I have a philosophy about working and getting paid, which I mentioned in an earlier post about effort and rewards. I believe that all the work that we do will eventually get paid for, but it may not be in a time or manner that you expect. Similarly, all payment you receive was based on work done in the past (and not the recent past).
Most of us go through school for about 2 decades. We did not get paid during all those 2 decades, but we were definitely working. Working to learn our chosen trade, working to get better results than our peers, working to get accolades to boost our overall credentials alongside the academic ones via internships, special projects etc. In fact, our parents paid quite a bit of money, so that we could concentrate on our task, which was to learn. The first time we do get paid is when we land our first job. This pay is usually minuscule because the only field we have proven ourselves in thus far is in academics and that may or may not translate into practical application. The companies decided the amount to pay us based on what we have done up to that point, not based on what we will do, because they can only guess at how well we will do the jobs given to us.
The work you do on your first job does not determine your pay. Your pay has already been decided when they first hired you, based on the work you did up to that point. So for about the first year, you go to work and contribute to the company and some of you deliver more value than you are paid while others deliver less value. Those that the company recognizes to deliver more value will more likely get a pay raise, while those that deliver less value may have their pay stay stagnant or be reduced. Again, your pay for the next year is determined by what you did in the past year. You are paid for work you have already done.
This applies to all work you do in your life, not just for your salary. Because when you work, you are gaining practical experience, practice, knowledge, insight....basically, you are growing yourself. And that is ultimately what you get paid for, the skills that you have developed over time that you can apply to justify a reward.
When I had a job, I almost never turned down additional work. I understood why people would say "this is not what I am being paid for", but I also understood that I was not being paid for anything I was doing at that time, I was being paid for work I had already done. In that vein, whatever I do now will justify my pay in the future. So I happily did whatever task was necessary, not because I am naturally helpful, but because I knew the ultimate person to benefit from that extra work was me.
The best type of work to take on is work that you find difficult and challenging. Because that is the work that will allow you to grow your skill set by leaps and bounds. Sure you might fail, but with each failure comes lessons paid for by the pain of that failure. And if you are in a job, it is only emotional pain that you feel, because you are failing on someone else's dime. Once you start out on your own, either via entrepreneurship or investing, failure gets even more painful because you will be paying for it yourself. So fail while you have someone else to pay for you and grow from that failure.
This is also one of the reasons I spend time writing this blog. If I don't do this, I would spend the time paying computer games and watching Netflix, neither of which will help me grow as a person. While doing this, I have learnt how to create a website, how to organize my thoughts into (hopefully) coherent, bite sized chunks, how to market a website and much more. Even though I do not get a financial reward currently for this work that I am doing, I am confident I will be rewarded for this in the future based on the skill sets that I am developing.
This concept is especially important when it comes to investing. I put in over a decade of work outside my regular office hours to learn the concepts and practice various techniques and for many years I was not paid for my work. In fact, I was paying a lot to others via courses and bad investments. But slowly and surely, I honed my craft and now I am now reaping the rewards of all that work. I find that most people that want to start investing for themselves do not want to put in the work, because they want to be rewarded immediately. They have been conditioned by the structure of salaries to think that labor and effort is rewarded immediately. Life simply does not work that way.
Another more direct impact of this need to be rewarded immediately comes in the form of scams. Being impatient to make money via investing opens you up to many charlatans who understand this impatience and lack of willingness to put in the work. It allows them to easily use confidence techniques to lead you to believe in their scheme via promises of fast, high returns with no work involved. Even if you want to invest in what someone else is doing, you need to put in the work to understand how they generate that money, whether the returns projected/promised are realistic based on what they are doing, what safeguards are in place to protect your money, etc.
Hopefully if you internalize this concept as I have, it will help you to change your mindset and be more willing to work and hone your skills, whatever those skills may be. This will most assuredly lead to financial rewards in the future. Also it will help you become more patient in requiring a reward for the work that you do and prevent others from taking advantage of that impatience to deprive you of your hard earned money.
One of the key problems with investments is often touted as one of it's key advantages, the simplicity of the action. For those of you that trade stocks, you will know how easy it is to execute a buy order, pick a stock, select the quantity and click "buy". Boom, you are the proud owner of a small portion of that company. Even in other investments, like buying a property, agents typically go out of their way to make the process as easy as it is for you to invest. Agents will spend the time to slowly explain the option-to-purchase, lawyers will handle all the other nitty gritty. I believe this is one of the key reasons why most investors do not do well, let me explain...
Imagine for a moment, you are due to make a key presentation to the rest of your company including your bosses. You know your career will definitely be affected by this presentation and so you take many days/weeks to prepare, drawing from all your lessons learnt in school and your entire career's experience to try your best to make the best presentation possible. Our minds correlate difficulty of execution and expected impact with the required amount of preparation. Unfortunately, our minds do not correlate expected reward with the required amount of preparation.
Now, compare that with how we approach investments. Each trade is like one of those presentations, it will affect how much money you are going to make in the future. But because of the ease of executing investments, many of us are not prepared to put in the preparation effort. Instead of having 4 years of formal schooling in a subject, and multiple years of experience executing trades, many people bet their hard earned money on investments they do not understand.
