It's A Good Plan, Where To Get That RM50,000?
Last night, over some Iced Caffe Mocha I shared the Millionaire Investment Plan with my friend.
Me: If you multiply RM50,000 by 10%, and keep going on, how many times do you think we need to reach RM1,000,000?
Friend: How many?
Me: Just 32 times. Now, if you have 5 chances of making 10% profit in a year... you just need about 6 years to be a millionaire. I have been working for 12 years now. So, I might be a millionaire now if I have known about this plan.
Friend: But where do you get this RM50,000 to begin with?
Me: After I graduated from the university, in my first job I was only riding a motorbike. I was earning RM2,000 and yet I can save RM1,000 away every month. In a year, I can save RM10,000. If I went on like that, at the end of the fifth year, I would have my RM50,000. And now on my 12th year of working life, I would have been a millionaire last year ~ on my 11th year of working life. (5 years to get RM50,000 and another 6 years to make it to RM1,000,000.)
Friend: You are right! How come no one told us this?
Me: We are all ordinary people. People always tell us to study hard, go to the university, get a good job, work hard. That kind of advice. We are surrounded by ordinary people. Even our lecturers are ordinary people who are still working from paycheque to paycheque.
Friend: Yeah.
Me: Of course then... as we progress further in our working life, we want to buy a car. We want to buy a house. We want to get married. We want to do a lot of things. So that's where I never get to save up that first RM50,000. People say buy house. We need a house.
I say we should rent. Anyhow, succumbing to the pressure of spouse and those around, I bought a house. My advice is, don't ever buy a house. Save up that money for your investment. You will be a millionaire faster.
You know what's the real meaning of real estate?
Friend: What?
Me: Have you heard of Read Madrid (the football team)?
Friend: Yeah.
Me: 'Real' is a Spanish word for Royal. In the middle ages, people had to pay the Royal Families royalty fees to own a piece of the King's estate or land. It's therefore called the Royal Estate or Real Estate.
Many people mistaken real estate for something real and tangible. That's not the original meaning. It's just bollocks. It's a fee you pay to someone just so that you can live on that land.
Friend: I see.
Me: Today, it's the same. When you buy a house, you have to pay tax to the Government and pay your mortgage to the bank.
Let me tell you what is the real meaning of mortgage. Mortgage means mort and gage. Mort as in rigor mortis. You are a doctor, you know the term. It means death. Mort ~ death. Gage means to engage in something. To pledge to do something. Mortgage therefore means 'to engage in something till your death'.
Think about it, today's mortgage of 30 years is a long time. Something you engage almost to your death.
Friend: You are right.
Me: If you buy a house or RM250,000, buy the time you finished paying your mortgage 30 years later, you would have paid more than half the price to the bank. About RM500,000 or more.
I pay about RM1,300 to the bank every month. I can save those money by renting a cheaper property and invest the extra away and be a millionaire sooner than I can. And I can take part of that million Ringgit to buy a house if I so wish for one at that time.
Friend: Yes, I have thought about it. Why would people want to pay so much for a house and pay for so long? It just doesn't make sense.
Me: Now, see here. (I was showing the price of gold to my friend on my iPod Touch using Starbucks' wifi.) Price of gold is now USD997. I bought when it was around USD901 on 30 January 2009. It's not even a month. 10% profit is achievable in investing in gold. We just need to buy at the right time. And sell at the right time.
Friend: OK. I will start to invest. My... why no one tell us this?
Me: People don't spend their time wisely to study how to invest. They rather watch TV. They surf the internet watching YouTube to get entertainment. They play Facebook. They play online games. They are wasting their time.
I use the internet to get knowledge, to learn how to invest. There are a lot of knowledge on the net. And we just need to read.
Friend: Yah, people just like to watch TV and those stupid dramas.
Me: Oh, and one more thing.
It's all bollocks. Those that still think you need to buy a house. You can just rent and still have a roof over your head. A house is for what? It's just to provide us a roof over our heads. If you have money, why worry? You can live anywhere you want. There will always be places where you can rent.
They say 'oh, if you don't have a house, it's not safe.'
If you stop paying the bank for 3 months, what will happen?
Friend: The bank will take it away.
Me: Yes, exactly. And you lose all your downpayment money, you lose all your legal fees. You lose all the years of mortgage payment.
