The Curious Schemer

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Are You Making Enough Money? (And Why “The Millionaire Next Door” Sucks)

with 11 comments

I love benchmarks. I love the fact that I can always see how I am doing compared to other people, and the fact that I can measure my progress–it’s a bit like the joy of leveling up in games. Maybe it’s a guy thing. Here are the salary benchmarks that I found, created by the good people behind salary.sg site.

There are 3 benchmarks that I like:

  1. Compare your income against all Singapore resident taxpayers. This one tells you how well you’re doing compared to other taxpayers in Singapore. For instance, if you’re making 100k/year, you are at the 83.1th percentile. Which should either make you feel good, or, if you’re like me, make you think that that means you’re at the bottom of the top 20%. Ha! (They also have a “feel good” version, which includes the non tax-paying residents as well here, but I think it’s rather pointless. If you are in the taxable group, why do you need to make yourself feel better by comparing yourself against those in the non-taxable group? It’s like you’re a slow runner, and instead of working out and finding out how to run faster, you make yourself feel better by the fact that a guy who doesn’t have legs can’t run faster than you.)
  2. Benchmark your income by age group. Ooooh, I love this one. I mean after all, if you don’t compare so well in the benchmark above, that may be because there are a lot of people in their forties make a lot more than you do, right? But this benchmark also serves a very important purpose: to track your progress as you grow older. For instance, if a girl makes 6k/month and she’s only 28, then she’s at the 98th percentile. That’s pretty damn good! But say she stays in the same company for 10 years, getting a 3% raise every year. By the 10th year, she’s making around $8000 per month. Is she still doing well? Not as much, because that drops her into the 90.9th percentile only, not considering inflation etc. She has to do something more to keep her at her original percentile. I absolutely love this benchmark.
  3. Income + net worth benchmark for those over 30. I love this one too! It’s good to know that if I want to be at the top 10%, I have to earn at least $147k. Like the article says, so different from the school days eh? It’s also a humbling and enlightening experience to see that I’m not a wealth accumulator, and what I should shoot for if I want to be a wealth accumulator. Taken from the site: “According to the book The Millionaire Next Door if your net worth equals (or exceeds) your age times your annual income divided by 10, then you are a “wealth accumulator”.” Damn. I’m not a wealth accumulator. From now on I aim to be one.

Now, don’t get me wrong. I hate that book. I think Millionaire Next Door is a horrible, boring, misguided book. You do NOT build wealth by penny-pinching! You can save 90% of your salary every month, but if you make $1000 per month, I’m sorry, you will NOT be a millionaire, mister. Well, you will, actually, after 56 years of living as a tightwad penny-pincher, assuming 8% annual return. Then, of course, you die! (Makes you feel good that you spend $50 on that excellent meal, eh? At least you probably die happier than that poor tightwad.)

My point is that this book is so misguided because it concentrates too much on penny-pinching, so much so that most people with the potential to become rich will just give up because they portray the millionaire journey to be an extremely boring, dull, and painful one. They didn’t realize that there is another side that is a lot more interesting and exciting: how to multiply and/or increase your income radically, which involves a lot more interesting things such as striving to be the best you can be, networking with interesting people, intelligent career choice, wise and prudent investing, asset and wealth protection… and of course, REWARDING YOURSELF ONCE IN A WHILE FOR ALL THAT EFFORT. The two Ph.D. authors just missed these whole bunch of other things completely, and wasted hundreds of pages concentrating on pain, pain, pain, pain, pain. Well done, guys!

And I thought I was talking about benchmarks :) But I saw the opportunity to finally say what I’ve always wanted to say about that horrible book Millionaire Next Door and I couldn’t help myself. Sorry. But yes, I love those 3 benchmarks a lot. It’s a constant reminder to me that there are always people earning a lot more than I do, and that I can learn from them to see how they do it. How exciting!

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Written by rayfd

February 14, 2008 at 6:12 am

Posted in Money

11 Responses

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  1. we miss you in opinions, come back!

    jonnii

    February 14, 2008 at 1:09 pm

  2. I think these benchmarks are wrong, You should be benchmarking against a particular industry and then further filter it down. There are very few industries that pays better than IT(Banking). Although, agree with you on penny-pinching; the whole point of earning is so that you can lead a comfortable (fun) life.

    Clearcut Decimal

    February 15, 2008 at 5:16 am

  3. Miss you guys too jonnii! I’ll be back one day, hopefully :) Send my regards to the rest, eh?

    rayfd

    February 15, 2008 at 10:31 am

  4. Clearcut, if you go to the salary.sg site… there are many other professions that pay more than being a software engineer. IT pays better than many, surely, but we just can’t compete with the lawyers, doctors, and investment bankers out there.

    rayfd

    February 15, 2008 at 10:34 am

  5. If you can’t beat ‘em, join ‘em! :P

    Ian

    February 16, 2008 at 3:37 pm

  6. Urhm, I think you missed the key ideas from the millionaires next door book. Here’s a brief summary:

    1. They live well below their means.
    2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
    3. They believe that financial independence is more important than displaying high social status.
    4. Their parents did not provide economic outpatient care.
    5. Their adult children are economically self-sufficient.
    6. They are proficient in targeting market opportunities.
    7. They chose the right occupation.

    So that guy earning $1000 and saving 90% of his income would definitely not become a millionaire, but I would say he will be fairly stable with his finances as long as he live/spend below his means. Unlike someone earning $10,000 and spending more than what he can earn (and doesn’t save enough for the rainy days), he did enjoy the best things in life for now but eventually will become the rags next door.

    Martin Prowler

    April 17, 2008 at 3:08 pm

  7. Hi Martin!

    Yeah I get the idea, and all the points in your summary are indeed valid and correct.

    What I feel the authors missed were the emphasis on the other thing that is really important if one wants to be rich: increasing income radically. And this is the “real” rich, because other than stable finance, he also can live the life of “the rich” a little bit.

    So going to the example, earning $1000, saving 90% of his income, and fairly stable with his finances kinda sucks :) What he should do if he still wants to save 90% of his income would be to look for ways to increase his income to $10000 or even $100000. Then he can have the stability and some spending power.

    rayfd

    April 17, 2008 at 11:55 pm

  8. you should reread the last chapter or the seventh point mentioned above:
    7. They chose the right occupation.

    and if you consider someone earning $ 1000 have chosen the right occupation then you are right this book is not fior you :-)

    anonyme

    September 3, 2008 at 8:41 am

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