What the Rich, the Poor, and the Middle-class buy on Pay Day.
There are many theories why the rich becomes rich, or the
poor becomes poor. Some say, it is in their blood. Some say, the rich have the divine blessings of the God. And even some argued that, they just got lucky. Either way, it will still be hard to maintain that large amount of wealth, if you're just lucky, or you need constant God blessing. Maybe that's why those rich men attend church every Sunday? No matter what you think, God plays no part in the difference in wealth accumulation. These are worldly things, if you'd remember. If it's true that God favor the rich, then those poorer (relatively) should buck up and repent. Just kidding.
If that's your God, I would suggest you to find a new one. X'D
Finished with the introduction, maybe we should proceed
to the real topic of the day. This is one of the interesting theory I'd saw somewhere on the internet. What you will read may be partially true, as there is no one single factor which determines wealth accumulation. Therefore, viewer discretion is advised. A financial advisor's (preferably not parents) guidance is advisable.
First thing first, we need to redefine our terminology and concepts in these topic. There are few words has been redefined in this sense. So, scroll down and have a look.
Income - Any money that you receive, whether it is for a job done, or goods sold.
Expenses - Any money you fork out to pay something, or you pay someone
Asset - Anything that helps you to generate more money periodically
Liability - Anything that costs you more money (you pay out more) periodically
Now, I realised that the asset and liability has been
redefined and may confuse those having accounting knowledge especially. But, this is just a term used to explain the things I would jot down later. So in this case, anything you own may not be an asset. A house you are staying in is not necessarily an asset, because you may have to pay for home loans, maintenance, eg. and you are not receiving any money from it. A house you rented out is an asset, because you receive money for renting it out. A car will always be a car, which is a liability, because you have to pay for its maintenance, car loans, and the most importantly, it has a depreciation value, unlike a house, which you can argue having an appreciation value. Of course, if you are doing car-renting business, that is a totally different story. Thus, a boat is also a liability.
On a side note, a girlfriend tends to be a liability too. A wife, on
the other hand, can be an asset or a liability, depending on what have you chosen. (Singaporean girls tend to have a higher maintenance cost)
Okay, so at the first day of the month, I'm sure every employee
will look forward to this day. This day makes all the employees happy, including your parents. Well, unless your parents are employers, which can make them sad... It's Pay Day!! How would we, as humans, tend to spend our money? There are generally 3 groups of spenders. The rich, the poor, and the middle-class.
Let's start with The POOR. On payday, the poor receives
INCOME. While this income may not be much, they put it in
EXPENSES. Apart from basic stuff like food, they also buy unneccesary stuff like in garage sales. Yes, they may argue that these does not cost much, but little by little, it all adds up to one large amount. "Sikit-sikit lama-lama jadi bukit" or "Sehari seanyam benang, lama-lama menjadi kain."
Tracing back to the Malaysian society, the typical
EXPENSES we observe are clothes (yes, necessities become uneccesary if you have more than needed, or if you're buying too many branded items), luxury food (once in a while is nice, but spending all your parents money all the time on such stuff?), handphones (I admit me too), car accesories, cute dolls, and many more. The poor may have savings, but in the end, those saving are still used on
EXPENSES. In the end, the balance sheet will look like this:
INCOME = EXPENSES
What about the Middle Class then? Now, middle class
people tends to be professionals. Be it accountants, engineers, doctors, lawyers. These are the groups that tend to be perceived as more well off. The poor envy them, because they lead a better life, or it may seem. The middle class are smarter in the sense that they may not spend all on
EXPENSES, and have savings. While they can have savings, they spend it on cars, boats, or a bigger house to stay. These money are actually spent on
LIABILITIES, because they make you pay more periodically. This, in the end, also indirectly leads to a higher and higher
EXPENSES without them actually realising it.
Therefore, while they tend to be 'better' off, they do not
have much money. Once they are incapable of earning money via their skills trade-off, they have nothing much to rely on except their savings. Some may be able to sustain their life through savings, and some may not, especially when your hyena children are eyeing on your savings and by all means try to make you fork out your savings. Thus:
INCOME = EXPENSES(increases over time due to liabilities) + LIABILITIES
A hot gf and a car like this? You'll get a nosebleed frequently. They are liabilities
As their income are generally constant, (does not increase
exponentially, and working for a company as an emplyee) the increase in EXPENSES may be able to kill them if not carefully taken care of. This is the irony of all professionals.
And lastly, we have THE RICH. What I'm describing
the 'rich' here is their mentality, and the description depicts them when they are still uprising. What do the rich buy on payday? While they are still human, they still have
EXPENSES. But, just like the middle class, they have savings. This is where the 'something in common' stops. The rich spend their on
ASSETS. Something that would create more money. It may be a house to rent it out or just a pinball machine. With these
ASSETS, their
INCOME expand by time, increasing their spending power. Once they have more INCOME, they buy more
ASSETS. And
ASSETS gets more
INCOME. This healthy feedback will make them rich in time. Thus:
INCOME = ASSET acquisition = more INCOME = more ASSET (Continuous cycle)
Don't believe me? I'll quote a person for example. Warren
Buffet, the 3rd richest man in the world.(As of April 2007 - current net worth U$ 52 billion, by Forbes)
When he was 15 years old, he and a friend bought a pinball
machine for $25, which they placed in a barber shop. While he is free to tend to his own things, the machines generates profit. With this money, one would expect him to buy a luxury item. Bet most of you will go and buy the most expensive and trendy handphone. Instead, he used the money to get more pinball machines!! Within months, they have 3 pinball machines in 3 different locations. And we were all still parasites when we were 15. -.-"
Warren Buffet
Born: Aug 30th, 1930
Again, Warren Buffet is a special person. He's 76 going
to 77 this year. He's famous for being unpretentious and fugral (careful and thrifty). Just as quoted by Wikipedia, when he spent U$ 9.7 million of Berkshire's (his company) fund on a corporate jet, he named it The Indefensible. Reason? He had been critising past CEOs for such purchases. X'D. He lived in the same house he had since he was 28, bought at U$ 31,800 at that time. Bet many of you would have change houses more than now you change handphones if you'd that much of money eh?
I'm not trying to show how to be rich. It's just that many
people blame others for their own doings. Perhaps, because of this attitude, many could not escape the wrath of rat race. The rich gets richer, and the poor gets poorer. But being rich is not neccesarily happy, so just strike a balance. I'll prefer to advise everyone to spend wisely than how to make money. Besides, I'm not rich yet. And far from being one. And the last one, get a wife who can be an ASSET, not just for her assets. X'D
END OF LESSON
P.S. Just don't take this too seriously. It's meant for light reading actually, but guess I might have gone overboard. For more reading on Warren Buffet, here's the link to Wikipedia:
