My last post was about mortality, now it's about writing a last will. What a back-to-back post. Haha... But again, this is not morbid. It's a very educational topic. Haha... For example, did you know that you can write a Last Will even without the help of a lawyer? This type of will is called a holographic will. You can freely write it using your own language or writing style, and the only requirements are (1) it should be handwritten, (2) dated, and (3) signed. That's it. You don't even have to have a witness to sign it. It remains private and you can change it anytime you want. But why write a Last Will? A last will expresses one's wishes after he/she goes. It guides loved ones on how to partition what one left because when there is no guide on how to divide it, conflicts usually arise. With a last will, one could explain why he/she chose to distribute in such a way (although there is a required minimum distribution to compulsory heirs mandated by law. The only ones who could distribute to anyone, as long as the recipient/s is/are not prohibited by law, are those without parents and kids). By writing a last will, you could also opt to give to people outside your family, for example, your favorite charitable institutions. What happens if you don't have a Last Will? In the absence of any will, heirs come into succession by operation of law (family members nearest in degree). And if there are no qualified heirs or relatives within the 5th degree, the state will inherit the whole estate. See, I told you this is very educational. Haha.... I learned all about these by reading "Thy Will Done" by Atty. Angelo Cabrera which talks about estate planning in the Philippine setting. The book also cites some true-to-life horror stories of people distributing their estate prematurely to avoid estate taxes. One story was about these parents who transferred the house they were living in to their only son (he was married with kids). Their son passed away unexpectedly and without a will, the ownership of the house automatically went to their daughter-in-law and the grandchildren. The daughter-in-law remarried and she sold the house and so the parents got evicted from their own home. :( How heartbreaking... The book also contains a sample holographic will which I think is beautifully written. It was written by a dad and in gist, the dad told his kids that his wish was for everything to go to their mom since the kids were doing well financially already. But the dad said that if the kids weren't ok with giving everything to the mom, he'll perfectly understand too so he gave some equitable distribution of his properties (within the prescribed distribution by law) just in case. In addition to a last will, one could also do a separate letter of instructions - if one wants to keep some instructions in private since the last will will be publicly shared with people outside of the family. What could be in the letter of instructions? - the list of people (and their contact details) you want notified when you go
- funeral details like how many days you want your wake to be, where you want buried, etc. - how to dispose of your personal items - name of person you want to be the executor of your estate (in the absence of a name, the court appoints one and since this person is a stranger, he/she may not be able to perform everything exactly how you want it to be) Wow, the content of the letter of instructions requires some brainstorming, planning and project planning. Haha... Lastly, did you know there's such a thing called a Living Will? What's a Living Will? It's a will that specifies your decision relating to medical treatment in the event that you become incapable of communicating e.g. if you become comatose. This will help your family decide, for example, whether or not to take you off life support. Incidentally, one lunch time weeks ago (before I even read this book), my colleagues and I had a hypothetical discussion about this topic - what if you're in a situation wherein you need life support. Do you want your family to put you on life support? One excitedly answered - "No, because when I wake up and see the hospital bill, for sure, I'll have cardiac arrest!" Wahaha... And we all agreed. Haha....
Cornelius Vanderbilt aka The Commodore
(Source: Wikipedia)
My curiosity about the Vanderbilt family started when I had the chance to visit Rhode Island and see one of their summer homes called The Breakers. It was so huge - the house covered 1 acre out of the 13-acre estate! And some of the anecdotes which our tour guide shared about how people lived during the Gilded Age were just over the top. The elites typically had 4 to 5 outfit changes in a day (since you can't wear the same thing for brunch, lunch, afternoon tea and dinner); the garden soil is not allowed to be seen with footprints (which means servants had to rake the soil every time someone steps on it) .... how could people spend such obscene amounts of wealth on things like those? The Vanderbilt family was once one of the wealthiest in the US. Its patriarch, Cornelius Vanderbilt, also known as “The Commodore”, is the man behind the New York Central Railroad. He was born in 1794 and passed away in 1877. When he died, the biggest chunk of inheritance he gave to one of his children was worth USD95M - which is approximately USD2B in today's money. But within 30 years of his death, no member of his family was among the richest in the United States. Within 70 years of his death, all the Vanderbilt mansions on Fifth Avenue in New York were demolished. What happened? How could such a crazy amount of wealth possibly get depleted?
In the book “Fortune’s Children: The Fall of the House of Vanderbilt” written by Arthur T. Vanderbilt II (a grand-nephew of The Commodore), the author tries to chronicle the saga of 4 generations of the Vanderbilt family based on last wills, court transcripts, letters, memoirs, journals, newspaper clippings, magazines, etc.
