QUESNEY21(Day 16): Personal Finance Series #2: Opportunity Cost

Image Source from Unsplash

It has been quite a few days since my last post, as usual work and kids got in the way. Excuses, one would say! Hahaha! Anyway, following my earlier posting about Living Without Debt, here I am again writing on the issue that I believe everyone struggles with nows-a-days! (Manglish for you there!) As usual the young people from my office always give me pause to think about important aspects of personal finance. This time, they were all ogling a new handbag collection from a certain client of ours that we had recently acquired. Think major luxury goods brand that produces clothes, shoes and home and living stuff, however they are best known for their weaved soft leather bags. Honestly, I think some of our local arts and craft scene also produces beautiful weaved bags and baskets...(I wonder who copied who?!)

Mum got this for me from our local morning market, ok ok it's not haute couture but you get the idea

Back to the ogling, I heard at least two of them say that they were going to save up to buy a bag from this retailer and I practically gawked because of the price. Somewhere in the region of USD 2,700 which works out approximately MYR10,800! I had to bite my tongue literally so I wouldn't say anything too discouraging. I run a sales organisation you see and things like this can help to motivate them to perform better. I walked out of the office just to take a breather and think about how best to put it. Suffice to say, I went back in and participated in the ogling because honestly it was a fine piece of craftsmanship even on screen! Plus who doesn't like caressing soft leather luxury? Oh and the smell of new leather...the confidence with one hanging off your arm...Then it was back to work and I realised that I went away with a nagging feeling that there was something else that I needed to share with them! I mean what could you do with MYR10K? What is the opportunity cost?

Image source from Pixabay

I kinda like the British Dictionary definition for opportunity cost:-

opportunity cost

noun
1. (economics) the benefit that could have been gained from an alternative use of the same resource
Source Dictionary.com

I really wished that when I was their age some one would have smacked me at the back of my head and asked me to think about this aspect of opportunity cost in terms of managing my personal finances. Mind you, I made similar mistakes of thinking that I deserved a "reward" to the detriment of my credit card debt stacking up, so how does opportunity cost relate to personal finance? In simple terms when you say yes to something, you are saying no to something else, even if you don't know what you said no to. I started by asking this two questions:-

Image Source from Pixabay

Question 1: What could I do with this money instead of buying something?
Question 2: What is important to me?

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What could I do with this money instead of buying something?

When you are young, HEAPS! I am just going to list 3 which is important to start as early as possible.

Image Source from Pixabat

1. Save it! The Magic of Compounding Interest

Compounding interest only works when you have time and a lot of it. So it makes sense to start saving as young as possible! As a parent I do it for my kids from birth! The amount of money that I need to put aside and save monthly is very little. The simple act of putting your money into a fixed deposit account that offers compounding interest already makes you a winner. Everyone should have some savings or liquid cash that you can use in real emergencies and it the recommended amount is 6 months worth of expenditure.

I found a simple calculator online that could help you to calculate how much interests your can earn from your fixed deposits or even how much interest you are paying for loans of any kind that you have. There is a lot more to learn about compounding interest but this is a good and vital start.

For parents, opening a children's account may also be a good option. I shopped around and found that Maybank's Yippee Savings account provides FD interests rates with the flexibility of one withdrawal a month. Go check it out here if you haven't already gotten a savings account for your little one.

Your savings of liquid cash could open many doors of opportunity for you. Whether it is the ability to travel and meet people, the business opportunity that comes up or a good investment. You just never know.

2. Invest and make your money work harder for you

There are many different investment options which can be considered. I personally invested in the following:

• Unit Trust through my EPF savings
• Low cost property to obtain rental and capital returns (60K - 90K)
• Graduated later on to medium low and medium high properties (190K - 450K) for rental and capital returns
• Starting our own businesses
• P2P lending
• ASM
• Cryptocurrency

We started investing in property in our second year of starting work. We made sure to only invest in property that the rental rate could cover our monthly instalments and give us a little extra. Whilst it was a start and stop affair with us, it has nevertheless helped us to get where we are today financially.

