Thursday, March 15, 2007

The truth about being rich

Most of us dream about becoming rich. We want to be able to afford every desire we have. i.e. wine and dine at fancy restaurants, buy that Prada bag, that pair of Ferragamo shoes and that dream house and that dream car.

But not many people get there. Somehow we are always just one step behind the Joneses (or the Queks, or the Khoos for that matter). Somehow, the next pay rise didn’t really improve our quality of life as we expected it to. Why is that so?

The truth is being rich is a relative game. You are only rich when those around you are poorer than you are.

To illustrate, 10 yrs ago if you drove a nice Civic or Sunny, you would be considered rich and successful. You are on your way to attain the 5Cs. Good job, keep it up. But today, Ah Beng drives a Civic too and you suddenly realize you are driving an Ah Beng car. And so, you must upgrade to get back into the inner circle of the rich and successful.

This is means that the standard to become rich has gone up.

In other words to reach the status of being rich is a moving target. You need to run faster, work harder, work smarter than everyone else, so that you can earn more money and join the premier league. To become rich is a rat-race and it only gets harder.

10yrs ago, if you earned $4000 a mth you will be in the top decile of Singaporean earners. Today you need to earn $7000. Even if we consider inflation is 5% per year (which is a lot, long-term average is only 3%), $4000 10yrs ago should be equivalent to only $6000 today. But if you earned $4000 in 1997 and your earnings power improved by 50% to $6000 today, you would have become poorer because you have been relegated to the 2nd decile. (You would have beaten inflation but bcos you didn’t beat the other Singaporeans who are now earning $7000, you actually become poorer.)

So that’s why we cannot stop running on that treadmill and the worse thing is, the speed keeps increasing as you run!

Now let’s suppose that we actually made it. We have managed to earn truckloads of money and kept our status in the premier league, year in year out. No sweat. In the statistics our income grew from $7000 to $20000 per mth. Woopee!

But if you think about it, we have just raised the bar for everyone else. So now Ah Beng who was earning $7000 and has only managed to up his income to $10000 has been relegated to 2nd decile. He can afford the Prada bag and the Ferragamo shoes. But now the new standard is Jimmy Choo. So too bad for Ah Beng.

This means that by becoming rich, you have just made a lot of people poorer. And that's why a lot of rich pple give back to the society (at least those who have a conscience.) Bcos they inadvertently contribute to more poor pple in the society.

Is there a solution to this rat-race? I am afraid the answer lies in the realm of enlightenment, inner peace, knowing what is enough for yourself and that kind of philosophical stuff. Not something for the aspiring rich and famous reading this blog perhaps.

See also Compound interest


  1. insightful. But for me it's very simple. All I want is my millions so that I can retire comfortably with my future wife. Period!

  2. Good point, especially when you see the mega rich getting caught breaking the law to get even richer. That's nuts! Will we ever be satisfied? That's the problem when we begin to measure success by the size of our bank/CDP account and neglect the things that are really important.

  3. Hi 8percent,

    I agree with you that richest is just a relative subject. It is usually measured by what satisfaction it brings to you both in terms of material and the security it brings to you. For example, some may feel secure only if they have a few millions, some feel secure even if they have much lesser.

    Personally, I think that the amount you have is determine by not how much you have to start with. Even if you have a dollar, you can be financially free if you know how to work with that dollar. People like Sam Walton or Warren Buffett, rich as there are, will pick up a dime which they find on the floor.

    More importantly, it is important to distinguish how richness is defined. It comes in two forms. The first is to measure richness literally by net-worth. The second is by knowledge and appreciating the finer principles towards having a fulfilling life in general.

    Being rich in the first case will not change any thing basic between two people except in terms of material things. People still can only sleep so much, have so much time in the world, eat so much and so on.

    Many just look from the outside of richness and wealth. Instead looking from inside out is a much better approach.

    Especially for inherited wealth, many a times, it is a "death" card dealt to them. Sam Walton says inheritance creates a class called "idle rich." A heir to a huge family fortune once said "inherited wealth is as certain death to ambition as cocaine is to morality."

  4. Good point there berkshire!

    Many times I wonder how great life would be if I had received a fortune from somewhere. Or if only my family is some rich family.

    But on further thoughts, I probably wouldn't be so hungry for financial success and thirsty for investment knowledge if not for my circumstances right now. So in some ways, perhaps this is actually a blessing from heaven!

  5. This is the way we do business, and how our San Diego business investors, intermediaries and portfolio companies regard us. And this is why we're referred to as "principled partners."