But before we even wonder how such wealth got depleted, let's get to know more about The Commodore - how he, who was born poor, became one of the most prominent industrialists of the 19th century.
Cornelius was born in a small farmhouse at Staten Island. His pastime was to watch the ships sail at the waterfront as they approached New York. Days before he was about to turn 16, he told his mom that he wanted to run away and become a sailor but his mom knew him better – she knew that what he really wanted was a boat of his own so he could become a boatman at the New York harbor.
So his mom gave him a seemingly impossible task – if Cornelius is able to plough, harrow and plant corn on an 8-acre uncultivated land, she would lend him USD100 to buy a boat.
Cornelius successfully accomplished the task. How? He got some boys to help him and do the work. So on his birthday, his mom gave him USD100 and Cornelius bought a periauger.
Periauger (Source: Wikipedia)
With his boat, he ferried passengers. And a year later, he was able to repay his mom USD100 plus USD1,000 in profit.
The Commodore continued ferrying passengers and sold food too. With his profits, he was able to buy 2 more periaugers.
Later on, he was able to buy a schooner. With the schooner, he got into coastal trade - carrying cargoes of oysters, watermelons, whale oil, etc. By 1818, at 24, he had saved $9,000 and owned several periaugers and schooners.
Schooner (Source: Wikipedia)
Then came the steamboats which outran his boats. He studied the steamboats by working as a captain for a steamboat owner.
Cornelius used the same strategy across the boat businesses he ran. He would operate in unauthorized routes, charged lower fares than the competitors, but raised the prices of food and drinks to cover his losses. Every time he does this, either the competition goes away or pays him to go away. Because of his rogue ways, he was frowned upon by some people.
He applied the same strategy when he worked for the steamboat company. He brought his game at a new level when he started offering free fare in the Hudson River route. He was losing money but the competitors were losing more money and at a faster rate. What happened? The Commodore got paid USD100,000 upfront and USD5,000 annually for the next 10 years by the Steamboat Association just to leave the Hudson River route for 10 years.
In the 11 years The Commodore worked in the steamboat company, the business tremendously grew. He was able to save USD30,000 by 1829, at age 35, and at that time, he wanted to work for himself again. So he decided to resign and buy an old steamboat from his employer so he can run his own steamboat business.
By 1840 in his mid-forties, he owned a fleet of more than 100 steamboats.
As he was pushing 70s around 1862-1863, he saw the potential in the New York and Harlem railroad – it was a short, unprofitable line but it was the only railroad line that entered New York City. He started buying stocks at USD8/share and eventually became the controlling shareholder. He made improvements in the railroad business and the stock rose up to USD100/share . Later on, he also began buying stocks in the Hudson River Railroad and the New York Central.
There were detractors who wanted him to lose so they tried manipulating the stock price. But when the stock price plunged, The Commodore always bought all the outstanding shares. And after he made improvements in the railroads, the stock price always rose.
Sixty-seven years after his mother had loaned him $100, he had increased that loan by a factor of one million. He had accumulated a fortune of $105 million (about USD2.1B in today's money). He was richer, by far, than anyone else in the United States was or ever had been. On Jan 4, 1877, at age 82, the Commodore passed away. His last words to one of his children, William Henry (aka Billy), were - “Keep the money together, hey. Keep the Central our road.”
In his last will, the Commodore gave away about USD10M to his family, friends, relatives, employees and charities. And as I mentioned earlier, the biggest chunk (the residual estate) amounting to USD95M went to his eldest son, Billy. The book states that USD95M was more money that what was held in the US Treasury at that time. Wow.
Anyway, The Commodore's last will was challenged by some family members as they found the sharing inequitable. They claimed that Billy manipulated his dad. Trials were held but a settlement was eventually reached.
William Henry Vanderbilt aka Billy
The Commodore's eldest son (Source: Wikipedia)
During Billy's time, he was able to double his inheritance within 6 years after his father’s death, growing it to USD194M (about USD4.9B in today's money). He owned stocks in various businesses, government bonds, real estate, art collection, etc. His annual income was USD10.35M and his annual expenses were only USD200,000 (about USD5M today). His fortune was growing by USD10M every year (about USD250M today).
With a man of such obscene fortune, you’d think he’d be happy. But as research studies and sages say, money can't buy happiness.
Billy confided to a friend that his fortune gave him no advantage than those who owned moderate wealth. Once, referring to a neighbor, he told a friend -
“He isn’t worth a hundredth part as much as I am, but he has more of the real pleasures of life than I have. His house is as comfortable as mine, even if it didn’t cost so much; his team is about as good as mine; his opera box is next to mine; his health is better than mine, and he will probably outlive me. And he can trust his friends.”