Investing, as with any skill in life, will improve with education, practice and experience. Make no mistake, even though investing is easy, investing successfully is one of the most difficult things to do. The proof is in the pudding, most investors lose money over time. So if you want to succeed in investing and building an alternative income to retire on, you need to put in the effort to learn and gain experience, arguably more effort then you put into learning what you do for your current job. Even then, you are not guaranteed to succeed, but you will have a much better chance then the unprepared.
A different perspective
Another way to look at this is my philosophy that you get paid for what you have already done. Remember your first job? Why did the firm hire you? Because of all the work you have done and the results you have shown since you started school until you graduated. And your pay was likely based on what type of degree you have. The raise you receive for the following year is based on what you did in the year before. If you performed poorly, you will get a small raise or no raise, even though you might go on to do spectacularly the next year. You would only be rewarded for that work the year after that.
Investing is the same thing, the work you put in today to learn and practice investing will only be rewarded much later. Worse still, the feedback loop on investments is much longer and can be confusing. Many investments take years to mature and you will only learn the lessons from any failures many years later. For some investments, even if you do everything wrongly, you will still make money and even if you do everything right, you will still lose money. So at times, it is very difficult for individual investors to hone their craft, because the feedback mechanism is so convoluted. In summary, don't expect an easy learning journey. Be prepared for a long drawn out learning curve. I personally took almost 10 years of practice and part time learning before I was consistently profitable.
I have opined on a whole bunch of problems, what do I think is the best way forward? I still think learning investing for yourself is the best solution. It is the most rewarding option and keeps you in full control, albeit requiring the most effort on your part. Your results will only improve with time as you put more effort and gain more experience. However, I also understand that approach is not for everyone, as some may not have the time or motivation to learn. That does not mean you should miss out on the rewards of investing successfully, but you might have to take a different approach.
So, in order of preference:
I was attending a paid seminar this weekend and was seated among a crowd of around 200. During the seminar, the organizer started up-selling us a new program that included a trip overseas at a price tag of $5,000. The lady to my right struck up a conversation and after some niceties, started pondering out loud whether the new program was worth the price.
Lady: Not sure if the program is going to be worth it. Are they going to provide more one-on-one service? Cause right now the seminar is so full of people, I can't really even ask questions.
Me: They said they were going to limit the number of people to 15, plus they have a team of 6 going, so it sounds like it will be a lot more focused.
Lady: hmm...yeah... still not sure if the places they are going to bring us is worth it. Maybe my friend wants to go too.
Me: Oh, you are attending this with your friend?
Lady: Yeah, the lady that was sitting beside me was my friend.
Me: Oh, then why not pool your resources, just one of you go, then come back and teach the other one what you learnt on the trip?
Lady: *Looking taken aback* Huh! I can afford to pay the full fees, don't need her to sponsor me. *Turns away*
I was pondering about the lady's reaction, so related the story to my wife. She said that the lady had taken the comment personally and taken offence, which makes perfect sense. It seems the lady was sensitive about being perceived as being unable to afford the trip, so much so that a suggestion to save money was construed as an insult.
The thing is, people are only sensitive about things that bother them. A thin person would never be insulted if someone shared a way to lose weight with him. A person that is happy in his marriage would never feel slighted if someone shared a way to make his marriage happier. Those people are confident about that particular aspect of their lives. Similarly, a wealthy person would never feel insulted if someone shared a money saving tip. So counter-intuitively, this lady's negative reaction to my comment makes me think that she might actually struggle to afford the trip.
I remember a few years ago, I was going to attend another paid seminar for SG$5,000. However, I understood that the organizer also held similar seminars in Malaysia. So I went to the organizer and presented my name card, which had a Malaysian office address on it, and asked if I could attend the same course in Kuala Lumpur instead. He allowed me to and instead of paying SG$5,000, i paid MYR5,000 instead. Including air fare and hotel fees, I ended up saving about 50% off the Singapore price. If I was less confident about my financial status, I might be worried that others might think that I was being cheap. "What if others find out, so sia suay (embarrassing)". Luckily I was stable financially by then and did not care what others might think.
The sad thing is, she might go on to pay for the full trip herself just to prove to herself and anyone she thinks is watching that she is "ok". So her pride in the matter would actually make her poorer, further delaying the point where her last statement would become true.
If you want to be rich, you have to start thinking like one. A rich person understands the value of wealth and would welcome any method to save/earn money. A rich person doesn't care about the opinions of others, especially if those opinions leads him/her to some frivolous expenditure or poor investment. A rich person is proud as well, but about the right things. In this way, a person who thinks like a rich person stays/gets rich and person who thinks like a poor person stays/becomes poor.
Another trick about the human mind is that it takes about 3 months before the current reality of a person becomes his "normal" reality. Say a person wins the lottery, he will initially be ecstatic and continue to be less and less happy over 3 months until this new reality of "having a million dollars" becomes his "normal" reality and it doesn't make him happy anymore. In fact, after this, if he losses the million dollars, he becomes much less happy then he was before, because he has come to expect to have the million dollars.