But if you don't pay your rent for 3 months, you have saved 3 months of rental! Haha.
Friend: Yah.
Me: So, everyone. Those ordinary people continue to live their lives as slaves for the banks. They continue to be the slaves at the companies they work with.
I always tell people don't buy a house! What if you lose your job? In this kind of time we are in, where to find a job immediately? You will have a mortgage to worry about when you are jobless. Our job is never secured. The longer your mortgage is, the worse it is. You make sure you can continue to have a job to pay for your mortgage for the rest of the tenure.
Friend: Uh huh.
Me: If we are debt free, no mortgage, we can move anywhere we like. When the neighbourhood turns bad, you just move without worrying the value of the house is going to depreciate.
Speaking of that, you also have to maintain your house. Spending more money. Painting the house when the paint gets old. I would rather save it up and invest. Haha.
RM50,000 is everywhere
That first RM50,000 is always elusive. I have shown to you that I can save RM1,000 every month even while I was earning RM2,000 a month! There are people earning more than that today that can't even save a thousand every month!
You need to have discipline. Brutal discipline. No mercy for yourself. Delay all your spending if you want to live a luxurious life later. Otherwise you will just be a slave for the rest of your lives. That's why majority of the population are working class and they are what I call ~ slaves and minions.
You can have your first RM50,000 within the first 4 or 5 years of your working life if you save hard. And make real good use of the following 6 years to flip it to a million. If you start working at the age of 21, add 5 years and add another 6 years ~ you will be a millionaire at age 32!!
Most of us are above that age and are still slaving away everyday at our office proudly. Stuck in the morning jam and the evening rush hour. Where's the fork? This is not the life that we should subject ourselves to.
Now that you know this plan. Start taking action. Don't waste the rest of your life away. What do you think?
A disclaimer: Invest wisely. Don't go sell your house to get that RM50,000 and invest wrongly in some investment and then put the blame on me. This are just my thoughts. And all the writings on this blog are just personal thoughts of the respective writers. You make your own decision.
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16 comments:
Interesting conversation ^_^
Do you actually record the conversation? (Just kidding)
I agree that discipline is very important. There are always a lot of temptation surrounding us from time to time such as fancy phone, luxury car, irresistible entertainment and so on which takes out most our time and money. How many people can actually beat all these especially when you are young? That is also why life doesn't always go well as planned.
There are a lot of challenge in our life.
Well, I can't deny I'm one of the slaves too but I'll try not to be.
We might not that lucky to have 5 good chances in every year and also getting 10% profit or above each time. Gold price has up and down, same as gains and loses. Of course, timing and strategic are the way to go but there is no 100% guarantee.
Sometimes people might tend to get greedy too. When they can lock-in for a certain percentage of profit, but they wish for more that might end up losing more. I might be one of these people too. (gosh...I don't want to admit it) Like current gold price situation, I'm still struggling whether to take the risk or not. I could be double up my profit or lose my profit or even lose some percentage of capital. Well, let's see how it goes this month end.
And thanks Carson, I appreciate your advice to me honestly.
Anyway, your millionaire investment plan is still a good strategy to achieve the millionaire dream or... at least achieve one's financial freedom $$
despite royalstate or deathCert original means, today's property investment is one of the most unique vehicle one can use to achieve the target return you described here. However, property investment is an active income. Those who use passive methods on property are the ones who got disappointed.
but everyone can buy a house and passively stay there - which is different than using it as investment.
lastly, I don't think renting 'home' for your whole life is a good idea. if paying 30 years doesn't make sense, buy smaller house according to your capability and get a 10 years loan instead. Afterall, house loan is one of the BEST debt one can ever get.
if you dont have RM50k like me don't sell your house/car/etc...start with smaller amount where you can afford. me start with RM5k..
Anonymous,
that's right. Start investing with as much as you can afford. That will help you accumulate your first RM50K in a shorter time.
CK,
Haha, no I didn't record the conversation. But it went close to something like that.
It's not necessary to just think of gold as the only investment to get that five times of 10%. Any investment that can bring you 50% profit per annum is also very good. When gold is down, we must look for other investment ~ perhaps unit trust investment or the stocks.
Michael Tsen,
I agree with you. Property investment has to be utilised actively. Buying and selling it. I personally know a man who told me he made his first million through buying and selling properties. He did it within 6 years.