Being the richest person in the world brought him, he said, nothing but anxiety.
“What’s the use of having all this money,” he said once to a nephew, “if you cannot enjoy it? My wealth is no comfort to me if I have not good health behind it.”
By his early sixties, Billy was tired and worn out. “The care of $200,000,000 is too great a load for my brain or back to bear,” he confessed to his family. “It is enough to kill a man. I have no son whom I am willing to afflict with the terrible burden. There is no pleasure to be got out of it as an offset—no good of any kind. I have no real gratification or enjoyments of any sort more than my neighbor on the next block who is worth only half a million. So when I lay down this heavy responsibility, I want my sons to divide it, and share the worry which it will cost to keep it.”
Thus, when Billy passed away, the biggest chunk (the residual estate) of USD130M (about USD3.4B today) was split between his 2 sons, William II and Cornelius II.
So if the 2nd generation was able to grow the wealth even more, what happened?
The book states several possible reasons - the imposition of rising taxes (income tax, property taxes, estate taxes), and the Depression, however it also notes that other family dynasties were able to survive and preserve their wealth like the Fords, Rockefellers and the DuPonts.
When you read about the lifestyle the 3rd generation family members led, you'll get ideas on what are the other probable causes. Here are some -
- The wives of the third generation Vanderbilts weren't just competing in terms of lifestyle with other rich people but also among themselves. If one built a mansion, the other would try to build a bigger mansion. If one built a yacht, the other one would build a bigger yacht.
- When the Vanderbilts couldn't make it to the New York's elite guest list of Mrs. Astor's Annual 400 event (she invited the top 400 NY elite since her ballroom in the house can accommodate up to 400 guests), you know what one of the Vanderbilt wives did? She came up with her own event inviting not just 400 but 1,200 because that's what her ballroom in the house can accommodate! Haha... And you know how much the party cost? USD250k (about USD6.3M today). The roses alone which adorned the ballroom cost USD11k (about USD275k today). Crazy spending, right?
- The mansions the Vanderbilts built on Fifth Avenue were just as crazy. Even if the family members were less than 10, their mansions would have 130+ rooms. They employed 30 to 40 servants in the household ranging from butlers, valets, ladies’ maids, footmen, housekeepers, a chef, assistant chefs, pantry boys, parlor maids, upstairs maids and scrubbing maids, laundresses, chauffeurs, seamstresses, and guards.
- Some of them reached a lifestyle where they were spending beyond their annual income. For example, one couple was spending USD250,000 each year but the annual interest from their trust fund was only USD125,000. Their overspending ate up their principal.
- Some of them never worked a day in their lives and solely depended on the income of their trust funds. Some spent their fortune like there was no tomorrow - they partied, gambled, traveled all over the world, build huge estates - until the funds got depleted and they went broke.
And of course, there were factors beyond their control like the rising costs of property taxes (the tax more than tripled within 3 decades) that the income from their trust funds was eventually no longer enough to cover the property taxes of their huge mansions alone. Then, there was the stock market crash in 1929. And of course, the eventual introduction of other modes of transportation.
The book is a very interesting read. Sometimes you'll feel like you're reading fiction as some sub-stories seem taken out of movie plot like -
- a mom disapproved her daughter's choice of boyfriend so the letters sent by the boy were confiscated and the letters the girl wrote were never mailed. Then the mom made her daughter marry a duke from Europe.
- a grandmother and an aunt connived to take away a daughter (little Gloria) from the custody of her own mom. She was forced to write letters and make false statements which she did because she was made to believe that her beloved nurse would be taken away from her if she stayed with her mom. (This actually became a TV mini-series in 1982 entitled Little Gloria...Happy at Last.)
But these sub-plots are the lives of real people. And when you read their verbatim sentiments lifted from their journals or transcripts, you'll really feel for them. The greatest insights for me are actually reading their innermost thoughts.
Here are some words from William II, one of the sons of Billy. William II is one of Billy's sons who got half of the big chunk of inheritance.
William Vanderbilt II
Son of Billy (Source: Wikipedia)
“My life was never destined to be quite happy,” he told them. “It was laid out along lines which I could not foresee, almost from earliest childhood. It has left me with nothing to hope for, with nothing definite to seek or strive for. Inherited wealth is a real handicap to happiness. It is as certain death to ambition as cocaine is to morality."
