My ABCs to Accumulate Wealth and Savings

Starting from my 20s, we have tried different ways to accumulate wealth and grow our savings. We tried buying unit trusts, fixed deposits, buying stocks directly, using robo-advisors, insurance endowment and annuity plans. It had been quite a roller-coaster journey, starting with being emotional as markets move up-down-sideways over the last 20 years. We had to pay some ‘school fees’ along the way, but also picked up very valuable lessons that guide our savings and investment choices today.

What I call my ABC principles might sound very much like common sense, but there is much truth in some timeless ideals. The difficulty is acting on it and sticking to it!

Principle 1: Ability to Save

There are many out there who will say you need to first increase your income to reach your desired financial goal. There is some truth in that, but the critical first step to accumulate wealth is without a doubt our commitment to save.

Its common behaviour to spend more as you earn more, whether its buying a more expensive watch/phone/car/house or eating out (or more often) at more expensive restaurants. Or indulging more often in your daily ‘need’, e.g. bubble teas, coffee/tea at your favourite barista’s.

Of course, what joys might there be in life if we cannot even indulge in our favourite purchases to take us away (even if its momentarily) from the stressors of everyday life and work? The key question to ask yourself is: will reducing the frequency or changing to a relative more affordable option make a large difference to your happiness? How will this change (if you stick to it) save you monthly or yearly? Write it down, add it up. 🙂

Principle 2: Better Safe than Sorry

Our every dollar is hard-earned, and for some of us it might mean between I can pay for my child education, or retire in peace at some point, or pay for medical bills as we grow older. Hence it is better to be safe than sorry, when it comes to growing your savings and wealth for your financial goal.

Humans are easily tempted. We are bombarded every day with temptations – all the “Learn how to get rich in X steps with (insert your favourite investment poison)”. We are easily hyped and get carried away at times by things that seem so simple and easy. Nothing is easy, and every investment has risk. This is made worse by the fact that markets are irrational and largely driven by sentiment.

First, do not let others do all the calculations and you will happy follow along because the calculations look ‘right’. Learn to calculate on your own, and look out for things that you should include in your calculations that might not have been shared – building your knowledge is hence important! Find out online and grow your knowledge is an important complement.

Second, there are many investment options, ranging from low-risk (relatively safe) to high-risk (relatively un-safe) options. However, even within each type of risk option, there are also good choices which may meet your need. Look out for whether 1) your principal (initial investment amount) is protected, 2) there is a minimal acceptable guaranteed return on investment, or 3) regular periodic return on investment. At least you know your hard-earned money will be relatively safe and will grow over time.

Its easy to get carried away from big dreams and ‘promises’, so stay clear headed and have some healthy skepticism when reviewing each potential investment! Doing your own math and looking through the fine prints might save you from a undesired situation!

Principle 3: Cashflow is King

I mentioned earlier that markets are irrational and largely driven by sentiment. On good days/years, your favourite investment poison might accrue you a lot of paper gains, but these gains can disappear overnight when the markets turn the other way. We see this happen often in the past 50 years, be it stock markets, property markets or crypto-currencies.

There is a reason why people say ‘cash is king’, and for growing savings and wealth, it is now a major principle for us in identifying where to put our precious savings in. Seeing predictable periodic returns from investments grow in our bank or investment accounts, even if the gain/yield is not high (<4%), gives you the choice of where you want to put your money into next depending on how the markets are at the point. This freedom of choice is especially precious when you might have investments locked-in due to paper losses.

Ignorance is not Bliss

They say “knowledge is power” and that is true – you are less likely to be led astray by those whom are looking to gain from your ignorance. There are many resources in books, online articles, and Singapore government websites from which we can learn more about saving prudently and investing appropriately. Keep a lookout for future articles on books and resources I found most useful in shaping my principles!

MrAmass