Thursday, April 20, 2006

Ted, millionaire

Picked up a book at MPH today while waiting for a movie to start. It was such good stuff that I finished almost the whole book - hurray for bookstores that allows free reading!

According to The Automatic Millionaire by David Bach, these are basically the only things you need to do in order to become a millionaire and retire comfortably around 50+ :

1. Pay yourself first every month before paying everyone else i.e. put aside a certain amount of money from your monthly salary into your retirement investment. At least 10% or more depending on the lifestyle you want. (Here we got EPF already, well, add another investment to that. ASB, ASW 2020, money market etc).
2. Buy a house as soon as possible and pay it off quickly! Get a home loan that allows you to make payments every two weeks instead of monthly, there's a great reduction in total loan term and amount that you'll have to pay if you do that.
3. When you finished payment on the first house, buy a second house. Live in one, rent out the other.
3. Don't live on debt. Credit cards interest rates are such a killer to your money.
4. Identify you Latte Factor* and do without it. Add that money to your retirement investment (in item 1) instead.

On top of that, items 1 & 2 should be done AUTOMATICALLY (hence the term 'Automatic Millionaire') i.e. through automatic deductions by the company you work for and by your bank. Therefore you don't need to be disciplined about it anymore as it is taken out of your hands and done for you. You'll get used with the lesser amount and make do with only the balance as that's the amount you'll get to spend. Nak harap disiplin tiap2 bulan masukkan duit dalam bank? Heh... duit dah dalam tangan.. bye-bye la selalunya, ada aje benda yang nak dibeli, kan? Kan? So after the money is taken out of your hands, you can spend how you like it without even having a budget. BUT spending freely means only the cash in your hands, NOT the cash you don't have! That means NO CREDIT CARDS.

So the biggest hurdle here actually is item 4 lah where you got to put some effort in. He suggested if you have many credit cards now, pay it all off (beginning with the account that you owe the least) then cancel the cards one by one. Maintain just one account to be used for things you need, but make sure you can pay it off at the end of every month!

I'm on my way to become an automatic millionaire. Are you?

* Latte Factor -
the small stuff that you spend money on regularly (maybe even daily) without realizing you don't really need it, and that over time, the total money spent on it is really a lot. E.g. the fancy RM10 coffee you buy everyday before you start work (when u could easily make your own), or that two-pack-a-day cigarette habit (which also kills u slowly in the process), or that three-times-a-week pizza, or that full package Astro subscription when you hardly watch the Sports and News channels etcetera. Something that you don't need but still spend money on, something that you could do without, without compromising your lifestyle. You don't even need to do TOTALLY without it, having less of it also can lah - only two days buy Starbucks, make your own coffee the other three; smoke only a pack a day; cook or get nasi campur two times out of three; get only the Astro package with channels you really watch.

Could you count at least a RM100 savings monthly if you do that? With compounding interest, an additional RM100 invested monthly starting this month would become an additional RM59,000 for your retirement in 20 years time at a modest 8% annual return. Which one sounds better? Those weekly pizza dinners and full package Astro, or RM59,000?

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