The Power of Small Money

This week, something happened. Something important – one of our regular supermarket clients Mrs Bagel (who owns a bagel shop) was chatting with our supervisor. Her landlord is about to increase the rent for her bagel shop by $500 to $4,000. It turned out that the landlord in question is neither a high flying white collar executive nor a scion of a rich family. He is a middle aged guy selling granny clothes next door (well you know, old fashioned clothes that only grannies would dare wear out). Doesn’t this remind you of the fruits seller?

I bet many of you out there feel frustrated that you can’t do any “proper” investments because you do not have the luck to receive big money such as the 8-months bonus payout your cousin Linda gets, or the humongous commission your brother John, who is a top grossing insurance agent, earns. And you’re probably vexed that your savings ratio (say 10% on $2,000), comes up to only $200 every month and you’re thinking: what in the world can $200 do in terms of investment? If that’s really how you feel, chances are you just might have overlooked the power of small money.

In finance, you need to remember a very important concept – wealth takes time to grow. This concept forms one of the most basic fundamentals of successful financial planning. Over a period of 30 months or 2.5 years, your $200 a month would’ve turned into $6,000. If market risk type of investment appeals to you and you’ve taken advantage of the opportunity of low stock prices brought about by the collapse of Lehman Brothers, and bought say, the shares of Olam International Ltd, which were trading at less than $1 a share at the peak of the crisis, you would have gotten 6 lots of shares (1 lot = 1,000 shares, for simplicity we’ve rounded up figures and assumed no brokerage charges). Olam shares are now at more than $2.50, which means that you have a gain of $9,000. Not bad for $200 a month eh?

What then can $15,000 (your gain + original capital) do? In our previous example, $15,000 can be used as downpayment for 15 vending machines with each machine producing annual net cashflow of $2,620. So that means pre-tax net cashflow of $39,300 for 15 machines. Over 5 years, it would have come to $196,500. What can $196,500 do? Errrr…… lots of things, including using it as a downpayment (yes, power of debt again) to buy a retail unit that you can lease out to a bagel business for $4,000 a month. All these from the $200 a month that you set aside.

At this stage, you probably realised that small money remained small if you let it be. The Aunty can’t emphasize enough the importance of a structured, discipline approach to building up your wealth. Neither can The Aunty emphasize enough the importance of a financial education, which will enable you to identify good investment opportunities and stay away from bad ones. Most of us, including yours truly, have started/would be starting out small, and then we snowball into something bigger….. and bigger……..and bigger still. If Mr Granny Clothes Landlord can do it, theoretically speaking, the rest of us can do it too.

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About admin

I hail from a little red dot on the South China Sea call Singapore. Am an extroverted introvert and notorious for nothing and everything. I often suffer from logorrhea so please do not take what I say too seriously.

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