot of money. Period.

5. Cancel your gym membership

Frankly speaking, unless you are living and breath gym life, how many of you would go to your gym on daily basis? Won't it be better for you to go to a stadium or park to get your daily workout? You will get fresh air to breath in as a bonus. Plus, gym membership cost around RM150 per month or more. If you average it out, it is about RM5 per day. But as mentioned, you don't go to the gym everyday. If you go to gym three times a day, you would be going to the gym around 12 days a month. That means you are paying RM12.50 per day. Won't it be better for you to go for those gym with RM 5 per entry? You will definitely be saving a lot here.

6. Travel locally.

Malaysia is a very beautiful country and ask yourself if you have travel to every corner of the Malaysia. So, why go to overseas when you can travel locally? It is cheaper as you won't need to change your money to foreign currencies and loose on exchange rate.

7. Keep track on your monthly expenses

We always thought that a little bit won't hurt but when we really look into those little purchases that we made, we would see that they are actually really a big deal. So, to minimise it, we need to keep track on how much we paid on daily basis. With the advancement of technology, it is really easy for us to do this. An app on our phone can really do it.

8. Pay cash

We won't feel the pinch if we don't really see how much money we spent. So, instead of using credit cards, we should pay things with cash. That way, it would really registered in our mind how much we are paying. And we would be more mindful the next time.

Do you have any other ideas on how to save money? Share with us.

So, you want to be a millionaire?

So, you want to be a millionaire?

Yes, you can.

The correct question should be, do you have the determination to become one? 

Let me explain. 

The surprisingly easy way to become a millionaire is just living below your means and invest your money in low-risk investment options, such as good performing unit trusts or FD. 

The problem with this is that many people don't have the patience to live below means. Everyone wants to enjoy life one way or another and to enjoy life, you need to spend some money. So, when the money that supposes to make you a millionaire is being spent, you would be further away from your goal of becoming one. 

So, if you really want to be a millionaire, you have to really discipline yourself to leave below your means. 

Noted: I will be exploring more on the topic of living below your means in the coming weeks. Do sign up for updates. And have you follow me on Twitter?