So when you are about to make a large purchase that will significantly improve your lifestyle, think about whether you can continue to afford this step up in standard of living, especially if it comes with a corresponding increase in cost of living. Some examples are getting a car when you never had one, getting a maid, moving to live in a condominium from a HDB etc. The happiness you will experience will at most last 3 months, but if in the future you have to give up this luxury and go back to how your life was before, the disappointment might not be worth the original upgrade in the first place.
One way to apply this practically is when you receive a raise in your income or have a new income source. Understand that spending that new money might only lead to temporary happiness, while not spending it will lead to long term financial stability and freedom. More details on this savings tip here.
Many confuse the journey to financial freedom as the journey to happiness. I would argue that it is very difficult to become financially free without first being happy, because unhappiness causes people to spend more money and going for quick emotional wins when it comes to investing. In both instances, the person is made temporarily happier, but hurts him/herself in the long run on the 2 key things that we need to be financially free, wealth and growth on that wealth.
Expectations are the root of all happiness. If your expectations are met, you are content. If your expectations are exceeded, you are ecstatic, at least for a while until your expectations increase. If your expectations are not met, you are unhappy. The key to happiness is via managing your expectations. The most common mistake is having expectations on the actions of others without first explicitly setting and agreeing on those expectations. Nobody can control the actions of others and different people's expectations of what is reasonable in any given context involving more than 1 person is usually different. You are setting yourself up to be disappointed and unhappy, and the only person that suffers is you, not the person whom you perceived to have done you wrong. Letting go of these expectations will go a long way towards making you a happier person.
Leaving others aside for now, let's look at what you can control, your own actions in the context of financial freedom. If your current financial situation does not match your expectations and you are unhappy, take a step back and ask yourself, what have you done or did not do that got you to this point. Your current financial situation is a result of all the decisions you made in your life so far, so it is unreasonable to expect that you are better off. Forgive yourself for whatever you have done, you cannot change the past. Look towards the future and create expectations for how your financial situation will be, along with concrete steps on how to achieve that financial wealth. Hopefully you can get some tips on what those steps might be from this blog.
One of the key expectations that we all have is growth. Everyone expects to improve his life in some way, be it in social, financial, physical etc. ways. Staying stagnant is a surefire way of becoming unhappy. For me, financial growth was one of the key aspects that I realised made me happy. Once I identified this, I found that saving money, instead of spending money, actually made me happier. Whenever I got a raise during my career, I would still live the same lifestyle and simply saved up the extra. Learning about investing made me happier. I turned my expectation into a strength, something that helped me achieve what I expected. It became a virtuous cycle, the more I found growth in my finances, the happier I got. The happier I got, the easier it became to grow my finances. Once you are content with how your current life is, it becomes really easy to save. It becomes easy to take emotions out of your investing decisions. It becomes easy to plan and take concrete steps to ensure your future life meets your future expectations.
To reach financial freedom, we must first understand what financial freedom is. The first thing that comes to mind is that the person needs to be rich, but I beg to differ.
During my career, I have worked with individuals that were undoubtedly rich, having multiple millions. However, due to how they achieved their financial wealth, it did not grant them freedom. Those that were due to inherit millions were at the mercy of the expectations of their families. Those that were successful business owners were married to their businesses and cant get away. Those that were in very high paying jobs had to keep working.
I don't consider myself rich, but I consider myself financially free. That is because I use what wealth I have to passively earn an income that lets me reach the goals I have and to sustain my current lifestyle. So the point you reach financial freedom greatly depends on what goals those are. Just to share, mine are:
1) Guide my sons as they grow up
2) Enjoy time with my wife
3) Play computer games for as much as I want
4) Travel to different countries multiple times a year
5) Eventually buy a large landed property
Most focus too much on the financial part and forget what that financial wealth is supposed to get them. So to reach financial freedom, you must first understand what that means for you. What are your goals and dreams?
Have a think about that. In the next post, ill share how to calculate how much wealth you need to be financially free based on what you want in life.
I left my last job as a consultant at the end of 2017. At that point, I had been consistently earning more from options trading than my salary. I figured, if I stayed on in the job, I might be able to grow my income stream at most 5% a year, whereas if I went full time into options trading, I could look for an income growth that was multiples of that.
The bad news is, the US market in 2018 performed far worse than either of the previous 2 years and my returns have been lower than the last 2 years (though thankfully still positive). However, even with the benefit of hindsight, I would have made the leap again, as I have learnt and improved my trading in the past year at a pace that was not possible before.
I have managed to automate most of the analytics and stream-lined my trading into 1 day a month. For a couple of months now, I have spent the remaining 29 days on daily marathon sessions of computer gaming + netflix + youtube.
That ends today. I have decided to give back to society by sharing my journey from salaried worker to financially free investor. Hopefully my experience, thoughts and analysis can inspire others to walk a different path but arrive at the same destination.
If you are aspiring to reach the same destination as I have, I welcome you to walk this journey with me!