Many of us know how to do it, but are we really walking the talk? I talked to some friends of mine about cutting down spending (as some of them are accumulating a lot of credit card debt and resorted to cut the credit card to half). People know the know-how, it is simpler to say something like; just cut down spending, don’t shop so much, commit an amount in settling debts, etc. People are aware the need to change their habits and lifestyle but how many have the drive or will to see it last? In order to further look into the problem of overspending habit, we need to understand the root of the spending behavior, we need to understand what cause us to spend impulsively.

Now if you have a paper and pen, list down 5 or more reasons you over-
spend. Think as long as you want.

1. ………..
2. ………..
3. ………..
4. ………..
5. ………..

So have you already written Down the 5 reasons? Are any of your reasons sound like these: I overspend when I’m stressed out, I feel good when buying branded clothes, I don’t seem to realize I spend so much, I do this only once in a while, the deal is just so great that i have to buy more because this could be the last time, life can only be improved not degraded! Give yourself a clap for being honest, there is nothing wrong in pursuing for material desire, in fact the ultimate objective of controlling spending, frugality, and live below mean is to pursue greater wealth thus also pursuing greater materialism, but only it is done later. This is called delay gratification.

So you have listed out the reason, what should we do about them? Take the examples from above. For the first one asks yourself, why do you feel better when spending, or do you feel bad if you don’t spend? If your answer is yes, then you need to find other ways to relief stress, such as a tiring ball game of squash, tennis or badminton. If your answer is no, then it is even more pointless to spend a lot for nothing. Probably you are just stressed and bore, the advice is the same. However, even knowing this will not solve the problem if you don’t have the emotional resiliency to take persistent action. In order to become more resilient emotionally, we need to think of the consequences of our actions. Good habits lead to better outcome, bad habits leads to worse result, in relativity comparison. A smoker will not have a healthier lung than a non-smoker by science logic. A daily jogger has a stronger heart than other non-jogger, common sense. Do you want to be a jogger or a smoker? Only when you fixated the objective in mind, a solid one, then you will be able to achieve emotional resiliency. If you want to have a stronger heart, jog regularly. If you want to be financially success, spend wisely.

We have been taught what is good and what are bad in the school, we follow that ever since (well, probably not all). Now why not do yourself a favor by telling yourself what is good or bad?

How do you think millionaires lifestyle is like? Commonly whenever we think of millionaires, we think of the nice big beautiful house they live in, the one built on the hill slope or the one beside seashore. When comes to car they drive, we think of those exquisite million dollars european car, only a few on earth. The percepted millionaires wear branded clothes that only could be found in those upmarket boutiques that cost a few hundreds or thousands of dollar per article.

That is how media portray millionaires, MTV show like The Cribs shows that millionaires live in those big nice houses with state of the art entertainment system, space age game room, wine storages that never used, fridge full of expensive food, european style decorations, private gym room and those pimp-up rides. Well, this does attracts lots of attention, MTV sure get lots of viewing from these programmes, however this is not how real self-made millionaires live their life! Instead this is one of the biggest lie we were told.

According to the author of the best selling book – The Millionaire Next Door and The Millionaire Mind, who interviewed more than 500 millionaires. Shockingly almost all/or more than half of the self-made millionaires still live frugally in middle class neighbourhoods, a few percentage of them live in high class neighbourhood, yet they don’t live as lavishly as how the MTV show has portrayed. When come to car, usually they don’t drive the latest models - many times the vehicles are more than 10 years olds. They hardly spend on branded clothes, instead they go for cheaper alternatives which are also quality and durable. Even more surprisingly, the author found a lot of these millionaires hold the membership card of JC Penney! (JC Penny is US based large chain store that usually sell generic brands and durable goods in discounted price). The 50 billions networth investor, miracle of Omaha - Warren Buffet once commented on a 20,000 dollar new car. He commented that if he saved the 20K from buying the new car, he could use the money saved and invest into stock market, then let it compound. After 10 years, the initial 20K invested will become a few hundred millions!

