EXPERIENCE IS THE TEACHER OF ALL THINGS
-Julius Ceaser

Tuesday, June 19, 2007

You Want To Become Rich?

I was reading a March 2007 issue of Men's Health Malaysian Edition about how to become rich and there are six rules. Well, anyway just reading about how to become rich will not make one rich, no matter how much books you read.

The article The 6 New rules of Rich was written by Oliver Broudy. He was relating about Emily Haisley, a grad student at the Center of Behavioral Decision Research at Carnegie Mellon University. Emily was collecting data on why people buy lottery tickets.

To ponder
  • starting to save for retirement in the 20s instead of 30s makes a different between a six figure and seven figures.
  • you should have 6 months of expenses set aside for rainy days.
Rule no 1
Your brain wants you to be poor.
  • Financial planners and psychologists agree that taking care of credit card bills and avoiding impulsive purchases is a matter of willpower. However saving money has more to do with biology than with will power.
  • You don't have to fight the midbrain but to put it to work. Create an incentive structure that aligns the instinct of your lizard brain with the rational impulses of your cerebral cortex. For example think about how you summon the energy to push the last set of bench press - the pay-off a bigger chest.Use the same strategy with your money. If your goal is to save RM 10,000 in 2007, promise yourself you will achieve it and reward yourself with what you have been eyeing for.
Rule no 2
The answer to "Sure, why not?" is "Because you don't have enough information"
  • Always be aware of your susceptibility to bias. Anytime you purchase things on recommendation of a friend - you're buying ito your bias.
Rule no 3
Cutting and cunning can make you rich.
  • money is a head game, and if you loose the head game, you're going to loose money. If you are working for a loosing end, the longer you stay the more loss you'll encounter.
Rule no 4

You'll make a smarter decision about tomorrow if you do it today.
  • Economist introduced hyperbolic discounting and credit card companies exploit this and most people fall into this trap and end up in dept.
Rule no 5

Your older self should always get a cut.
  • when you're suddenly awash in extra cash, lock in a higher saving rate immediately. The key is commitment.
Rule no 6

You'll save more if you spend more
  • if you are a tightwad, using credit card more often could be a good thing, since it eliminate the pain of paying. But if you are a spendthrift, pay with cash as often s possible. Loewenstein study.



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