My plan is close to his. 6 years too but without the hassle of viewing houses. Buying and selling houses. Signing agreements. Getting loans. Paying loans, etc. He was a real estate agent and therefore doing all those was just something that he could do during his job. To us, it might require a lot more work.
I have run some figures weighting the pros and cons of buying houses vs renting houses. I still don't get good figures showing why buying a house is a good idea. Talking about that, a door frame in my house is infested with termites and needs replacement. Sigh, the joy of house ownership.
Example:
I only want to pay RM1000 monthly for my house loan. Assuming I only want to take 10 years loan as Michael Tsen suggested. Also, assume the interest rate is at 6% per annum.
Using Loan Shark (an application on iPod Touch), I can only afford a RM90,073.45 house. This is not yet inclusive of downpayment and other fees that I need to come up with. Probably need another RM15,000 or so for those.
At the end of the 10th year, I would have paid a total of RM120,000 to the bank. Out of that amount, RM29,926.55 is for the interest.
In comparison:
Now, say I put away RM1,000 every month. And pay RM500 for rental every month for 10 years.
Rental will be a total of RM500 X 120 months = RM60,000.
Say I make a mere 10% compounding return per annum with the RM1,000 that I put away every month. Let's calculate on my 'Unit Trust Investment Millionaire Calculator'.
That will give me RM206,552.02 at the end of 10 years. Ok, we need to deduct the RM60,000 for the rental that we have lost. We still have a remaining cash in hand of RM146,552.02.
What's the verdict?
Now, on one hand we have a house that we have paid RM120K in total. Not sure how much the house could be sold for after 10 years. Even if it's RM200,000, we are still only RM80,000 in profit. But we sure have RM200,000 cash in hand. Or RM300K in hand if we can fetch that price?
On another hand, we have RM206,552.02 cash in hand from our investment. A slight RM6.5K better off.
However, I have only projected a 10% annual investment return. This is really small. Run the figures yourself. Put in 20%, you will get RM382,363.55. Punch in 30%, you'll get RM752,684.14. What about 50%?
I have run these figures many times. I am still not convinced that buying a house is a good idea. House value grows linearly, whereas money investment has the compounding effect.
Unless, you want to sell the first house later and buy two houses. And then later becomes 4 and 8, and 16 and 32 and so on. Or change to a bigger and bigger house with bigger and bigger mortgages. Ah, remember, then we are back to square one ~ being the bank's slaves. And we need income to service the loan.
We might have read in many places that house loan is the BEST debt. We have to examine ourselves whether it's true or not.
A spade is a spade. A loan is a loan. A debt is a debt. We are still owing somebody money and it needs to be paid back monthly. As long as you are in debt, you are in a precarious position financially. Why not pay yourselves? Why not use that money to make money yourselves? Paying to the bank causes you to lose that 6%.
Do you think property investment can make you a millionaire in 6 years time if you begin with only RM50K? I am talking about nett value after deducting all loan amount. Show me some examples. Even if you can, I still believe the one that invests in stocks or gold (buying and selling method) would have far more wealth investing in the same period of time.
Of course, it's nice to have your own house. It's all about your priority. Whether you want to be a millionaire in 11 years or to be a slave for 20, 30 years?
Carson,
Isn't that you can only save RM500 per month since another RM500 is for rental?
You assume RM500 for rental and RM1000 for investment, the total is RM1.5k.
But you use RM1000 for house loan only, that's only RM1k.
For RM500 monthly investment for 10 years, you will end up about 100k.
So, let's say if you really have 1.5k each month for these 2 different scenarios.
1st Scenario: RM500 rental + RM1k investment
After 10 years, you have no house but only 200k cash.
Total assets = 200k
2nd Scenario: RM1000 home loan + RM500 investment
After 10 years, you have a house plus 100k cash. Your house value could be 200k.
Total assets = 300k
CK,
Well, you are right. Yeah, I have to take RM1.5K then. Good.
So, your workings are based on 10% return per annum. Yes?
As calculated above, "Put in 20%, you will get RM382,363.55. Punch in 30%, you'll get RM752,684.14. What about 50%?"
Well, I know, the examples of 20% or 30% are just hypothetical. Still, hypothetically speaking, we can have much more 'total assets' if we just put more money on investment and not for buying house.
