A few months ago I read a quote that said something like: “School doesn’t teach me how to get a job, get a loan from a bank, or talk to people. But it teaches me calculus…”
No offence to calculus, but there’s some truth here. I’d argue that most people have poor money habits, because no one ever taught them proper financial literacy. What little they do know is from their boyfriend/girlfriend/insurance agent. And a lot of times, that information is poor too.
So here’s my contribution to society this week: Some interesting things about money to think about.
Here are 5 uncommon truths about money that you need to hear.
5. RM 106,500 is the “perfect” annual income for happiness in Malaysia
Which is about RM 8,200 a month (assuming 12 months pay + 1 month bonus).
How did I get this number? Well, first I looked at a Princeton university study suggesting that USD 75,000 is the “magic number” for annual income. Economist Angus Deaton and psychologist Daniel Kahneman found that people get happier as their income rises. Until they reach USD 75,000 yearly. After that, increases in annual salary didn’t impact day-to-day happiness.
Now, obviously the cost of living in the USA is vastly different to Malaysia. So I looked at some Purchasing Power Parity conversion factors. The World Bank tells us that you need 1.42 Malaysian Ringgit to buy the same amount of goods and services (in Malaysia) as 1 US Dollar would buy in the USA.
So the “perfect” annual salary of USD 75,000 equals 75,000 x 1.42 = RM 106,500.
Which makes sense. At this level of income, you can comfortably afford a place to stay and a vehicle. You have some money for savings, investment and insurance. You have enough money to go out every weekend, treat your loved ones to something nice, and spend on your hobbies.
Is earning another thousand a month going to drastically change that lifestyle, or increase happiness by much? No.
But say, you made a quarter of that, around RM 2,000 a month. You’ll be a lot more stressed every time your overpriced Astro bill comes in. You’ll have to spend time cooking and cleaning yourself, and cut down on all luxuries. Needless to say, if you have a family — the burden will be huge.
Of course, then you hear people saying even RM 12,000 per month is not enough. But that’s an issue of having unrealistic expectations and desires, rather than not making enough money.
4. The professionals aren’t VERY good at making you money
He’s always perfectly groomed with impeccable dressing. He drives a BMW. He has a fancy title and works in a tall skyscraper.
He’s a professional financial consultant. And is surely good with your money right?
In 1973, Princeton professor Burton Malkiel wrote:
A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.
So the Wall Street Journal decided to hold a challenge. Professional fund managers versus monkeys throwing darts. (No actual monkeys were used. Wall Street Journal staff members were instead used in place of monkeys). In 1998, after 100 such contests — the results were released:
The pros won 61 contests. “Monkeys” won 39 contests.
“Monkeys” won almost 40% of the time! Still feeling so good about your money?
Here’s another thing to consider: fund managers don’t get paid based on how much money they make you. They get paid based on commissions every time you trade. So get this – even if they make a losing trade, they still take a commission from you.
I’m not saying that your stockbroker or unit trust company is swindling you out of your money. Although, if you want an entertaining take on that subject, please watch “The Wolf of Wall Street”.
I’m just saying that they aren’t THAT good.
Which brings me to…
3. You can invest money yourself via the Internet
The Internet democratizes everything.
Knowledge, television, music — even investing.
Twenty years ago, if you wanted to invest on the Kuala Lumpur Stock Exchange, you called your remisier. After telling him your ideas, he’d give you his latest and best tips for choosing a stock. You’d agree and then eagerly watch teletext on your Sony Trinitron to see updated share prices.
Today, you can do almost everything directly via a few clicks on your laptop.
Why do it yourself online? Because you can do more. And because it’s much cheaper. Investing through the Internet saves you expensive fees and charges. Fees and charges that will reduce your returns, and will be used by your remisier to pay for his BMW.
Want to own a piece of Facebook? Sign up at low cost online brokers like described here.
Tired of paying the standard 5.5% sales fees to unit trust companies? Try fundsupermart.com
It’s always cheaper to DIY.
2. Credit cards CAN save you money
What if I told you there’s an invention that grants you free stuff, gives you free money every time you use it, and makes you look cool?
Well, it already exists. It’s the piece of plastic in your wallet called a credit card.
Unfortunately, credit cards tend to have a bad reputation in the personal finance world.
One of the first things that personal finance advisers often say is “cut up all your credit cards”.
But there’s no way you get financial benefits like 5% cashbacks, 20% discounts, or 36-month interest free installment plans if you just use cash. Yes, a lot of people end up in debt due to overspending on credit. But that’s not the fault of the banks is it?
No, credit cards don’t make you poor.
Indiscipline makes you poor.
1. Money is NOT real
That RM20 note in your hand doesn’t mean anything if everyone chooses to treat it as what it is really — a piece of paper with some turtles and an impressive holographic image of the king. It has no real value.
If you have half an hour and want to scare yourself silly about the illusion of money, please read this article by the Bank of England: How Money is Created in the Modern Economy.
As Robert Kiyosaki says, money is just an idea. Created between people as a means of establishing value. That’s the reason why Mark Z is worth so many billions and common people are not. Because his invention brings enormous value to huge numbers of people throughout the world.
If you bring value, you don’t need to worry about money.
When unhappy with their current salaries, most people ask “What job can I take to earn more money?”
No, that’s the wrong question.
To create wealth, the question we should all be asking instead is:
“What can I do to bring more value to society?”
Disclosure: The iMoney banner above is an affiliate link. If you get a card through it, I’ll get a small fee to support my website. But at absolutely no additional cost to you.
The original version of this article first appeared at Emmagem.