Recently I started looking into savings for my kids' education which is the SPPN1M-i Plus it affords better interest rates, protection and from what I heard is tax deductible as well. Further information can be obtained from the SSPN website As a parent, I am always looking for ways to ensure the well being of my children.

Buy protection in the form of insurance

Insurance is so much cheaper when you are younger. I personally purchased both my kids' medical insurance when one was about 1 year old and the other one even before he was born. I pay MYR3,000 per annum and the premiums are the same for life. Should anything happen to them medically, we can claim up to MYR 1 million.

When I first started working I grappled with this question of, why spend money on insurance when my company already provided for it? A graduate's salary even today isn't a lot, I mean why spend money on something that is already part of your benefit? I am glad that someone with more than 10 years in the insurance industry pointed out some important insights. A company's group insurance policy is considered general insurance and is renewed yearly. In the event that you become too much of a medical liability, the insurer or the company could decline your coverage next year and for your future career lifetime. The irony is, if you then wanted to purchase your own personal insurance at that point in time, the insurer will most probably exclude your current condition from the policy or impose hefty premium loadings on you.

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This question will help to put a lot of this into perspective.

What is important to me?

I believe that TIME is the ultimate opportunity cost to everything. We exchange time to work and earn money so that we can pay off that purchase of a new fancy car, we exchange time with our loved ones to work harder, we exchange time in meaningful connection with God and people because we are too busy working to earn money. I have been there, done that! Hard lessons to learn indeed.

Image Source from Unsplash

We are always apt to think in the short term, today, tomorrow, next week, next month and for some next year. When I was young, I remember it didn't go any further than next year! Most times, next month because of the paycheck and once again, I wish someone had told me to think long term. Up to 5 years at least! I should have asked myself some important questions when I was 21 years old. I come from a time when this idea of get a good job and work in a corporate company climbing the corporate ladder for the rest of my life would bring good financial rewards and security. Not wise! Please don't misunderstand me, there is nothing wrong with working the corporate sector, in fact I know a lot of excellent people there who has done very well for themselves and companies that I would be proud to be part of. But is that what you want? If it is great, if it isn't then think of what it is you want. Question I should have asked myself:-

• What kind of lifestyle do I want in 10 years time?
• What is my future financial standing and maybe how much savings must I have?
• Evaluate my career and work satisfaction regularly
• What do I really enjoy doing? My interests?
• What are my strenghts?
• Could I do something different?
• How can I invest in myself to become better?

Building the life that you want is related to your financial aptitude because in this world money is important. I like the way Robert Kiyosaki puts it. He said, "It's true that money is not the most important thing in life, but money does affect everything that is important to life." In hindsight, maybe it was good that I didn't shoot my mouth off there and then. It gave me the time to think through the best way to share my personal experiences with them and in a way that they can connect with, to motivate them and yet help them to understand that one aspect of life is about opportunity costs. Remember when you say "Yes" to something, you are saying "No" to something else. Make sure you only say "Yes" to the things that are most important to you! So don't spend 10K on that bag, rather spend it where it will make a difference to you 5 or 10 years down the line! There is an opportunity cost to everything!! Now, I just have to find the right time so share this with them.

This is us going crazy after finishing a difficult day at a career fair

Please do note that this is not financial advice and I am not financial adviser or qualified to be one. I am just sharing my personal experiences and learning along my journey.

What do you think about this whole idea of opportunity cost when it comes to money?

So what is QUESNEY21? @joannewong and I are challenging each other to create great content for the next 21 days. Starting 26th of March and ending on the 15th of April. Whilst we didn't manage to do 21 posting in 21 days, it was more than we would have done on our own. So we are going to continue until we reach 21 postings! We did this because we thought we needed the discipline and motivation that comes from being accountable to each other and we were right! Tell us if this is interesting to you, do you think you could benefit from your own QUESNEY 21?

Check out the other postings for this challenge:
QUESNEY21 (Day15): An Update On My Steemit 21 Day Writing Challenge
QUESNEY21 (Day14): I am Grateful - An Overwhelming Work Week
Quesney21 (Day 13): The Love It/Shove It Challenge by @snowpea
QUESNEY21(Day 12): Personal Finance Series #1: Living Without Debt

Do check out @joannewong postings too for this challenge!