Talking about houses, those houses which is few years ago worth 200k++ is now at least 500k++.
Even a condo now can be up to 1 to 3 millions (Thanks to all the speculators).
I think by the time you have 700k after 10 years, (After all the earnings over the years, you still wish to have an own house right? or your spouse will be nagging...) probably the money can only buy u a small unit of condo. But I don't think you will buy in cash, then you will have no money left.
If you don't buy a house, anything happen to you, you will be leaving only cash to your spouse and children.
What will your spouse and children do with the money?
They take over all your investments? If your spouse doesn't know how to invest, how? They will use the money for educational funds, ok house rental again, and so on....
If you have bought a house, they might not need to pay for rental anymore.
Sometimes I think money is not everything, once you have spouse or children, you also have to provide them some 'insurance'.
Life is not going to be easy...full of challenge.
CK,
Alright. Get what you mean.
You say a few years ago, how long was that?
I think if I am no longer around, my spouse will just move back to her mother's house. Or she will inherit the house from her mother.
Nevertheless, I understand what you mean. Some people just want to have the 'insurance' and 'security' of having a house.
After my father's departure (was renting), my mother continue to rent the house until all of us are capable to have our own houses. And she is now living with one of my siblings.
I guess probably I am used to renting before my marriage.
The best insurance to provide your spouse and children might be to leave them a good amount of money. Even if they have a house, they still need to work hard if they don't have money.
OK, well, again it's back to our own priority and thinking. Some like it hot, some like it cold. Some like it in the pot, some like it in the bowl.
I think about 8 to 10 years ago.
"until all of us are capable to have our own houses." I guess this means still need to buy house if I understand correctly because you mentioned 'own' house.
A great lump sum of money is good but for me, I would prefer left them a fully paid house for shelter, some money which cover most of their necessities and probably a 50k for them to start investment. They have to work hard and smart by themselves, otherwise they might not appreciate it. I don't want them to become 'yi sai zou' (wealth squanderer in cantonese).
Well, like you said, back to our own priority and thinking.
Actually I'm quite impress one can save 50% each month after graduation. After years of working, even saving 30% becomes challenging.
Btw, if gold is down, probably stocks can accumulate wealth (put aside property first) but can also ruin your life if do not have a good strategy and know the market well. But I still don't really get how unit trust investment can create wealth for you in short time since most probably the return is only less than 10% per annum. Maybe one of your post next time will talk about it since your blog initially is about unit trust investment ?
I have a condo worth more than 200k that I have been staying for about 9 yrs. After reading lots of investment advice now I rent out my condo for RM1300 and rent a small apt. for RM580. How's that?
When I tell others they always have a funny expression. Must be thinking I'm nuts.
Hi caryn,
If I were you, I might be doing the same thing. I guess the monthly installment for your condo is less than the rental you received. So if that is true, it would be like paying less than RM 500 monthly installment and you will have more cash flow. But the problem is whether you are single or married. Normally a family would prefer to stay at their own house unless all your family members think like you.
Caryn,
That's great what you are doing. That certainly helps to reduce your loan or give you extra cash very month.
CK,
I think you are too obsessed with having a house for family. Haha. But it's good, because if you have a life policy (MRTA) to cover your house then your family can inherit the house loan-free. That also means, for those who are renting and yet also have a life policy insurance, all the cash will go to their family instead of to the bank.
The discussion of buying a house and renting a house is never ending. I guess it's your own preference. However, I don't see those buying house to be more successful nor those renting to be any poorer.
As long as you manage your life and funds well, buying or renting is good. We just need a roof over our heads irregardless of who is providing it.
The rules of the game is simple, pay yourself first!!! even if you running the family or business this is have to be the way. The problem with our community now to make the bank, loan provider, etc getting richer every end of the month is a norm and this mindset will be inherit to the next generation.
CD, keep up the good work. This side really an eye opener and jaw dropper to me towards the investment world.
Financial freedom, here i come!!!
muselayang
muselayang,
You are right with "Pay yourself first".
Paying a mortgage is also a form or renting ~ "renting from the bank".
I found a great site previously. Have been reading many of the articles. Very good site. This article comparing buying and renting house is also a very good read.
http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/
There are over 200 comments on that article. For those interested, can read more there.
People are strongly ingrained nowadays that they must buy a house. Plan wisely or we will be a bank-slave for a long time.
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