Sunday, July 01, 2007

Sunday Times Comments – Saving Money is Like Body-Building

Today’s Invest section of the Sunday Times features Mr. Sean Toh, who was a former varsity champion body-builder and who has written a book called “4 Steps To Financial Freedom”. I found it interesting that he likened saving money and prudent financial planning to body-building, mainly because I was never really a fitness freak (I exercise only on weekends) and had never linked the two together. After reading the interview with him, I began to see the connection he was talking about.

Basically, prudent financial planning involves slow accumulation of wealth (akin to “training” one’s muscles at the gym). It is a slow and steady process of wealth creation and wealth retention, and requires patience and discipline. Mr. Toh had managed to save S$100,000 in his 3.5 years working as an air steward in SIA, and still manages to save 30% of his gross income, an impressive % by any standard. Many of us have dreams of getting rich instantly or quickly, which explains the long queues forming outside Toto and soccer-betting booths. In reality, how many of us can be assured of instant riches through lottery winnings or punting ? This example is also reflected in the stock market, where people trying for instant “winnings” from contra normally end up much poorer.

During the boom years, we should concentrate on building our wealth and assets to prepare for bad years ahead. Wealth is much easier to build up during years of economic prosperity than in times of recession; the problem is in people’s mentality. During the good times, people tend to over-spend and over-stretch themselves financially, living beyond their means and servicing their lifestyle with loans. This was prominently highlighted as well in Saturday’s papers on the Asian Financial Crisis Ten Years On section, which showed that living beyond your means is financial suicide when the bad times arrive, as it may mean your investments turning sour and decreased job security as well as possible retrenchments and pay cuts.

I do not totally agree with Mr. Toh’s stock picks, though he did not mention his entry price and whether he maintained an adequate margin of safety, but to each his own. I do, however, have issues with his method of dollar-cost averaging on unit trusts when it has dropped by 6%. This is akin to investing in a falling knife without assessing the underlying condition of the fund, and could be dangerous and risky when the fund’s underlying securities show deteriorating fundamentals. He also mentions that he lost a bit of money investing in the best-performing fund, but the fact is that the best-performing fund for one year usually turns out to be the average of non-performing fund in subsequent years, as diversification erodes the spectacular gains achieved from a historical perspective. If I have time, I will blog more about unit trusts and why I avoid them in subsequent posts (please note that this is a personal opinion and is NOT an attempt to discourage anyone from investing in unit trusts should they choose to do so).

To comment on his 4 steps to financial freedom, the first is to get healthy and strive for good health, which I have sadly neglected somewhat in my pursuit for material wealth. Investing in health is critical as it is not much use having millions of dollars while lying in a hospital bed. The second is adopting an open mindset to learning, which I fully agree on. We should try to be flexible in the way we approach financial matters and should not remain too rigid in our thinking, which is why I still consult friends on technical analysis and read books on alternative investments to get more ideas. His third step is to invest your time in financial and health education, which I feel is good advice for new-comers to the stock market. Investing in knowledge by reading is of utmost importance as it helps to build a base of understanding before one sinks money into funds or equities. His final step is to enjoy the wealth you have created, which is ultimately the reason for creating the wealth in the first place ! No use earning several million dollars only to be occupied 24 hours a day, 7 days a week with no time to enjoy your money with your loved ones. Most people focus so hard on earning money that once they reach their desired target of wealth, they feel lost as their time was totally consumed by their passion for accumulating material wealth. Wealth consists not only of money but also time spent with loved ones and time spent doing the things you enjoy (be it sports, gardening, traveling etc.).

I think we can all learn something from Mr. Toh as we continue our journey of self-discovery and walk one step closer towards financial freedom !


Aragorn said...

good article.

gimz said...

While i admire his commitment to save such a huge chunk of his income, i find his way of investing in unit trust quite disturbing. Im sure by frequently trading in unit trusts, he would incur extrememly high fees and the 20% he mention could possibly be much lower.

His approach, in my view, is a good way to start to cultivate a habit of financial discpline but not a way to grow wealth. In the aspect of investment, i think this blog is definitely more rewarding.


musicwhiz said...

Hi gimz,

Yes, I do agree that frictional costs will eat away at profits, whether it be shares or unit trusts, which is why I advise readers to minimize trading and start investing instead. Of course, it's a personal choice in the end.

Thanks too for your compliment, I try my best to advoate value investing to readers of this blog as I feel that it has immensely rewarded me, thus I want others out there to try it out as well. What Sean Toh did is, as you mentioned, a good method of instilling financial discipline, but he was definitely not giving too much advice on investments ! I guess he is more of a person who relies on a high savings rate to achieve financial freedom. We can all learn something from everyone, thus the reason for blogging about him.

Cheers !

Anonymous said...

Actually I was quite disappointed with the book. It is overly simplistic (perhaps I have read better books). More disappointing is for someone who has not "achieved" financial freedom to even be writing a book. This is just like some one who is childless writing about how to be a good parent.

musicwhiz said...

Oh, actually I have not read the book, so can't comment much on it. I guess he just wanted to share some good financial habits, even if he was not "financially free" himself. Perhaps the royalties from the book can eventually make him financially free ? Haha that would be interesting eh ?

Sean Toh said...

Hi Friends,

This is Sean here! Thanks for sharing all your views and opinions. Why must book be written so technically or so difficult for the common people to understand? Can you imagine the poor and the common people being derived from the needed financial and health education in their lives? Can you imagine that you happen to be one of them being derived?

I wrote this book just for this group of people that I love and I believe there should be even more writers wrting for the less educated and fortunate people.

Not everyone must love my book because there will be other people who will appreciate it.

Actually, this book was written and dedicated specially just for my two daughters and that all I care for because I have left a most memorable and precise gift for my girls when I leave them and I succeeded in doing an impossible dream of writing and publishing a popular best-selling book.

We have been stereo-typed with too much riches, powers and titles so that one will have the right to publish a book or hold power in this world?

Think about it? Some of the most capable people in this world might not have the most in this world but the best thoughts and hearts for others. Open up your mindset to accept new ideas and you will in turn be generous and rich in life.

Riches are beyond just your wealth. It's your generousity and legacy that create that ' Wealth.'

I hope this comment will enlighten all of you!

Yours Sincerely
Sean Toh

musicwhiz said...

Hi Sean,

Thank you for visiting my blog and commenting. I must say it's quite an honour for an established writer to visit my blog and leave his comments. Do visit often and share your wisdom and insights with the rest of the readers.


Sean Toh said...

Hi Musicwhiz,

Most definitely will!It's my honor and pleasure being invited into your network. I believe we could learn a lot from each other and leverage on each other networks. Feel free to drop me a line and talk to me about your possible ideas to turn them into realization. Keep in touch and thanks for the invitation.

Yours Sincerely
Sean Toh
Author of “4 Steps To Financial Freedom”