Hello Grasshoppa,
There are many ways for us to define how rich we or other individuals are. The most significant way of defining rich people is by how they dress or what car they drive. Maybe some of them are truly rich, but some actually put themselves in debt just to impress others who don’t care about them. For those who are truly rich, it is all about how many assets or cash they have.
The fact of life is, it may take us a while to grow our wealth unless we are born with a silver spoon. Most of us will go through a similar scenario where we are educated until we graduate, start working, and begin to build our wealth from there. There will be different scenarios for everyone from there onwards, but the most important thing that those individuals have to do is to start building their wealth. If they learn to manage their money right, they have a better head start than those who don’t manage their money well. If they are not careful, they will start their journey of piling up a huge amount of debt, and they will struggle to pay it for years. At the end of it, it is about how fast you can get out of the Rat Race or how much you are able to save at the end of the Rat Race.
After I got myself into a huge debt situation, I experienced financial trauma and I became super careful with my spending. It was a point where I did not own a credit card as I was worried that I wouldn’t be able to manage it. It was until one of my business trips to Singapore that the hotel refused to accept my debit card, so I had to apply for a new credit card. Even after I did, I applied for the most basic card so I could use it whenever I needed it. Paying off debt can be really tiring and stressful; therefore, it is best for you to avoid getting yourself into any unnecessary debt, such as credit card debt. I even felt guilty for spending on nicer food or living a better life until the pandemic hit, and I came to a realization. Why can’t I spend a bit more while living a better life? I’ve been really disciplined with my investments and savings planning, so why can’t I allocate that extra money to live a better life?
To define my “rich” life that I am living now, it is all about eating meals that I feel like eating, not worrying about my next meals, traveling 3-4 times a year, competing in overseas BJJ tournaments 3 times a year, having lots of time with my friends and family, and growing my wealth each year. Even by doing that, I am still not accumulating any credit card debts or having to worry about how I am going to pay for it. All I have to do is plan it right. To also answer the part where I am eating meals that I feel like eating, I usually cook most of my meals at home. Therefore, whenever I eat out, I tend to just choose places with air conditioning, but I won’t aim to eat food such as caviar or wagyu. How did I do that with my current income? It comes down to how I plan my income around my savings and passion. No matter what, I will save 20% of my monthly income for my savings and investments. 10% of it will go to my splurge account which I will use to indulge in things such as food, travel, BJJ, and spending time with my family. Aside from my list of splurge items, I will not overspend on anything else.
If you are aiming to live a rich life based on your current income, you can always plan something very similar for yourself in order to live a quality life. The first rule is you have to make sure you save 10-20% of your income for cash savings or investments. Once you have saved up that portion, you can allocate between 5-10% of your income to splurge on things that you are passionate about. If you like traveling, this is where the money allocation will go to. If you have a passion for cars, designer clothes, food, or other things, this is where your money will go to. The rule of thumb is to save first and splurge later. And remember, do not overspend and get yourself into any form of debt.
Now you are determined to start living a “rich” life based on your current income. You are clear that you have to save between 10-20% of your income and splurge 5-10% of your income. Where can you start? My recommendation is for you to first start working on your savings. Focus on how you can save 10-20% of your income first. When you can do that for 6-12 months, you start allocating that 5-10% splurge expenses into it. Why? If you can’t even save 10-20% of your income for your savings and investments, do you think you can manage your 5-10% splurge expenses well? If you are already saving 10-20% of your income for savings and investment, you may start allocating that 5-10% of your income to splurge. Trust me, it makes a difference in your life quality.
OSS!
You can also check out my latest YouTube video on Why Do You Need Financial Planning?
