Spending Now vs Spending Later

By Hussein Afzal [Public domain], via Wikimedia Commons

All Time Sleeping Average: (Target) 7h30m / day (Actual) 7h28m / day (125 night average)

3 Day Sleeping Average: (Target) 7+h / day (Actual) 6h41m / day (4h07m, 8h28m, 7h28m)

I saw a video called “儲錢上車vs享受生活” (Saving to Buy a House vs Enjoy Life Now) which really made me think.

The premise of the video was talking about how the YouTuber practically squandered his 20s to just play but felt no regrets at all since he got to play like crazy during a time where he could afford to and felt like doing so while he could just earn all the money he needed later on in his 30s with more effort later on.

Which concurs with an early retired IBM IT Manager who once told me to spend more time and money to enjoy life now as the increase in wages once I get promoted later on will more than compensate for any savings I could retain from my meager entry level salary.

I’ve always understood this perspective, but I’ve always been cautious on one point – This plan only works if you are given the opportunity to ramp up your salary to compensate for the foregone savings and compounded interest.

I maybe on the track for promotion, but nothing in life is a given. Being an entrepreneur is also out of the equation for now as I have no interest in doing so. This is why I try to be as frugal as possible so that I can save more to create my financial nut as soon as possible so that compounding interest can help me on my journey of financial freedom as well.

But I think that there needs to be a balance between Spending Now (which helps me not burn out) and Spending Later (financial freedom earlier). And to solve that, I need to explore my priorities in life.

Despite my long term objective to use compound interest for effective philanthropy, my no.1 priority in life right now financially is my mother.

The reason being that when I had only $7.18 HKD left in my bank account right before I was to graduate in 2013, my mother saved my ass. Back in 2013, I didn’t find a graduate job that offered promotion prospects since I squandered my job hunting season with a lack of focus (I didn’t know what I wanted to do for most of 2013, and by the time I knew I wanted to do B2B Marketing all the good B2B job deadlines were over).

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As a result I really wanted to delay my graduation until 2014 to give me more leeway to be more aggressive in getting a graduate job that offered promotion prospects during 2014’s job hunting season. The problem with this plan was my sister wasn’t willing to help out with rent after my graduation regardless of if I had a job or not (to be fair she probably was afraid of me freeloading her, which if true, really breaks my heart to know she has such little faith in me), which if I were forced to have taken whatever job was offered just to pay the rent, there would be a high probability of me basically being forever condemned to low salary with low probability of improving the situation due to lack of opportunities to demonstrate competence or stretch and learn. The other problem with this plan was I requested to see my father at Guangzhou to borrow money so I could survive an extra year but he refused to see me (to be fair, he was in a very shit financial condition back then and I should’ve been more clear that I wanted to see him about borrowing money); he also couldn’t understand this whole delaying graduation to get a better job plan and wasn’t supportive in general.

So how did my mother save my ass? I remember meeting her at a tea restaurant and just explaining the whole situation and also my delay graduation plan. Within seconds she asked me how much money I needed. Without much thought I told her I needed ~$48,000 HKD (living costs and school fee), which she replied that she could lend me $100,000 HKD before lecturing me about “做人如果無夢想,同條鹹魚有咩分別呀” (a person without a dream is equivalent to a “salted fish” – famous quote from Stephen Chow).

She’s done this type of save someone’s ass deal before with her sister long time ago, but that deal was structured into a debt deal with zero interest with a very long repaying period. For me, that didn’t make any sense since that deal would be overwhelmingly dis-favorable to my mum, so I told her I wanted to structure this deal into an equity deal, where she’s literally my 100% shareholder (spiritually, since slavery is illegal and this is voluntary).

So before I take care of my largest shareholder (my mum), anything else financially is secondary.

So how does this translate into finances? I didn’t have a well thought out plan compared to right now, but I basically amped up my monthly dividends to my mum whenever I accumulated a certain amount of assets (eg. Before milestone 1 I give 1% of my monthly salary. After each milestone I increase 1% until I hit 10%).

And I think I’ll keep this dividend growth policy. Based on observation, many articles on Seeking Alpha explain using dividend growth for retirement income because it allows progress to be tracked and the certainty of the monthly income allows for better budgeting and better peace of mind. These are points that my mum really appreciates after explaining the policy to her.

As for what the dividend growth rate should be to make the whole deal a very favorable one for my mum whilst being sustainable for me (going back to the topic of this article)?

Using a Gordon Growth model, I prefer to target a minimum 10% dividend growth rate. John Bogle keeps mentioning that index fund returns will be around 7%-9%, so I target a minimum of 10% dividend growth rate because that gives a 10% return based on the Gordon Growth model, which compensates my mother for investing in me rather than an index fund (her best investment alternative). Since I already have more than 1 year of dividend history, I can just base my dividend growth based on that.

As for how to make the dividend growth policy sustainable for me, I’ll apply the financial criteria of never exceeding 2/3 payout ratio that I apply for my own dividend growth stocks to myself. This will give me a clear idea on the ceiling of my budgeting. I also have a Regret Averse Fund to allow me to indulge in experiences so I don’t regret not going “crazy” on experiences I really want to try while I feel like doing and capable of doing in terms of age.

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