PARKINSON'S LAW OF FINANCE

Have u ever heard of Parkinson's Law of Finance? It states that expenses rise as to fill the available budget. In other word, it means that the amount you spent monthly rises according to your salary raise. The more you earn, the more you spend!

Story time again~~~~
Someone with RM5k salary monthly may want to take a loan to buy a RM80k Honda City, buying an IPhone4, brand new laptop, buying Padini clothes.

That someone may get a salary raise to RM10k monthly. Then he/she may want to take a loan to buy a RM160k Honda Accord, getting another IPhone, OSIM massage chair or weekly visit to masseur, frequent travelling, buying Miu Miu's or Prada's and taking a house loan for RM1million house in Mount Kiara.

So is that someone 'richer' when he/she is earning RM10k monthly? If 'rich' is defined as someone's net personal worth, I doubt that someone is better off when he/she is earning RM10k.

Does this someone sounds familiar to you? I think they are everywhere, including yourself!!

How to break from Parkinson's Law of Finance?

1. Be aware of . Next time you get your first pay or pay raise, be mindful of your temptation to spend more.

2. Be committed to save a portion of your salary. Lets say you wanna save 40% of your salary, when u earn RM5000, u save RM2000 monthly. If u earn RM10000, u save RM4000.

3. Pay yourself first. The next time u get your salary, the first thing you do is to put aside a portion of money for saving/investing. The remaining can be used for other expenses.

As for my own personal experience, my friend told me last year that once I started working as a doctor, my expense will increase dramatically. He said doctor is a professional job, therefore I must appear 'professional' in every aspects of my life. Or else my peers and the society will look down on me.

TOTALLY DISAGREE!!! Now, I have worked for almost half a year. I drove a 11-year old Proton Wira (bought with cash), using a brand new RM80 Samsung E1080, using a 2 year old Laptop and wearing clothes bought in pasar malam. Even most of my working shirts I got them second hand from my relatives. I have no plan to 'upgrade' any of those things. I don't feel degraded in anyway in front of my surgeons, friends or relatives. Haha maybe I don't have 'kiasu' gene in me, which I think is a good thing. I still can be a simple Ipoh boy. What's the big f***ing deal of being a doctor???

For those who looks down someone based on one's appearances, I have a picture for you:

RULE OF 72

Story telling time~~~~~~~~~~~~

Ah Lan save RM100k in an investment yielding 10% annually. All the annual interest will be reinvested. How long does it take to double his money to RM200k?

Using the rule of 72:
72 divide by 10 (the interest rate)= 7.2 years for the money to double to RM200k.

How about 2% annually like bank account interest yield. Lets do the math:
72 divide by 2= 36 years!!! Bloody hell!!!

Now u understand why financially smart people don't tuck most of their money in bank accounts... Losers!

Investing- Why start young?

Hmm, my very first post in my very first personal blog....

I'm 25, started working for about six months, have received 5 monthly paychecks (about RM4k+ monthly).

I'm into share market, I'd described myself sorta mix value/growth investor, also leaning towards dividend play. I'm not into short term or day trading, will hold stocks for long term. Still a newbie, continuously learning along the way.

When I asked my friends of my age group about investing, most of them have never thought of it. Those who save would tuck their money in saving or fix deposit accounts. Some of them choose to take car loan for brand new cars or spending on credit cards, ending up in net debt.

Why start investing early? It has got to do with the magic of compounding interest. Here comes my story telling time~~~~~~~~~~~

In year 2010, Ah Lan and Ah Ciao are both 25 years old, earning the same salary.

Ah Lan started investing RM10k a year in 2010 for 10 years in an investment which yields 5% a year. Then Ah Lan stopped adding additional money and he just left all the money in the same investment vehicle.

Ah Ciao started 10 years later in 2020, invested RM10k a year for 15 years (5 years extra compared to Ah Lan) which yields the same 5% a year. Then Ah Ciao stopped adding additional money and he just left all the money in the same investment vehicle.

Ah Lan put aside RM100,000 in the investment, whereas Ah Ciao put aside RM150,000. Lets see how both of them fare in year 2050:

In end of 2050, Ah Lan will have accumulated approx RM774k

Ah Ciao will have accumulated approx RM663k (RM111k less), despite saving RM50k more.

So who do u wanna be, Lan or Ciao?