“If a man makes money, no matter how much, he finds a certain happiness in its possession, for in the desire to increase his business, he has a constant use for it. But the man who inherits it has none of this. The first satisfaction, and the greatest, that of building the foundation of a fortune, is denied him. He must labor, if he does labor, simply to add to an oversufficiency.”
So if you're not expecting any inheritance from your parents (ahem...haha...), let's take it from William. :)
Another beautiful quote is from Alva Vanderbilt, wife of Billy and mother of William II.
Alva Vanderbilt, wife of Billy
(Source: Wikipedia)
Alva was the one who threw the lavish party for 1,200 New York elites and built bigger mansions, summer houses and yachts to outdo the other elites, but Alva, later in her life became an activist fighting for women's right to vote, among many other advocacies she lead. One of her last few words on her deathbed were -
“It makes no difference now. The important thing is knowing how to live. Learn a lesson from my mistakes. I had too much power before I knew how to use it and it defeated me in the end. It drove all sweetness out of my life except the affection of my children. My trouble was that I was born too late for the last generation and too early for this one. If you want to be happy, live in your own time.”
Yes, fortunes may have been lost and the succeeding generations may not have been able to keep The Commodore's wish to keep the money together and to keep the Central their road, but no amount of fortune can equal the lessons and realizations gained at the end of one's life. :)
There are very few finance books, specifically on stock investing, that I could read smoothly - that is, without scratching my head (you know, when you encounter a paragraph which you have to re-read because you can't seem to comprehend even if it's written in plain English. Haha...).
My recent read, "The Elements of Investing" by Burton Malkiel and Charles Ellis, is one of the few books which didn't give me a hard time on comprehension. Haha... It's a compilation of classic lessons on investing written in easy and digestible bites.
I like how the authors started the book by revisiting why saving is good for us. In the authors' words - "The real purpose of saving is to empower you to keep your priorities - not to make you sacrifice." Thus, saving isn't about deprivation. "Your goal is to enable you to feel better about your life and the way you are living it by making your own best-for-you choices. Think of saving as a way to get you more of what you really want, need and enjoy,"as the authors put it.
Sharing with you my top 5 key takeaways from Elements of Investing:
1. The Amazing Rule of 72
Did you know that there's a simple formula to compute how many years it takes to double your money? And the formula is:
X x Y = 72
where X is the # of years it takes it takes to double your money
and Y is the percentage rate of return
How do you use it?
To double your money in 10 years, what rate of return do you need? 72 / 10 years = 7.2%
How long does it take to double your money at 8%. 72 / 8% = 9 years
An investment will allow you to double your investment in 4 years, what is the effective rate of return? 72/4 years = 18%
How cool is that? :)
2. The power of compounding
The book cited a classic and real life example. Here you go -
Benjamin Franklin died in 1790, he left a gift of USD5,000 to each of his 2 favorite cities, Boston and Philadelphia. He stipulated that the money was to be invested and could be paid out at 2 specific dates, the first 100 years and the second 200 years after the date of the gift.
After 100 years, each city was allowed to withdraw USD500,000 for public works projects. After 200 years, in 1991, they received the balance - which had compounded to approximately USD20M for each city.
Here's how Franklin liked to describe the benefits of compounding - “Money makes money. And the money that money makes, makes money."
Please note though that compounding applies not just to investing but to debt as well. And yes, the rule of 72 also applies to debt.
For example, if your loan interest is at 18 percent per annum, the debt doubles in 4 years and and then redoubles again in the next 4 years. That’s 4 times as much debt in just 8 years - and it’s still compounding.
3. Diversification.
Diversify across securities, across asset classes. across markets - and across time.
By holding a wide variety of company stocks, the investor tends to reduce risk because most economic events do not affect all companies the same way.
Diversifying over time (preferably on auto-pilot e.g. monthly or quarterly) is a very important advice. Though it may not totally eliminate risk, it will reduce your risk. How? If you make all your investments at a single time, you run the risk of buying your entire portfolio at temporarily inflated prices.
For example, an investor who invested at the peak of the US stock market in 1929 would not have broken even for more than 20 years. And an investor who invested at the peak of the US stock market at the start of the year 2000, would have a negative return over the entire decade.
Buying over time gives us the benefit of dollar-cost averaging since can't really predict accurately when stocks will go up and down.
3. Rebalance.
Rebalancing simply involves periodically checking the allocation of the different types of investments in your portfolio and bringing them back to your desired percentages if they get out of line.
Rebalancing reduces the volatility and riskiness of your investment portfolio and can often enhance your returns.
4. Invest only in stocks which business you fully understand.
The classic example cited by the book is Buffet.
