The biggest lesson I have learned about money

I would like to share this real personal experience of mine to serve as a lesson for all. I’ve learned a hard lesson about money management and I sincerely hope that others will not need to learn things the hard way, like I did:

My past mistake

During my initial working years, I was quite good at conserving money because I’ve had a very good banking trainer who taught us how to put our money to earn the best interests in fixed deposits and to take advantage of certain benefits offered by the company (unit trusts were not popular yet).  I became good at putting aside money into fixed deposits. As the result of that, I was also good at advising customers on how to manage theirs.

Then as the years went by, my workload and responsibilities increased. Slowly, I started to lose the focus and slowly slacked in my own personal finance matters. No doubt, I could interest my new trainees on how to manage their pay and salaries but I was losing track of my own financial management. The salary from my company was credited to my banking account.

Month after month, the money sort of accumulate in my bank account. When the bank balance got too high, I felt inclined to withdraw and spend it. You know how’s it’s like- when you see there is a lot of money, you will feel you are well off and so will not think twice about spending.

I worked very hard and put on long hours in my job- but I flushed most it by going to restaurants, indulging in lattes, buying clothes and books, impulse shopping. A lot of reckless spending had originated from work stress- ok, I know it’s an excuse but stress can sometimes do strange things to your head.  Let that not be you.

Back to the story, I quit my job after 9 years, thinking to take a break for about 2 months to work on some personal internet and health projects. But the 2 months turned out to be a year as I ended up travelling and staying in Thailand.

I could say that the past year spending there is probably some of the happiest time in my life- so again no regrets. That goes to say that you can plan the future but things may not turn out the way you plan. So you need to be prepared always- yes, you guessed it…. but having enough money. Living on my savings and without a steady paycheck taught me a very important lesson:

It is not how much you earn, but how much you save/invest

Someone I knew only earned less than half of my pay despite holding 2 jobs. And yet, he had 3 times more money in fixed deposits than I did. You may be surprised to know that people who earn a little end up saving more than those who earn a lot.

Think of it this way, whatever money you spend on food or drinks will end up in the toilet bowl anyway. In other words, if you habitually spend your money in fancy restaurants or buying expensive lattes or other gourmet coffee, you are literally flushing your hard earned money down the toilet. And why would you want to throw it all away just like that on some fancy whim and acquired bad habits?

I thought lattes and food will make me happy and take away the tension at work. On average, I spent about RM11 on a cup of latte 3 times a week. That’s about RM132 per month. Aside from that, I also spend the following on every working day:

• RM5 on breakfast- either a tuna bun or turkey ham with cheese, AND a drink
• RM5 on lunch- I always ordered my favourite food (on certain days, it is more but let’s keep to RM5 to keep it simple)

So on breakfast and lunch alone, I spend about RM200. With the latte, that adds up to about RM332. That’s RM3964 a year! Close to RM4000. And this is only the tip of the iceberg- there are lots of other tid bits/fruits/cute things I saw at stalls that I usually buy.

Did I derive any benefit from that spending? Not only those are obvious extravagent choices, but in order to counter the expanding waistline- I had to work out 5 days a week at the gym. Ok, to be fair, I do enjoy exercising so it’s not really that bad.

Now, here’s the typical spending of two of my ex-colleague who came from outstation and had parents to support:

• Breakfast- sometimes skip or else, eat cream crackers. A packet of cream crackers cost about RM3.50 and is enough to last 2 weeks.
• Lunch- they go to a reasonable vegetarian restaurant that charge a standard RM2.20 for a small plate of rice with 3 dishes. For 20 working days, it costs RM44.
• Fruits- they usually don’t buy the RM1 per packet. They buy oranges or green apples in bulk- probably about 30 sen each. One of them cook dinner at home- only eat simple dishes in order to save money.

I do not derive any sweet memories from eating those food. Yes, a once in a lifetime trip to Sri Lanka way back in 2006 by myself, even though expensive, still bring a smile to my heart each time I think about it. No regrets bout that. But the lattes and food indulgences brought no meaning months or years down the line. Or even after they have been ‘disposed’ off at the loo.

Instead, I could knock myself now on the head because I was too ignorant or lacked the discipline to even consider investing the ‘toilet’ money- even RM100 or RM200 per month in some unit trust or mutual funds? At least, I could have more savings or have the chance to see my money multiply into something (some of my friends who started putting aside their money into investments have seen their money multiplying). Or, arrange for a fixed amount to be transferred to fixed deposits.

You may think that you are living well within your means- that your monthly pay is high, etc, etc. But you can never really tell the future. One day, your priorities may change, or you may decide to go for better life quality by settling into a less demanding job. Or unexpected expenses like medical bills may crop up.  It’s better to start putting aside some money now.

Sit down and carefully examine your expenses. Think of how much you can put aside a month- money that otherwise you will waste on shopping, you will do better to invest/save it. If you do not have the discipline to save, sign up a standing instruction with your bank- perhaps to put aside a fixed amount in fixed deposit or some mutual funds/bond.