Friday, September 7, 2007

Requiring Little Needs, But Having Too Many Wants

by klse.8k
Translated by Felix Leong
[Link to original article (Simplified Chinese)]

Comparing a pair of Nike shoes worth $199 and a pair of normal sports shoes worth $59, which do you think is a "need" and which is a "want"? I had once asked a girl who had just done with her part-time job during the holidays, and she asked me rhetorically: A woman bought one kilogram of rice* daily, do you think that she "needs" it or "wanted" it?

I later realized that she often encountered the same customer with such buying habits when she was working there. At one time, with great curiosity, she asked the woman why she didn't buy the five kilogram pack of rice as it was cheaper. The woman then asked her back: Do you think this is what I wanted?

To that poor woman, the ability to buy five kilograms of rice is already a "want", due to the fact that she can't afford it, she had to resolve for the lesser and only bought the one kilogram of rice that she "needed".

At first when I heard my famous friend telling me that "A person doesn't need a lot, but our desires are never satisfiable", it had me thinking for several nights. If you want to learn how to manage your finances and become rich, this quote must be kept to heart. In order to pursue what they "wanted" but not something that they needed, many people didn't hesitate to borrow their "future money" (read: taking up loans) in order to satisfy their impulses.

Such behaviour is like the person XXXXX* described in his book who took up a bank loan in order to beautify the gate of his bungalow: such renovations will only attract thieves, was such a spending of his future dollars was really "needed"? Being able to live in a bungalow must be someone capable, even such a person is incapable to manage his money properly, don't you think such personal finance knowledge is lacking among the people around us?

Physical things can easily be identified as "needs" and "wants", however there are some things that aren't as clear cut. Say, for example, smoking and drinking. One of my friends who smoked a lot told me that cigarettes is a "need" and not a "want", if you don't believe it you can ask the ones who smoked. Later on another friend who successfully quit smoking told me that before you are addicted to it, it's not a need and not a want, until the time you are addicted it had became a need: those who were addicted to smoke will more willing to eat less but never wanted to smoke less.

The reason that I'm suddenly concerned with the ones who smoked is because I noticed smokers spent almost $200 a month* just to satisfy their urges: quite a large amount of great concern. When you start to add up such small numbers and assuming that the money was used for investments that carries a 12% return, we only needed 35 years to become a millionaire (See table below).

Therefore, to those who haven't started smoking or those who had just started, I'd like to strongly advise to avoid them at all cost if you wanted to become rich sooner.

That reminds me of a party many years ago, all my friends on my table was wearing a Rolex and I'm the odd one out, then I realized that it's time to "need" one for myself. But at that time I only knew to use my money to invest in the stock market and that I don't even have any spare cash to buy one Rolex. Therefore I promised myself that once I reached my goal in the future I'll definitely buy one of the best Rolex. Later on I finally bought one gold Rolex and felt the immense satisfaction of attaining something after my own hardwork, I'll definitely will tell that to my friend on day.

Therefore I dared to say this at the expense of a risk being called as a "show-off".


*Translator notes:
#1: In most East Asian countries, rice is a dietary staple of the people. Therefore the significance of rice was very prevalent in these countries and was often used as a symbol of quality of life.

#2: XXXXX is refering to Azizi Ali, which he mentioned this story in his book "MILLIONAIRES are from a different PLANET!"

#3: Note that this article was written at 2001, with the constant sin tax hike on cigarettes, I won't be surprised if the present value would have already doubled at the time of translation (2007)

#4: For those interested about klse.8k's calculation of return, here's my explanation: The yearly total is calculated with the formula (previous year's total * 112%) + current year's saving. Which equates to the assumption that the yearly savings was made at the end of the year as a lump sum and therefore does not bear any returns.

So what would be the return if the yearly lump sum savings was broken down as a monthly saving instead, assuming the same annual return of 12%? Using the "How much will my savings be worth?" calculator provided by The Montley Fool (with the tax and inflation rates set as 0%), the amount came up to be $1,286,192! That's a whopping 250k addition to your savings!

That should give you a more compelling reason to start early :).

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