Here is an example of a man who slowly built his wealth for many years. A legendary rags-to-riches taipan and a shopping mall pioneer. He is now considered the richest man in the Philippines owning over 30 malls (and counting) a top bank and a lot of real estate. Most of us know his story of humble beginnings, driven by a strong vision and stern discipline and frugality. He is a first generation millionaire (now billionaire) and has now passed the business empire to his children.

Many people who are high-income earners may not end up to be rich because of the high lifestyle that they maintain. They fail to accumulate any lasting wealth. They are more concerned of the image that they have and continue to buy the symbols of the rich: $$$. Even the middle class people are not spared of this financial trap. They live hyper-consumer lifestyles that they spend their money faster than they earn it. They even incur a huge amount of debt and end up paying for it their entire life.

Prov. 13:7 One man pretends to be rich, yet has nothing; another pretends to be poor, yet has great wealth.

On the other hand, in the book Millionaire Next Door, the authors Stanley and Danko, made a study of America’s decamillionaires (net worth above $10MM) and have found some interesting facts common to them.

1. Most of these millionaires are first generation millionaires, which means that they did not inherit their wealth but have accumulated it through saving and investing.
2. They live well below their means (which means that income is greater than their expenses). They budget and plan their expenses. They practice the “pay yourself” or set aside approach i.e. taking 10-15% of earnings and set aside as “untouchable” for personal spending.
3. They believe that financial independence is more important than displaying a high social status. In other words, they don’t care about image. Many of them don’t own flashy sports cars. They drive pick up trucks and keep them for years. Some even buy used cars. They don’t buy expensive watches or jewelries. Many of them don’t buy signature brands of clothing like Armani suits or Prada bags. They go to regular department stores to buy what they need.
4. They are frugal. Instead of looking for things to buy, they look for opportunities to invest their money in. They believe that the more time someone spends buying things that “look good,” the less time they spend on planning their personal finance.

These are some of the things that the authors found common among the millionaires that they surveyed.

I am not saying that we live like a pauper. We can live comfortably and moderately and at the same time be aggressive in saving and investing. You need to find your balance. I have no problem in buying signature items (I own a pair of Chuck Taylors!). Make sure it’s part of your budget which is written down.

I realize that there are no shortcuts in building wealth. We all have a chance to accumulate money and have a nice and comfortable retirement. Don’t just live for the moment. Live with the future in mind.

Do you want to look rich or be rich?

Is it possible for a person to end up with millions for retirement even if he is just a regular employee like a call center agent, sales associate, bank employee or anybody who is earning a meager income? I believe the answer is “YES!”

It starts with having the right mindset. Most people have a mindset of consumerism. They live for the present. They spend ALL their hard-earned bucks for things that do not have lasting value i.e. shoes, clothes, the latest iPhone or gadget, a new car, frequent dine-outs (date nights with wife is fine, of course!), an exotic vacation, etc.

While I can always find the justification for such expenses, the real questions are “Do I need it?” and “Do I have the budget for it?” Don’t get me wrong. I’m not leaving faith out of the equation. I am merely pointing out an irresponsible and oftentimes presumptuous approach to finances and spending.

We have to change our perspective from short-term to long-term thinking. As my friend Chinkee said, “The poor thinks daily in terms of making both ends meet. The middle class thinks in monthly terms. Whereas the rich thinks in annual cycles or even decades when it comes to investments.”

In other words, the longer the term of perspective, the better the decision-making.

When my daughter Bea was around 8 years old, we brought her to Toy Kingdom. When we entered the store, I gave her P100 and told her, “You can buy anything you want with your money (which was not much) today or you can wait another time and I’ll double your money so you can buy a better toy.” She was excited as she walked in to the huge store with millions of pesos worth of inventory. Guess what she did. She decided to use the money to buy stationeries and other small items, which did not last a day.

She saw an opportunity to buy but failed to see the other opportunity of doubling her money if she just waited. Just like her, all of us are exposed into the world where billions of products are for sale. There are so many choices to make. But instead of waiting for a better opportune time, most of us decide to go for the kill and buy what we want even if we can’t afford it. Some even spend tomorrow’s income today by buying on credit installments or mortgages. You have already committed future income payments for the item that you buy today. People want to look rich instead of really being rich. Huge difference.

Prov. 13:7 One man pretends to be rich, yet has nothing; another pretends to be poor, yet has great wealth.

Again, the longer the term of perspective, the better the decision-making.

More on this topic in my next blogs . . . .

According to author and financial consultant David Bach,
“The Latte Factor® is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself. Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, fancy coffees, bottled water, fast food, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.”

In other words the “Latte Factor” is the unnecessary “little” expenditures that can drain our hard-earned money without realizing that they can add up to a huge amount. It’s the little foxes that destroy the vine. It’s a small stone that killed Goliath. If we are not conscious of our spending, chances are there are a lot of little wastages that occur with our money which can be redirected to a savings fund.

I remember when Starbucks newly opened, there was a week when I spent P1,000 worth of coffee. Now that’s about 9-10 cups of coffee but if I continue doing that, it will amount to P52,000 a year. That’s a potentially good savings if put in a sound investment portfolio or mutual fund. I decided to cut down on my coffee purchase. Please don’t get me wrong. I’m not against buying Starbucks coffee. In fact, I love it! What I am saying is to identify your latte factor (whether donuts, chocolates, soda, clothes, shoes, etc.) and start working on it in your savings.

An important principle to bear in mind is:
The best way to save is to spend less than you earn over a long period of time.

The problem is not how much we earn. . .it’s how much we spend! Most of us are natural born consumers.

Many times, people who receive an increase in income still cannot save because there are always things that they think they need when the increase comes. If we don’t radically change our mindset on handling finances, we’ll always be living from paycheck to paycheck.

Prov. 13:11  Dishonest money dwindles away, but he who gathers money little by little makes it grow.

LET’S DRINK TO THAT!

Bill Gates created the Microsoft empire and has amassed a huge fortune since 90% of the world’s computers run on their operating system. (Unfortunately, I belong to the 10% who don’t use the Windows platform.) Last June 2009, he stepped down from the day to day operation of Microsoft to focus on philantrophy. He is now running the world’s largest charitable organization – the Bill and Melinda Gates Foundation valued at $27.5 billion. He co-chairs with his dad, Bill Gates Sr.

When asked [by Fortune magazine, July 6, 2009] what was the best advice he ever got, his response was his dad encouraged him to do things that he wasn’t good at –in sports like soccer, swimming and football. (This is contrary to some leadership teachings that says you only focus on things that you are good at.) What it did to him was to be exposed to different leadership opportunities and it also showed him that he wasn’t good at a lot of other things. Talk about teaching humility the hard way.

Bill’s father, Bill Gates Sr. made sure that he would get along with and encourage the right things with his kids. Family traditions and values are observed. His dad and mom even took parent effectiveness training in their church.

We can see two things:
1.    As a parent, don’t underestimate the impact of your influence over your child.
Prov. 22:6  Train a child in the way he should go, and when he is old he will not turn from it.

2.    As you are growing up, never cut your ties with your parents for advice. This is still seen now in their foundation since Bill’s dad co-chairs with him. Bill Sr. is still considered as the voice of wisdom for Bill.
Prov. 19:20  Listen to advice and accept instruction, and in the end you will be wise.

I remember asking my mom and dad for advice many years ago as I was making a decision whether to go to business or become a pastor. They said, “Never make decisions based on money.” I decided to be a pastor and never had any regrets. Thanks for your wisdom, Mom and Dad!

What about you, “What’s the best advise you ever got?”