Last week, i took some chillis from my matured plant and extracted the seeds to be planted into another new pot. Interestingly, today which happens to be National Day here in Singapore, the seeds budded ad grow out of the soil. I am sure these seeds will continue to grow and i am looking forward to a bumper harvest in the future!
After seeing the seeds budding and growing out of the soil, it comes across my mind that in fact, investing is very similar to gardening. I could have consumed the chillis after harvesting them but i chose to plant them instead. What i am actually doing is termed “delayed gratification”. I resisted the impulse to take an immediately available reward in the hope of obtaining a more-valued reward in the future. The ability to delay gratification is essential to self-regulation, or self-control.
In the real world, people will usually think about how they can spend their income (salary, dividends, stock gains) rather than how they can grow them. A lot of times, they will end up spending all of their income before they even realise it. People end up working really hard for money instead of money working harder for them.
Many have given advice saying that we should let our money work harder for us by investing or saving, using a number of different instruments available in the market.
But today, I shall not talk about them but instead focus on another aspect, which is lifestyle expectations, or we can also call it lifestyle trap. It’s easier emotionally to upgrade than to downgrade. Imagine you are buying a new car. It will be easier to buy a BMW if you are driving a Toyota now, than to buy a Toyota when your current make is a BMW. You will be worried about whether your peers and relatives will be questioning your financial situation or will it affect your “face” value. Thus, we can see that as we continue to upgrade our lifestyle, we are unconsciously creating a lifestyle trap for ourselves. We can got so use to a particular lifestyle that we find ourselves unable to live anything below it.
In a prosperous society like Singapore, many have relate “success” to one’s position in a company, material possessions and lifestyle. But in the pursuit of all these things, we may have missed out on “planting seeds” and continue to run our own rat race; trying to escape from the vicious cycle. But we have no plans on how we can do that.
Many things in life are purely wants and not needs, fueled by the unrelentless bombardment of advertising across our faces in our daily life. These companies aim to position their products as “trophies of success” and entice consumers to buy them. And many have swallow them wholesale, without putting much thoughts to it.
Peer pressure is another contributing factor to this consumption evil, working hard for money and then spending their hard-earned money buying things that they believe, will make them look successful in front of their peers.
We have to ask ourselves are they necessary; or are there better alternatives than trying to impress the people around us.
Firstly, i will address the emotional part. A lot of times, those who believe that they need to impress others have a sense of insecurity within them. To this group of people, i would like to encourage you. In 2019, the world has a population of around 7.6 billion and this number is increasing. Though the number is huge, you can never find another “you” in this world. You are special and unique in your own way, a result of circumstances and past experiences. And if you living living with more than US$10 a day, you belong to the top 29% of the world population. I would like to think that most Singaporeans belong to this top 29%.
By living a life trying to impress others with material items, one are simply putting oneself in a disadvantageous position. The money that they have earned have been used to purchase these items, which are usually depreciating assets. These do not accumulate value over time. One example here is motor vehicles. The price difference between a Toyota and a BMW can be huge. But both cars serve the same basic purpose of transporting one from location A to location B. Do we really need to pay a premium for that? “Hey, the rich are driving big cars as well you know?” Of course i know that. But the price of the car is proportionately much lower as compared to their wealth.
Jeff Bezos is worth 193.3 billion dollars and his car collection, which reportedly consisted of a $3 million Ferrari Pininfarina Sergio, a $3.4 million Bugatti Veyron Mansory, a $4 million W Motors Lykan Hypersport, a $4.8 million Koenigsegg CCXR Trevita, and $5 million Lamborghini Veneno — in addition to his $41 million Dassault Falcon 900 EX private jet. His collections, which i would include his private jet, is around 61.2 million dollars. Let us give him some buffer and bump up that value to 100 million dollars. That will put his collection to be around 0.05% of his total net-worth. For the record, he was driving a Nissan before he became filthy rich.
So if we are going to put things in perspective, comparing ourselves to one of the richest man on earth, assuming we have a networth of a million dollars, the cost of our car should be $500? (0.05% X $1,000,000).
Properties is another point to take note. Some Singaporeans do stretch their loan repayment budget in order to purchase a bigger house. “Hey wait, properties are assets and their value increase over time.” This is only applicable to second, third, and so on properties that one buy for investment. For our own residential properties, even though the prices keep increasing, we are not able to enjoy the capital gain unless we sell it. And if we sell it to realise the gain, where are we going to stay and if we are going to buy another residential property, we would be paying about the same market price for the new one compared to the one that we have just sold. So it is better to buy a more affordable house, in which we are comfortable with the loan repayment. With the additional money that we saved as a result of servicing a lower housing loan instalment, we can then invest these additional savings into financial instruments. Ultimately, no one is going to pay for our loan, not our friends and neither our relatives. It will be disastrous if we run into any financial hardship in the future because we were trying to impress others with our big cars and big houses. For the record, another one of the richest man, Warren Buffett is still staying in the same house since he bought it in 1958 for US$31,500.
If we are able to manage our desires for these things, maybe the stress of our life will be greatly reduced as well. It is torturous to live our life to the expectations and opinions of others. Interestingly, we are trying to impress those people who don’t really matter or care about our life. If they are genuinely our friends or good relatives, they will be caring and spending time with us, regardless whether we have that BMW or staying in a upscale condominium or not.
There are of course exceptions. The above is not applicable to investment properties. I do own some luxury watches as well and they are investment instruments to me. Some of these watches have returned many folds just like stocks. I would usually leave the house wearing my iWatch which i find it very useful as it is linked to my phone.
Back to our gardening. A lot of times, we are pressured to consume and adopt a “consume-it-now” attitude. We do not put much thoughts into buying ourselves a “better” car or a “bigger”house (a house is empty and useless without a loving family living in it!) or a beautiful bag (for the ladies:)). But we always delay our decisions when it comes to investing (planting the seeds in our hands). I choose to plant my chilli seeds and expect bumper crop in the future. (investing today and “harvesting” them in future). Meantime, i can do without the chillis:)
Have a great National Day celebration Singaporeans. We have come a long way, from a little kampong to what we see around us today. We have the best airport and the best seaports in the world. Our GDP is one of the highest and we have many things to be thankful of and contented with.
I pray that the pandemic will be over soon and all of us can return back to normal life again, meeting people and learning from one another. Meantime, do stay safe and we are only safe if all are safe.