In the 90s, Buffet avoided all tech stocks. He told his investors that he refused to invest in any company whose business he did not fully understand - and he didn’t claim to understand the complicated, fast-changing technology business - or where he could not figure out how the business model would sustain a growing stream of earnings. Some said he was a passe.
Buffet had the last laugh when Internet-related stocks crashed in 2000.
5. There's no such thing as stock market pattern.
If you do spot one, expect the others to discover it too. Soon people will be altering their behavior to take advantage of the pattern. Just like you, they will also be buying (or selling) and thus, the apparent stock market pattern will not last.
Elements of Investing is a quick read (less than 200 pages) and very easy to understand - no head scratching, promise! Haha... :)
It's nice to have new things but sometimes, when you go shopping, you end up buying things that you realize you don't really need or don't like as much as you thought you did.
To become smart shoppers, we need to develop shopping strategies to make sure we buy the things that we really, really need and like so we don't end up wasting our hard-earned money.
Here are some of my learnings after so many shopping mistakes!:)
1. Have a Want List. When you think you need or want something, don't rush to the mall right away to buy. Just put it on your list. You'll be surprised when you revisit your list, you'll realize that (1) you don't need some of them after all, (2) there's no need to buy that soon yet, or (3) you've lost interest and like something else already.
It's the same for online shopping. Just put the things you like in the shopping cart but don't buy yet. Every time you visit your cart, you'll notice that items easily get trimmed down. Just don't visit your Wants List too often. Visit it once a week or once a month.
It's really important to give thought to purchases especially major ones to avoid buyer's remorse. Money could be saved instead of spent on something you end up rarely using or don't use at all.
My only exceptions to this rule are comfortable shoes and good fitting pants because it's hard to find the right size and nice fit when you need them the most.
2. Find pleasure from just seeing beautiful things. There are a lot of things that I find pleasure from just looking (and not buying). For example, I enjoy seeing furniture, artworks and home accessories - whether in stores, houses or even in photos. Even if let's say hypothetically I could afford any of them, I don't think I would buy just thinking of the upkeep and maintenance.
I used to have a fully-furnished place but last year, I decided to give away my furniture with the intention of getting new ones. But after experiencing how easy it is to clean a place when you don't have so much, I didn't end up replacing all of them. I just ended up getting 3 pieces of furniture. Haha...
Big, luxury bags are also nice to look, but again, I find pleasure from just seeing them in other people's arms because I find them too heavy to carry. And I like it better when I am using a bag which won't stress me out if it gets wet or dirty.
So it's good to develop the habit of appreciating beautiful things from a distance. And you know you've succeeded when you get your fix by just looking at them without any desire or urge to necessarily acquire them.
3. Know what you really, really like and go for quality if it's something you're going to use it frequently or long-term.
To save on costs, sometimes you settle for something which is just okay then later on, you find yourself dissatisfied with your purchase so you end up buying another one, and another one. If you combine all the costs of all the similar items you bought, you could have bought a high quality one which you really, really like.
For example, this happened to me when I wanted to get a pair of sunglasses to protect my eyes from UV rays. I didn't give much thought to what kind of sunglasses I needed so I initially purchased a cheapo one because it had a sticker that says the lens screen UV rays. But the lens was too dark when I drive. So I bought another one that was a little more expensive with a lighter lens shade but every time I walk, I feel like I am falling because the pavement seems uneven. Finally, I thought about what features were important for me - UV protection, light shade and quality lens that won't make me dizzy. So after researching, I got a pair of Ray-ban Ambermatic. The lens remain light when the temperature is low and darken when the temperature is high. Perfect. They are 2 years old now and I still love them. They are my official driving sunglasses but I have another pair for a different purpose (a darker pair to cover my eyes when I am asleep during travels! Haha...).
I am a photography enthusiast and there was also time when I kept on changing cameras because I didn't spend time understanding what kind of camera I need. Finally, about 3 years ago, I identified the most important camera features for me - compact size, shoots well in low light, good macro capabilities and touchscreen so it's easy to focus on a subject. I got a Canon S110 and haven't lusted for any other camera since then - even with newer models out in the market because my current camera still meets my most important criteria.
When you get something that you really like that meets your needs, you won't have the urge to get a new one for a long time. Among my gadgets, I think my kindle holds the record. My kindle is a 2nd gen (kindle is now on its 5th gen!). The paperwhite experience is what I love most about it so a colored, touchscreen e-reader (no matter how hi-tech) won't be able to tempt me to shift in any way.
