After close to a decade in this industry, I've reached a conclusion why it's easier to help some groups of individuals improve their quality of life. It's easy to assume a number of things when reading titles like these on how people do it.
People who move up the wealth ladder have high incomes
People who move up the wealth ladder only need to take care of themselves, no parental responsibilities or children
People who move up the wealth ladder studied in good schools and have prestigious jobs
While some individuals do fall into these assumptions, many don't. Let me explain.
There are multiple variations on how people define social mobility and wealth but here's how I choose to define it. As you can see, there are different levels on the wealth ladder. Moving up the wealth ladder simply means starting at a lower point and progressing to a higher point. Hence people comes from all walks of life and the above assumptions that you can only succeed with high income and no dependents isn't an umbrella fact.
Interestingly, I've also noticed that many I've worked with who successfully improved their lives over the past 3-4 years come from modest families where they need to support their households and some have modest incomes.
So if not these assumptions, what makes these people more successful in moving up the wealth ladder than others?
I would attribute it to these mindset and behaviourial differences.
They are willing to sacrifice early in life
Many of these individuals understand the concept of delayed gratification. At the early years of their career and life, they display fairly frugal traits and rarely indulge in hyper short-term gratification. What this means is they don't spend regularly on indulgences like Starbucks, bubble tea or Grab even though these expenses may give us momentary happiness. This doesn't mean they live like a monk just that these occasional 'splurge' are far and few, certainly not weekly.
On average, because of their lifestyle choices, they typically have a high savings rate of at least 50% of their income.
They are also forward looking
Besides a high savings rate, they also make sure their funds work harder for them and they partition their funds for different goals. Many of them are very open to financial instruments as they are aware that saving in the bank erodes their spending power. Given their high savings rate, they are aware that the opportunity cost is higher since their money today can purchase more items if they decide to spend it.
Additionally, they are aware of their goals at different life stages. For example, a young person might be aware they need money for wedding, renovations for housing yet is also aware that starting their retirement planning early will use less resources. Hence, they will apportion their funds for these purposes in varying proportions.
Wouldn't they have less resources for their wedding, renovations and furniture of their future house?
Yes but it's also about expectation management. As mentioned, these individuals are willing to sacrifice early in life. They understand that these near term life stages are important milestones but they also recognise that longer term goals are equally important hence they do not wish to compromise on them. Which is why they cater for each of these goals to be met.
Does this mean they have very high incomes?
Not necessarily. Let me break it down for you, imagine a person earns about $4500 a month. After CPF they take home about $3600. If they save 50% of their income, they would save $1,800. If they allocate 60% for wedding and housing and 40% for longer term needs, they would have saved $1080 per month for wedding and housing and $720 for long term goals. Most people take 3-5 years to save for their wedding which means they would have saved $36,000 - $60,000 per pax for these goals. Do note, this is not taking a person's annual bonus into account.
They invest early
For a start, these individuals understand that the big money comes later in life. They simply have to start now. They also acknowledge there's usually a lag time in between life stages, hence making their funds work hard while not in use is important so that they do not waste the time.
Most individuals who can't move up the wealth ladder have a different mindset. They are constantly worrying, 'what if they need the funds next year?'
This worry is unlikely to happen for the first group because they plan their life events. In other words, they don't rush into a wedding at the spur of a moment, nor would they randomly purchase a house. Many times, these individuals have these planning in place even before they get attached.
They bother to explore their financial options
Very often, people avoid making their funds work harder because they assume financial instruments must be long term and lack flexibility. However, times have changed!
There are financial instruments that are highly flexible which can cater to shorter term needs as well as financial instruments that cater to longer term needs. Obviously, if one isn't working in the financial services industry, they wouldn't know what's available in the market unless they talk to someone in the industry or a friend who has some experience with the options available.
Most of these individuals who move up the wealth ladder tend to make time to explore their options.
They plan long term
From the description of these individuals, it's probably telling that many of them lead fairly grounded lives. This means that they do not believe in the sustained feasibility of fast easy money. Many of these individuals understand that their investments should be long term. In other words, they do not judge the effectiveness of their investments within a 1 year time frame.
This mindset is important because it keeps these individuals from reacting to the market whenever something causes volatile movements. In fact, when markets are down like now, they typically invest more funds because their mindset is geared towards their future plans.
Taking an active interest in their money also means they are highly aware where their funds are being channelled to. This often means they do not confuse wealth accumulation tools as expenses. Which is crucial because this awareness helps them avoid holding unnecessary amounts of cash. It's pretty common for people who struggle to move up the wealth ladder to hold an excessive amounts of cash as they do not view financial instruments as an accelerant towards their near term goals. People who can move up the wealth ladder simply have the foresight to deploy funds into flexible instruments when they do not need it YET and are consciously aware to what extent the funds are accessible. In short, they are in control.
They have a robust emergency fund
Most importantly, people who successfully move up the wealth ladder have set aside a robust emergency fund which they don't dip into for every small emergency. Often, this is 6 months of their income.
How do they save so much you may ask?
High savings rate remember? Even after they completed saving for their emergency fund, they maintain their high savings rate consistently which is why they have resources to invest. As their salaries grow, their resources also grow. In fact, most of their expenses do not grow until they progress to a new life stage. So their accumulation of funds gets faster during the years where they have not reached the new life stage.
Summary
To conclude this article, here are the key points of how people who successfully move up the wealth ladder do it.
Be willing to sacrifice lifestyle at the early part of life
Develop a high savings rate
Be forward looking (don't only plan for the next priority in life, cater for different life stages)
Invest your surplus early
Be open minded in exploring your financial options (not every instrument is long term and inflexible)
Have a long term mindset
Have a robust emergency fund
Personally, I've seen multiple individuals starting with modest incomes and elderly parents who depend on their financial support move up the wealth ladder because of the way they manage their wealth. This is why I'm a big believer that it's highly achievable. The bigger question we need to ask ourselves, are we objective and unemotional when managing our wealth or are we emotional and wilful with our money?
After reading this article, you may have some questions or may want to find out more about how to make your money work harder for you. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about growing their wealth.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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