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Becoming a millionaire next door.

Tuesday, December 3, 2013

A person made $10K a month but spent $9K a month.

A person made $5K a month but spent $2K a month.

Who do you think will become richer faster, all else being equal?

The following chart was posted on my Facebook wall by Matthew Seah:


I am impressed!

Matthew is a "Prodigious accumulator of wealth (PAW)": This type of people are frugal. They save and invest. They become millionaires.

"People sometimes think that high income earners are wealthy people. This might not be true..." STE: The Millionaire Next Door.

Related posts:
1. Think you cannot reduce your spending?
2. A fast track to wealth building.
3. How to tell if you are rich?

23 comments:

la papillion said...

Hi AK,

But someone with a 9k expenditure can have room to cut, hence his situation is not optimised yet. In other words, there's room for improvements. I assume (perhaps erroneously) that salary increment is harder to come by i.e. it's easier to cut expenditure than to increase salary.

Someone with 2k expenditure probably reached his limit already. He is efficient and is a good situation to be in.

I see both situations not as extremes ends but as different degrees of a scale. Imagine the 10k man with 9k expenses, suddenly being enlightened and starts cutting off expenses to 5k.

So the real issue of the question "who will become richer faster", is this - who is more motivated to become richer?

AK71 said...

Hi LP,

Oh, definitely, the picture will change depending on the assumptions we make. :)

After all, someone could make $10K a month but spend $12K a month. I have seen such cases before, unfortunately.

Someone who makes $5K a month could be spending less than $1K a month. I have seen one such case before! Amazing!

Unless we are severely disadvantaged in life, we can always hope to live a better life. It depends on how much we want it. If we want something bad enough, we will find a way. :)

Solace said...

Very Impressive. i followed the updates in your Facebook, seen the blog of the lady who is able to grow like 122K to 1 million in 7 years.

I am impressed with Matthew saving vs spending. It is like only spending 20% or less in certain month. Good Job!

Matthew, time for you to do a guest blog on this topic, personal finance :)

For starters, try writing and recording down your expenses on everything including food costs, transports and entertainment expenses.

By keep tracking expenses, two things generally occurs. You get an idea how much you spend per month, providing an idea of how much you can invest. It also makes you accountable for your spending, which encourages most people to cut back.

I believe after a while, you probably won't have to write down every expenses. This is because you'll fall into a healthy spending habits, and the money saved gets transferred automatically to the investment account which can grow over time :)





AK71 said...

Hi Solace,

Yes, I share some stuff in Facebook which I don't blog about here. Facebook has made me lazy. Terrible. ;p

Well, if it is just going to be sharing a link or making a one liner comment, it doesn't make sense to blog. So, I guess Facebook complements my blog. Not a bad thing. :)

Matthew did share with me the breakdown of his expenses before. He is really frugal and being in the military means he doesn't have to spend on food and working attire. All paid for by taxpayers. Lucky him. ;)

OK, see if he is ready to share more. :)

Matthew Seah said...

Hi Solace,

I do spend less than 20% on most months except 2, due to school fees for my part time studies.

I do have an expense tracker to track my monthly expenses, which I would input into my annual budget, according to their respective categories.

I've been keeping tabs of my personal finance since 2012.

EY said...

Hi AK,

Your blog post and the comments here have given me another nudge to work up a budget for 2014. Great job, guys!

I have done up a 3-year block budget at work and it is timely to do one on my personal finance. Have been managing my money rather loosely and not quite happy with so little improvement over this past one year. :(

But of course, if we do the same things and expect different results, we must be insane. That guru is so wise to say this. :P

Anyway, I've pulled out an Excel spreadsheet and shall start my budget planning right after this.

Thank you for the inspiration! :D

AK71 said...

Hi Endrene,

This blog post is meant to inspire those who need inspiring. I think you are not an intended candidate as I have an inkling that you made your first million already. Haha... ;p

Well, some did tell me that my blog is preaching to the converted. -.-"

sillyinvestor said...

Well, dun think u are preaching purely to the converted. I used to only want to save for retirement, now I inspire to save for passive income for financial freedom.

Also, your influence might not be the way u actually want it. When I first stumble upon your blog, the first thing that catches me eyes are : wow, so many advertisements, passive income no matter how little for writing. Cool.

I then started blogging for silly monetary reasons, and I almost gave up since I was talking to myself most of the time, and hence didn't feel the need to write properly. ( just point forms)

Then, due to your kind words, I suddenly realised I get a lot of traffic and they mostly come from your blog. Then hey, someone actually like reading what I wrote.

Now I enjoy blogging as it is, to the hell with the advertisements, I am now more wired to other bloggers, there are so many out there, and if we apply porter 5 forces on blog advertisement revenue, think we can forget it, money spent researching on counters might earn more money. Haha. Also, even if they really are advertisers, I dun think the money is a big deal, most prob a trophy that hey, I got a advertiser coming to me... Hehe..

U always say u earn peanuts from advertisement, seriously, I dun think we define peanuts the same hahaha...

So well, AK, although there are other factors influencing my investment journey, u are definitely a part of it, but u have a big big influence on my blogging journey !! Thanks!

AK71 said...

Hi Mike,

Wow! Thank you very much for the encouraging comment. I am very happy to have inspired many more to blog through my blogging efforts although I have to admit that it is a side effect that I didn't count on. :)

When a prominent blogger asked me on FB why am I having so many "Tea with XXX" posts these days and asked if it had to do with the growing prominence of my blog, I candidly admitted that I don't know everything there is to know. Hopefully, having more voices will enrich this space. I am not selfish with my traffic (which has been declining, by the way) with deserving people. ;p

As for advertisements, they do generate some pocket money for me. $100+ to $200+ a month. Not much. Now, don't tell me our definitions of "peanuts" differ. LOL.