So the key is - when you buy something, understand your needs and identify what's really important for you to help you determine what you really, really like. Because if you get it right, you won't think about buying another one for a long time. :)
"What I learned from the Richest Man in the World" by Alan Cohen is a story written in the perspective of a young, ambitious man who got mentored by a successful, rich businessman. The rich businessman, Mr Everit, taught the young man important lessons in life. There's a big revelation at the end of the story but I won't spoil it for you just in case you plan to read it. :)
Anyway, one of my favorite parts of the book was when the businessman asked the young man to go to a nearby bridge. The businessman didn't give any other instructions except to go to the bridge.
When the young man reached the foot of the bridge, the only thing that he saw was a guy fishing. Nevertheless, he decided to park his car and go down to observe.
The fisherman caught a small trout about seven inches long. He tossed the fish into a beat-up white plastic bucket and cast his line again. Five minutes later he reeled in another trout, considerably larger than the first. He studied the fish for a few moments, shook his head, and cast it back in the stream.
The young man thought what the fisherman did was strange. He continued to watch the fisherman for the next 30 minutes and during that time, the fisherman caught several more fishes. Oddly, the fisherman kept all the smaller trout and tossed the bigger ones back into the stream. It made no sense.
Finally, the young man decided to approach the fisherman to ask.
“How’s it goin’?” the young man asked.
“Fair to middlin’” the fisherman answered in a monotone. “I come down here a couple times a week and fish for some dinner. I usually catch a bunch of trout and cook them up, but I’m still hungry. I’m doing the best I can.”
“Do you mind if I ask you a question?” the young man asked.
“Fire away,” the fisherman answered nonchalantly as he cast his line again.
“I’ve been watching you from the bridge for a while, and I notice that you keep the little fish and throw the big ones back into the stream. Why is that?" the young man asked.
“Simple,” the fisherman answered. “I have this frying pan here that’s about 9 inches wide.” Still holding the fishing rod with his right hand, the fisherman leaned over, picked up a small cast-iron skillet, and held it up so I could see. “Only the little fish fit into the pan, so those are the ones I keep.”
The young man couldn't believe the fisherman's reasoning. Just as when he was about to say to the fisherman, “Then why don’t you . . .", he heard a police siren and remembered he didn't park properly so he rushed to leave.
After the encounter with the fisherman, he called up Mr Everit.
Mr. Everit asked “So you met the hungry fisherman?”
“I sure did. What a weirdo! The guy was wasting his energy on small fish. He’d sure save himself a bunch of work and eat a lot better if he just got a bigger frying pan!” the young man answered.
“Absolutely correct. Yet he’s no weirder than anyone else who’s hungry for money or anything,” said Mr. Everit.
“What do you mean?” asked the young man.
“Remember you asked me why you don’t have everything you want, and how to get more?” said Mr Everit. “Get a bigger frying pan.”
“What on earth are you talking about?” asked the young man.
“The frying pan is your mind. The fish represent your income, or anything you want more of. If you want to increase what you receive, first make a place for it in your mind. Think bigger thoughts; paint grander dreams. You can go to a gold mine with a tiny wheelbarrow or a huge one, and you will come away with as much gold as your container will hold.” explained Mr. Everit.
Simple story with a great lesson. :)
Anyway, you might be wondering why Mr. Everit is considered the richest man in the world. Here's a conversation between the two men to understand why:
“The newspaper did a survey asking highly successful people which came first: happiness or success?” Mr. Everit shared with the young man. “63% said they were successful because they were happy. 37% aid they were happy because they were successful.”
“And which category do you fit into, Mr. Everit?” the young man asked.
“It’s a no-brainer,” Mr Everit answered. “If your happiness depends on success, any little setback will plunge you into upset... People who decide to be happy no matter what the stock market is doing, find all kinds of things to feel successful about-- and attract more.”
Then Mr Everit continued, “I don’t need any more money . . . I have enough.”
The young man asked, "You’re really satisfied with what you have? Don’t you want to get richer?”
“I’m already rich. In fact, I’m the richest man in the world,” Mr Everit replied.
“Oh, come on, now, Mr. Everit, I know you have a few bucks in the bank, but you’re no Bill Gates or Oprah,” said the young man.
Mr. Everit smiled. “Of course I’m no billionaire. If you define riches by money, I’m just an average Joe. But if you consider the immense good in my life, I am loaded. I have a loving wife . . . a fulfilling job . . . friends I laugh with . . . magnificent sunsets . . . inspiring books . . . music that feeds my soul. Sure, I have my challenges, but they help me get stronger. If I start to go into a funk, I remember how blessed I am, and things shift... What more could any man ask for?”
