Financial Intelligence Motivation

How to amass S$20 Million on an Accountant’s Salary

Mr Life CEO - How to amass S$20 Million on an Accountant's Salary

Came across this article from Today Online that described how a ‘stingy’ millionaire donated S$3.35 million from his S$20 million fortune to charity after he died from old age.

According to the article, Mr Loh was born into a poor family of fish mongers. He was a self-made man. That means he alone got himself to where he was.

But S$20 million is just impossible for one man to amass on a sub-accountant’s salary.

Or is it?

Being the spreadsheet junkie, I thought I would try and replicate his results in today’s context. The question in my head was: What was the investment return and savings needed to achieve this?

First, what do we know of Mr Loh from this article?

  1. He got his accountancy certification from Cambridge in his 30s
  2. Had a job as a sub-accountant at an insurance company… probably in his late 30s?
  3. He got married in his 40s and had no children
  4. He paid for his grandmother’s nursing home for 5 years, who was bed-ridden, hit by dementia and needed a feeding tube
  5. He never failed to send money to his extended family in China every year
  6. He was extremely FRUGAL
  7. He invested in the stock market
  8. He made his final wish in 2014 before his death 2 years later, so he probably stopped working by then
  9. He passed away at age 89

Here comes the list of assumptions:

  1. Working Years: Assume Mr Loh worked from 37 to 87. I’ll simulate 50 working years.
  2. Salary: Starting average median salary of S$47,280 per year1The average accountant salary in Singapore according to Payscale.com as of 9th June 2018, and let’s just say its inclusive of employer CPF contributions for simplicity.
  3. Pay Progression: Average of 5% for the first 5 years, 0.5% for the next 15, then 2% beyond the 20th year 2Again, according to Payscale.com for accountants in Singapore.
  4. Target: S$20 million includes CPF. Again, for simplicity.
  5. Non-Discretionary Spending: There’s the money that gets sent back to China every year, as well as the 5 years of nursing home fees for his grandmother. I have no idea what these figures are, so I’m just going to take a wild swing.
    1. 20% of the initial salary gets sent to China every year, which works out to S$9,456 per year. This will be subjected to inflation.
    2. $2,000 per month for nursing home fees3According to valuepenguin.sg, it could be $7,000 per month considering the condition of his grandmother, but I’m just going to take the conservative assumption, perhaps some subsidies were used or fees back then weren’t that high etc…. I won’t subject this to inflation because it’s only for 5 years and will assume it started during the first 5 years of his career.
  6. Inflation: We’ll factor in a 1.4% year-on-year inflation on money sent to China and personal expenses.

Considering ALL of the above into my spreadsheet, I was able to attain the final figure of $20 million with a 50-year career. Here’s the chart.

So what did it take to get there?

A yearly investment return of 8.56%. Honestly, it isn’t impossible. A bit optimistic, but not absurd.

The Straits Times Index (STI) started out at 100 points on Dec 30th, 1966 — 52 years ago. Today, it’s 3392.51 points4as of 13th June 2018. If there was an STI Index fund ETF back then, an investment of S$1,824 would’ve become S$61,879.38 today.

It sounds so easy when you’re talking about letting an investment sit for 52 years but here comes the tough part.

Personal expenses.

Monthly expenses would have to be kept around $1,000 if inflated by 1.4% every year.

It will take great discipline to maintain such a low monthly expenditure for 50 years in order achieve this target.

But what would you do if you had family depending on you for support? Imagine dishing out all you can, until all you have left at the end of the month is S$152 for the first 12 months of your career. You would be pretty “tight-fisted” and financially insecure I suppose.

I guess Mr Loh probably developed a frugal lifestyle during the early years of his career out of necessity, which he had learnt to contend with. Coupled with investment discipline, it could be how he eventually built up his massive wealth.

Unfortunately with a headline like this, it’s no wonder folks in Singapore associate frugality with stinginess.

The article failed to highlight his most important gift to its readers — the lesson on frugality and its possible eventual outcome. This will possibly be the most precious lesson that can be passed on to the young people of this country… especially those that think they need S$5 million to retire.

You can’t blame a person for living within his means — although in this case, his means sort of outgrew his living by a long shot.

 

What can we learn from this?

Mr Loh was not the only person to have left behind such a huge fortune. Meanwhile, halfway across the globe…

  1. Sylvia Bloom, a legal secretary in the U.S. amassed US$9 million before she passed on also in 2016 at age 96, gave away US$6.24 million to a program to help children prepare for college and the rest to her family.
  2. Grace Groner was an American woman who died in 2010 and known to have left behind US$7 million and gave it all to the college she studied in.
  3. A Vermont-based janitor by the name of Ronald Read, died at age 92 in 2014, with US$8 million and left US$6 million to his local library and hospital.
  4. Robert Morin, a librarian who died at age 77 in 2015, amassed a US$4 million estate, which he bequeathed everything to his alma mater.

These people did not hold prestigious jobs. However, all of them probably left behind more wealth than many who work as bankers, lawyers, doctors or other highly sought-after occupations. So what’s common among them?

Many of them lived through the great depression, which was a period of hardship that probably forced them to be frugal, much like Mr Loh. Then, they were also long term investors. They held their investments for years and reinvested the proceeds. Frugality and smart investing were celebrated in the articles that portrayed their stories… except for the one from our own local media, which is sad.

One other thing that is sad, that is common among all of them, is the fact that they have over-saved so much and spent their entire lives working.

Yes, you’ve heard me right. I’m all for frugality and mindful spending… but it should be done with an end goal in mind.

The goal is probably not to have scrapped through life, only to die with millions, and have them spent frivolously by whoever had the luck to receive it5The case of Robert Morin above, whose university which he left US$4 million to, spent US$1 million on a video scoreboard for a newly renovated football stadium. o_O.

The goal is to reach the point where it’s enough, stop working and start living. Money is a utility. There will be a point where you will have accumulated enough for it to work for you to generate enough to bring you convenience, put food on the table, a shelter over your head and finance the things that matter to you.

There is only so much that one truly needs in life.

To illustrate this, using the model above, say the number of working years is reduced to 14 and inflation raised to 2.8% (basically up-sizing living and family expenses), Mr Loh would still have S$42,863 to give away as inheritance after he’s gone. This considering he would’ve been supporting his extended family throughout his lifetime and providing them with slightly more than they need, yet be able to spend the remaining 36 years doing something he loves.

Then again, who am I to judge? Perhaps he loved his job.

For we brought nothing into the world, and we can take nothing out of it.

-Timothy 6:7

 

Footnotes   [ + ]

1. The average accountant salary in Singapore according to Payscale.com as of 9th June 2018
2. Again, according to Payscale.com for accountants in Singapore
3. According to valuepenguin.sg, it could be $7,000 per month considering the condition of his grandmother, but I’m just going to take the conservative assumption, perhaps some subsidies were used or fees back then weren’t that high etc…
4. as of 13th June 2018
5. The case of Robert Morin above, whose university which he left US$4 million to, spent US$1 million on a video scoreboard for a newly renovated football stadium. o_O

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