Well, I could have made a bit more money with the "Multiple Streams of Income" seminar earlier in the year but we know how that went. -.-"

I blog really because I enjoy writing and because I was curious about this new medium (to me). If I could make some pocket money in the process, it is a bonus. :)

la papillion said...

Hi AK,

Sad....my 'peanuts' is worth only 100+ PER YEAR, not per month :(

On a more serious note, whoever is writing a financial blog in sg for money is just plain delusional. There's easily ways to make money, frankly. It's quite easy to tell these sort of blogs - they won't be around after 6 months and certainly won't be around after 1 yr - because the money is not much and the work is just dreary, haha

I always think that the good thing about the financial bloggers in sg is that we're so close knit - it's like a virtual family of some sort ;)

AK71 said...

Hi LP,

With my blog's traffic declining quite steadily, I won't be surprised if I join the ranks of $100+ a year over time. ;p

Objectively, I have been blogging a lot less recently. So, lower traffic and advertising revenue is to be expected. However, I think you know why I slowed down and it is probably a good thing for me. :)

Like you said, the money financial bloggers make from ads is really a pittance and we could make more doing other stuff with the amount of time we put into blogging. If the primary motivation is for money, the blogs will vanish soon enough (and I was just told that a rather popular TA blog did exactly this).

As for financial bloggers being a close knit family, it could be delusional too. LOL. Sorry, I say it as it is.

I will admit that I have a cordial relationship with all bloggers but a few. So, if we were a family, I might have to disown a few members. ;p

la papillion said...

Hi AK,

Haha, disowning a few members - so naughty! Well, generally all family are dysfunctional to different degrees, so we're still one close knit dysfunctional family LOL

Cory said...

Extreme saving end is bad.It eats away your focus to grow your income instead.

We just have to be mindful of over spending imo and has reserve to speed up our asset.

AK71 said...

Hi LP,

Always the optimist, I see. LOL.

OK, it is Christmas soon. I shall be charitable. ;p

AK71 said...

Hi Cory,

Extreme anything is bad.

An extreme focus to grow income could end up destroying our lives too.

Everything in moderation. :D

EY said...

Hi AK,

About your comment on my financial situation - today's weather very good hor? :P Learnt this from one guru dunno from where! XD

But I must say, I really appreciate the unreserved sharing you have done here and for setting a good example in doing proper financial planning. I'm that kind who plans in the head. So many ideas swimming in my little brain that I'm afraid someday, I'll have stuff oozing out! LOL~

So to avoid such a situation, I think it is a good idea to put things down. I'm done with my budget planning last night! Now I have a clear idea what is the maximum amount of savings I could achieve in the next year. I have set myself a pretty high target and I'm going to make it happen. If I can't, the last resort is to rob my husband! So brilliant hor? Hahaha.

AK71 said...

Hi Endrene,

I am glad you do not mind the nagging. LOL. So, you are welcome. :)

For me, I just plan to save all my passive income. My earned income, I will probably end up saving a fair bit too but I shan't set a target. I am cutting myself some slack. Bad AK! Bad AK! ;p

sillyinvestor said...

Using an investor lens to answer why your numbers of visitors might be going down throw up a few possibilities.


One, cannibalise by own AK Facebook account, since those who went there might not come to blog. The total rev is increasing but due to expansion into a new segmt of business( platform), the blog segment is reporting lower rev.

Two, the industry trend is down. As can seem in the level of activities in various investment website and forums, the market is going sideways and nowhere, and it is quiet too. The general trend is down.

Emerging of seasonal substitutes, it's the holidays, many might be overseas and stop Internet access.

In conclusion, fundementally strong, with strong balance sheet and market share, wait for upturn. Accumulate this stalwart blog. Price target : Not rated

;p

AK71 said...

Hi Mike,

Wahahahaha... LOL... I fell off my chair! You good! ;p

So, you want to make a takeover offer for my blog or not? Now, best time to buy. ;p

sillyinvestor said...

You really selling? Great!

U are earning 1200- 2400 per annual, diminishing readership, so I need margin of safety, say 1500 a year. Given market leader position, I pay 10x PE. Should its worth $15000!!

But no barrier to entry. Discount 2xPE

Stiff existing competition. Discount 2xPE.

It's highly dependable on 1 man AK for operation, need to sigh 3 years no run road no new blog contract, but dependable on his mood, quantity of blogs affected, big risk, discount 3xPE.

No tangible asset for backup, minus 2PE.

So final price = 10 -2 -2 -3 -2
= 1pe

Sell me your blog for $1500, and all your adveritisjng rev come to me, but u need to sign a no run road, no competition, at least 3 blogs a week with minmum 500 words contract.

How how AK, do we have a deal? Can I get my lawyer to call u?

AK71 said...

Hi Mike,

Wahahahaha... LOL... I fell off my chair. ;p

I got lost somewhere in the middle of your comment. I kind of get the feeling that I am being ripped off though. So, no, thank you.

Thanks for the free valuation of my blog though. ;p

David Foo said...

"Very Impressive. i followed the updates in your Facebook, seen the blog of the lady who is able to grow like 122K to 1 million in 7 years."

Hw to view this link?pls help.haha
Or can i add Ak to my facebok to view?wat name to key?

Rdgs.
Sky

AK71 said...

Hi David,

If you are wondering how to follow my blog, there are a few ways to do so and they are listed in the left sidebar of my blog. :)

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