Mr Everit continued to explain “’Enough’ is not a number or condition to be attained. It’s an attitude you cultivate. Most people go to great pains to decide how they will invest their money, but think little about how they are investing their thoughts, which are more crucial. They spend most of their attention on the one thing that went wrong, and overlook the thousand things that went right. They don’t realize that you get more of whatever you focus on.”
Beautiful life lessons from the richest man in the world. :)
A friend told me that she once read an interesting article about billionaire Li Ka-Shing's personal finance tips. (Li Ka-Shing is the richest man in Asia who has a net worth of USD31.9B as of April 2014.) Anyway, I googled the article and found it. The original article was in Chinese and it was just translated to English. The article outlined Li Ka-Shing's 5-year plan on how to improve one's life. Basically, he advises that you split your income into 5 sets of funds. Since the total income he used for illustration purposes may not be applicable to our local living expenses, I just got the percentage split for easy reference. 30% - basic living expenses 20% - expanding your interpersonal circle 15% - buy books 10% - travel overseas 25% - save for future business capital ------ 100% Here are some advice on the 5 sets of funds: 1. Living expenses. He advocates simple living. 2. Budget to expand your interpersonal circle. He encourages one to make friends. He suggests treating 2 friends for lunch every month - specifically,people who are more knowledgeable than you, richer than you and people who have helped you in your career. (Culturally though, our practice is reverse so this is something entirely new for us.) 3. Budget to buy books. He says that one should read books and apply the strategies learned, and to share the learnings with others. He also encourages one to save up and attend training courses. And he says when you earn more later on, to continue attending advanced training. He says not only do you learn from these courses but also meet like-minded friends who are not easy to come by. 4. Travel budget. He suggests traveling overseas at least once a year to have different experiences in various countries. Travel is a great way to recharge yourself so you'll be able to keep your passion burning at work. 5. Future business capital. He encourages one to save and grow a fund to serve as startup capital. He says one can put up a low risk, small business and learn how to operate one. Even if you lose, he says, it's just small. But if you start earning money, he says, you will start gaining confidence. As you earn more, you can start buying investment plans for yourself and family to ensure you can preserve your quality of life no matter what happens. Mr. Li Ka-Shing has good sense of humor too. Here's an excerpt from the article after explaining the 5 types of fund buckets: Well, after struggling for a year and if your second year salary is still 2,000 (the starting salary he used for illustration purposes), then that means you have not grown as a person. You should be really ashamed of yourself. Do yourself a favour and go to the supermarket and buy the hardest tofu. Take it and smash it on your head because you deserve that. (Hahaha...) And for those whose monthly income increased, he still admonishes that one has still to work very hard. He recommends looking for a part-time sales job. He says that a sales job is very challenging but it is the fastest way for you to acquire the art of selling which is something you could use for the rest of your career. He points out that all successful entrepreneurs are good sales people - they have the ability to sell their dreams and visions. Selling also hones your pulse to detect market sentiments so you would know what products would click or not. Here are the rest of the excerpts which I really like from Mr. Li Ka-Shing's interview: On why we need to split our money into 5 funds:
No matter how much you earn, always remember to divide it into five parts proportionately. Always make yourself useful. Increase your investment in networking. When you increase your social investment, expand your network of contacts, your income also grows proportionately. Increase your investment in learning, strengthen your self confidence, increase investment in holidays, expand your horizons and increase investment in the future, and that will ultimately increase your income.
On why our fate is within our control: Life can be designed. Career can be planned. Happiness can be prepared. You should start planning now. When you are poor, spend less time at home and more time outside. When you are rich, stay at home more and less outside. This is the art of living. When you are poor, spend money on others. When you’re rich, spend money on yourself. Many people are doing the opposite.
On what to do when you're poor vs when you're rich When you are poor, be good to others. Don’t be calculative. When you are rich, you must learn to let others be good to you. You have to learn to be good to yourself better. When you are poor, you have to throw yourself out in the open and let people make good use of you. When you are rich, you have to conserve yourself well and don’t let people easily make use of you. These are the intricate ways of life that many people don’t understand.
When you are poor, spend money so that people can see it. When you are rich, do not show off. Just silently spend the money on yourself. When you are poor, you must be generous. When you are rich, you must not be seen as a spendthrift. Your life would have come full circle and reach its basics. There will be tranquility at this stage.
On an interesting Harvard theory: Famous theory from Harvard: The difference of a person’s fate is decided from what a person spends in his free time between 20:00 to 22:00 . Use these two hours to learn, think and participate in meaningful lectures or discussion. If you persist for several years, success will come knocking on your doors.