So if the real millionaires never spend those money in luxuries, expensive cars and branded clothes, who does? Certainly there are millionaires who spends lavishly in buying expensive items and nice clothes and shoes, these millionaires usually inherited their wealth! People with special talents like singing, acting, modelling, etc also multiply their wealth very rapid such as Michael Jackson, Bobby Brown, Paris Hilton and don’t forget sport game players like Mike Tyson, David Beckham, etc. These are the people who spend expensively and lavishly in luxuries and believe in instant gratification. Michael Jackson, thoughout his lifetime made over half billion of wealth but lost all of them in lawsuit and in the end had to declare bankruptcy because of few hundred millions loan in debt (R.I.P to Michael). People like professionals, and high position excutives are usually part of the top spender for luxury items, nice cars and other big ticket goods.

The Millionaire Next Door also categorises two different types of wealth accumulators. These are Prodigious Accumulator of Wealth (PAW) and Under Accumulator of Wealth (UAW). Most self made millionaires are being associated as PAW while inherited millionaires, celebrities, and high maintenance professional/executives personnels are usually being associated as UAW.  How to determine if a person is belong to PAW or UAW? In accumulating wealth, it is not about how much you earn, instead it’s about how much you are able to save and invest for future value. PAW is expert saver and manager of money, they don’t have to earn a million a year to have 10 or 20 millions of networth, in contrast alot of PAW earn much lesser but still able to make millions mark in networth. While for UAW, even though they earn hundreds of thousand or millions per year, due to their spending habit, lifestyle and high upkeep, their networth are no where near a millionaire’s when they should have already worth more hundred millions.

There is a detailed formula to calculate one’s wealth in The Millionaire Next Door and the definition of PAW and UAW are described very clearly as well. The book gives very detail accounts and examples of real self-made millionaires. If you’re seriously in achieving financial security and freedom, this is a must read and must have book in your bookshelve. And finally, I believe for anyone to achieve financial freedom and security, the millionaire cash flow patterns must become part of our habit and way of life.

First of all, i wouldn’t want to say spending money in buying expensive toys behind my mum’s back was a mistake, anyone has a childhood dream and who never made mistakes like that? Moreover, what did a 10 years old kids know about saving for future or compound interest? Ignorance is a bliss, if i’m as ignorance as when i was 10 years old, probably i will still be buying big stuff like a new big car, 40-inches plasma tv and live in my own nice condominium – under utilized, i will still being stupidly happy without realizing the long term impact of impulsive spending.

18 years old, graduated from middle school, I never even tried submitting application to enrol for public university. My only choice was to enter that private university that would cost me RM10k per year. I thought public university was too hard for me. 4 Years in the university, the tutorial fee mounted up to 40k. Nevermind, getting money was easy because i was qualified for the national loan up to RM64k, still got plenty left for me to spend on miscellaneos university “needs” and stuffs, so i happily spent all the money, after all merely RM400 per month when i started working was just a small amount if i could earn RM2k per month. In reality, i couldn’t even pay up to RM100 when i was earning more than RM2k. I was RM64k in debt the moment i graduated from university, not including the interest incurs on the principle that could mount to more than RM100k++ if i keep on paying the minimum.

 For one year and half i worked in my first company i was already in financial struggle. Having little disipline to control my spending, my credit card’s debt mounts to almost RM10k, beautiful thing of having 1 or more credit card in my wallet, your spending power is as much as the total credit amount of all the cards combined plus your own saving in the bank, of course i have none.

With slightly higher pay in my second job, i finally paid up my outstanding balance on my credit card. But that’s not the main reason that i was able to do that. In the process, I created a spreadsheet to list out all my credit card’s debt amount cross calculating the outstanding balance thru months with incurring interest, a rudimental calculation on expected number of months to pay back the total balance with monthly targeted payment where least amount of interest incur. I never use that spreadsheet again after that, because i need to be real disipline by myself.