The Psychology Of Money And Why Everything Has A Price, Including Real Estate
About 20 years ago, I had a discussion with some of my classmates and friends before we entered the national service. If you are not aware, Singapore has a national policy of conscription where all male Singaporean Citizens and 2nd generation permanent residents need to serve in the uniform services. Some of us thought the national service was a waste of time. From our perspective, we were giving away two and a half years of our lives to run around the forest and shoot at invisible enemies. Two and a half years was a long time; imagine all the things you can do! You could backpack worldwide, complete your higher education, or even accumulate two years of full-time income.
Sometimes The Most Important Advice In Life Can Come From The Most Unlikely Places
While most instructors treated army recruits as lifeforms that were less worthy of a single-cell organism, there was one that stood out among the rest. He told us that everything has a price, and the price of peace was the preparation for war. Of course, being young and foolhardy, I did not take his words to heart; they just became a distant memory. Despite the faint recollection, everything became crystal clear and made sense when I recently picked up the book “The Psychology of Money”.
The Gas Attendant Who Became Wealthy
The book is called “The Psychology of Money” because our behaviour with money is the most crucial element in wealth accumulation. Take the example of Ronald Read, a gas station attendant and janitor who managed to accumulate $8 million at the time of his passing. Many people were puzzled as to how Ronald Read accumulated his wealth. He did not win the lottery, inherit the money or obtain it via some ill-gotten methods.
The Fund Manager Who Fell Into Poverty
At the other end of the spectrum, we have Richard Fuscone. Richard graduated from Harvard, got an MBA at the University of Chicago, and became a vice chairman of Merrill Lynch’s Latin America division. Richard’s accomplishment in managing funds was so brilliant that he retired in his 40s to pursue “personal and charitable” interests. For many of us, Richard is a poster boy of what we would define as a successful person. Unfortunately, when the financial crisis hit, Richard declared personal bankruptcy. We hear these stories happening all the time to celebrities and professional athletes. But a professional money manager? How is this even possible?
Education Level, Intelligence and Income Has Nothing to Do with Wealth Accumulation
Ronald Read was not an isolated case; many others have similar results. These examples tell us that education, intelligence, and income level have little to do with wealth accumulation. More importantly, how we react to money matters the most. Becoming wealthy is, therefore, a choice and the price to pay is our response to it.
Lesson 1- Spend Lesser Than What You Earn
This logic is straightforward. The only way you can accumulate savings is to spend lesser than what you earn. However, getting this done may not be as easy as it seems. Once you satisfy the first three levels in Maslow’s Hierarchy of needs, there is always a tendency to fulfil the fourth one. The esteem need or the ego-driven desire to be respected among our peers can be an incredible driving force. Some people fulfil this need by purchasing luxury watches, handbags, or a nice car. The situation is so bad in South Korea that they even created a name for women who pursue luxury items by scrimping on essentials.
Lesson 2-You Have to Invest and Acquire Assets.
Although Ronald did not have a high-paying income, he invested what he had consistently into the stock market. Ronald’s choice of stock was mainly dividend-paying companies because the dividends could be reinvested and compounded his returns. As the days went by, Ronald became less of an employee and more of a passive business owner as he continued to hold more and more shares. At the time of this death, they discovered that Ronald had shares in 95 companies.
Wealth accumulation is only possible if we are capital allocators. Billionaires are created using the same method. While you may argue that some CEOs receive massive paychecks, their ability to get them ultimately depends on the company’s performance. And performance is always contingent on the CEO’s ability to successfully allocate capital in the company.
Lesson 3-Black Swan Events And Patience
Despite being an experienced money manager, Richard Fuscone lost everything. There is always something unexpected to blame, the Asian financial crisis, dot-com bubbles, pandemics, and the list. The thing about Black swan events is that they will happen no matter how prepared you are. While you may be optimistic about a current bull market, it does not mean it will continue in that same direction. Markets can turn sour fast, but that should not prevent you from allocating capital. Time in the market always beats timing the markets.
All you need to do is to be like Ronald; prices go up, buy some. Prices head down, cry a little but buy some more. Your patience will reward you handsomely. Of course, Ronald happens to invest in a country with a system that rewards shareholder value. A country that attracts the best talent will ultimately convert this labour into a dollar value.
What’s The “Price” of Purchasing Real Estate? Simple patience, just like Ronald
For those who put money into real estate, it is still essential to hold on for dear life, but the game is played differently. Instead of all the stomach-churning volatility, all you need to do is to team up with a financing partner and make regular monthly payments for the next 20 to 30 years in a country that is stable, safe, and growing continually over time. The end reward is a product you can use for the rest of your life or even across generations. And the price you paid remains at day one, albeit with financing charges.
Article contributed by Jerry Wong.
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment, and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in asset progression, tax planning, financial calculations, rentals, sales, etc.
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