Most people ask ‘how to be rich’.
But for once let us invert the question and we might get more wisdom out of it – how to be poor?
There is utility in asking this question because you need to stay in the game long enough to have the chance to get rich. And staying in the game means becoming financially sound in today’s context. Which in turn means avoiding behaviour or habits that make one poor in the first place.
Here is a list of things I think would make most Singaporeans poor. Do them at your own risk.
Buy a car
Singapore is notorious for having the highest cost of owning a car in the world. One of the more ‘affordable’ car in Singapore is priced at $74,999 at the time of writing. And here’s a list of estimated monthly cost:
- Monthly instalment = $747
- Petrol = $240
- Road Tax = $42
- Insurance = $100
- Maintenance = $100
- Parking = $180
- ERP = $50
- Washing = $10
- Total = $1,469
Singapore median income in 2020 was $4,534. But this is inclusive of both employee and employer CPF contributions. I estimated that the take home amount is about $3,120.
This means that a median income earner would have spent half of his salary on a car if he has one. He would have about $1,651 for the rest of his expenses, savings and investments. Definitely some level of thrift lifestyle is necessary in order to keep within the budget. Otherwise I would say that at least half of the Singapore population should not even buy a car.
That’s a huge saving to begin with.
Get into credit card debts and borrow from loan sharks
I know of some people who are forever in debt. They never seem to be able to get out of it. They merely borrow from one party to return to another. They just keep rolling and the debt keeps growing.
This habit is not only seen in low income earners. I have seen high income earners who are in credit card debt too.
The difference is that high income earners tend to have credit card debts (because they qualify for them) and low income earners borrowing from licensed moneylenders as well as loan sharks.
Credit card interests are notoriously high at 24% per annum. Loan sharks probably worse – you might have to suffer broken ribs as part of the interest payment.
Think about this, can your income grow at 24% per annum? Possible but unlikely. Especially if you are mired in debt and busy spending money, it is unlikely you can focus and do well in your job. It is also likely you have no savings that’s why you needed to borrow. Your cashflow every month is also negative. How are you going to repay the debt when it grows bigger each month?
Bet big on 4D and Toto
I am not against gambling. Playing for a little excitement is harmless. But betting big isn’t.
I know of people who bet $100 to $800 on just one set of 4D numbers. And they buy many sets per draw. Easily few thousand dollars going into lottery a month!
The odds of striking 4D (not necessary first prize) is 0.0023%.
Toto odds are worse – you have 0.000007% chance of taking the first prize.
Compare this to 0.0002% chance of getting hit by a lightning, or 0.02% probability of getting hit by a car. These are likelier by far.
Singapore Pools hires smart people to calculate these odds and the numbers are drawn in a controlled environment so the reality unfolds close to what their model suggests. You have little chance to outsmart them – the odds are priced disadvantageously against you.
With such low probability, it is of no surprise you will lose money in the long run.
Invest in ‘get rich quick’ schemes
There’s someone out there being scammed while you are reading this.
Similar to gambling, humans are inclined to be enticed by get-rich-quick schemes. The salesman can be so convincing and put you in a trance that logic doesn’t prevail anymore – you are in a state where you believe your life goals and dreams can finally be achieved.
- This 83-year-old lost $120,000 in fake gold ingots.
- A 65-year-old retiree lost $100,000 in a wine scam.
- 7 investors cheated of $78,000 in bitcoins.
- Unusual investment such as agarwood can also be a scam.
- A 78-year-old invested $500,000 in a land banking scam.
The list goes on…
Money is very difficult to earn and wealth takes a long time to grow. Scams are one of the worst ways to lose a big part of your wealth. Stay rational!
Wait, but why?
I have singled out four undesirable behaviour that makes one poor in Singapore.
But these are symptoms.
Why are some people behaving these ways repeatedly? Why can’t they spend less, save more, invest wisely like some others?
Wouldn’t they want that too? What’s stopping them from doing it?
Morgan Housel, in his excellent book The Psychology of Money, explains the gambling behaviour well:
The lowest-income households in the U.S. on average spend $412 a year on lotto tickets, four times the amount of those in the highest income groups. Forty percent of Americans cannot come up with $400 in an emergency. Which is to say: Those buying $400 in lottery tickets are by and large the same people who say they couldn’t come up with $400 in an emergency. They are blowing their safety nets on something with a one-in-millions chance of hitting it big.
That seems crazy to me. It probably seems crazy to you, too. But I’m not in the lowest income group. You’re likely not, either. So it’s hard for many of us to intuitively grasp the subconscious reasoning of low-income lottery ticket buyers.
But strain a little, and you can imagine it going something like this:
We live paycheck-to-paycheck and saving seems out of reach. Our prospects for much higher wages seem out of reach. We can’t afford nice vacations, new cars, health insurance, or homes in safe neighborhoods. We can’t put our kids through college without crippling debt. Much of the stuff you people who read finance books either have now, or have a good chance of getting, we don’t. Buying a lottery ticket is the only time in our lives we can hold a tangible dream of getting the good stuff that you already have and take for granted. We are paying for a dream, and you may not understand that because you are already living a dream. That’s why we buy more tickets than you do.
Basically it is easy for us to judge someone else’s undesirable behaviour without really understanding his context.
Maybe I don’t feel as sympathetic as Morgan Housel as I think that individuals can also do the right thing, though harder, even when they are put in bad environment. I know at least one person who did well in life despite growing up in rental flat.
For me, I used to be a spendthrift and had problem curtailing my spending and have some savings. I knew the importance of saving but I never really believe it and live it. It was only until my parents lost their house that I began to realise that it can be real serious. From then on I made up my mind that I can do a good job with my finances.
So I guess the crux of the issue is having the right money mindset. But changing mindsets is one of the hardest things to do in life.