(Uh-oh. I need to be more productive during these hours. Haha...) On moving on: Whatever happened in the past is over. Do not dwell on past mistakes. There’s no point crying over spilt milk. Everybody makes mistakes. It’s what you learn from the mistakes, and promising yourself not to repeat those mistakes that matters. When you miss opportunities, don’t dwell on it, as there are always new opportunities on the horizon.
On having a healthy EQ: Being able to smile when being slightly misunderstood is good upbringing. When you’re wronged and you smile with calmness, it is generosity. When you’re being taken advantage of and you can smile, you’re being open-minded. When you are helpless and you can do a philosophical smile, you’re in a calm state. When you’re in distress and you can laugh out loud, you’re being generous. When you’re looked down and you can calmly smile, you’re being confident. When you’re being jilted in relationships and you can smile it off, you’re being suave.
"Why Smart People Make Big Money Mistakes and How to Correct Them" by Gary Belsky and Thomas Gilovich was a book first published in 1999. I've never heard about the book before but one of the teachers in a finance course I took recommended it. I didn't expect too much from the book because it was published more than 10 years ago but guess what? The book's content is still very much relevant to modern times and I've to say it's the best personal finance book I've ever read.
The book is not your usual personal finance book that tells you how to do a budget or save money. Rather, the book tackles behavioural finance and economics which makes you better understand your attitude towards money. And these are behavioural tendencies that we're guilty of doing but are not conscious we're doing them. That's why it's important to know them so we don't make as many, and worse, costly mistakes.
Here's a summary of important learnings from the book - there are a lot more but I just handpicked some. Text in italics are excerpts from the book.
We have a tendency to treat money differently depending on where it comes from, where it’s kept, or how it’s spent. If we earn money through gifts, bonuses or prize, we have a tendency to spend it mindlessly or impulsively. We've to learn how to view money equally whether it's salary, bonus, winnings or gift. A USD100 earned from work has the same buying power as a USD100 given as a prize.
We are generally loss averse. The pain we feel from losing USD100 is much greater than the pleasure we'll experience from gaining USD100. This prevents us from taking risks.
We suffer from the sunk cost fallacy. Spent money doesn't seem to matter anymore. For example, you wanted to buy a good stereo but learned that it costs USD1,000 and it doesn't make sense to you since your car is old. But the following year, you buy a new car and wanted to upgrade its stereo. The car dealer quotes you USD2,000 and you agree because USD2,000 relative to the total price of the new car looks like a fraction.
We tend to be overconfident and overestimate our knowledge and abilities. With a little knowledge or homework, we think we can pick investments with better-than-average success. Another good example of this is when we are lured to signing up for gym memberships. We sign up long-term contracts overconfident that we would be able to frequent the gym but chances are, we are never able to maximize our memberships and paying per workout turns out to be cheaper in the long-run.
We tend to base our decisions on the actions of others. We sell when others sell. We buy when others buy.
Too much info can be destructive. Studies have shown that investors who tune out the majority of financial news fare better than those who subject themselves to an endless stream of information, much of it meaningless. Similarly, the less frequently you check on your investments, the less likely you’ll be to react emotionally to the natural ups and downs of the securities markets. For most investors, a yearly review of your portfolio is frequent enough.
Switch to index funds. This mirrors the benchmark stock and bond averages in different investment categories. The idea is to guarantee that you will at least keep up with the typical investor – but in fact, you’ll likely do better than all those brave souls who think they can beat the law of averages.
Diversify your investments. Most investors who are still working should have a large portion of their assets invested in the stock market, which has historically offered the best returns over time.
How much do you need to invest in stocks? There's the “100 minus your age rule” - if you’re 30 yrs old, about 70 percent of your long-term nest egg (100 – 30 = 70) should be invested in stocks (the book suggests index mutual funds).
Forget the past. Very often our decisions about the future are weighed down by our actions of the past. People stay in unsatisfying careers because of the time and money they invested in school, not because they enjoy the work or expect to in the future; we finish a bad book because we’ve already gotten so far, not because we’re anxious to see how the characters live; we sit through a boring movie because we bought the ticket, not because it’s a good flick. The same motivations affect our decisions about money: We spend more money on car repairs because we’ve already spent so much on the car; we keep spending money on tennis lessons because we’ve already spent so much. We hold on to bad investments because we can’t get over how much we paid for them and can’t bear to make that bad investment “final.”
I wasn't aware I was guilty of some of these behavioural tendencies until I read the book. But knowing them now empowers us to manage our financial decisions better.
Great news is "Why Smart People Make Big Money Mistakes and How to Correct Them" has an updated and expanded version published in 2010. The cover of the updated version is the one I used as a visual in this post. :)
