What Chinese New Year Blackjack Taught Me About Money

blackjackOkay, hypothetical scenario.

Imagine you’re on your honeymoon in Las Vegas, chilling in your swanky hotel room while your spouse is taking a shower. While checking out the minibar, you come across a $5 gaming chip in one of the drawers – the previous occupant must have mistakenly left it there.

You take the $5 chip and head downstairs to the roulette tables, where you bet it on your favorite number: 25. To your surprise, the ball lands on 25 and the dealer hands you $175. You decide to let your winnings ride by betting it on 25 again. Once again, the ball lands on 25 and your stash grows to $6,125. Taking this as a good sign, you bet it again and win, netting you $214,375.

You’re on a roll! You’re still in luck in the next round, which gives you $7.5 million dollars, more than what most people will ever earn in a lifetime. You bet it all on 25 again and amazingly, you now have $262 million, which makes you richer than Mitt Romney.

You decide to try your luck one last time. If it works, you’d be worth almost ten BILLION dollars. Sadly, this time the ball plops onto the number “00” with a sickening thud, and you lose all your winnings. You walk back to your hotel room and tell your spouse you were playing roulette downstairs. Your spouse asks how you did.

“Not bad,” you reply, “I only lost $5.”

The Great Chinese New Year Mystery

Sooooo…. What does a botched up roulette game have in common with Chinese New Year?

For most of us here in Singapore, Chinese New Year involves a helluva lot of eating, answering awkward questions about why you’re not married, and… gambling.

This year, I found myself wondering why Chinese New Year was such a popular time for gambling. Most of the time, I scoff at the hordes of people who frequent casinos and throw their hard-earned savings away. But whenever Chinese New Year rolls around, I find myself stumbling to blackjack games like a delirious addict on too much bak kwa.

After pondering over this curious dilemma for a couple of days, I had my conclusion: The culprit was the innocuous little ang bao.

(Side note: For my international friends who don’t know what “ang baos” are, they’re red envelopes filled with cash that your relatives give you during Chinese New Year while you’re still unmarried. #norushhere)

Mentally Accounting for Mental Accounting

Psychologically, receiving an ang bao has exactly the same effect as finding a $5 chip in your Las Vegas hotel room. Namely, they’re both “found” money, which inflicts this interesting psychological effect on you known as mental accounting.

Nope, mental accounting has absolutely nothing to do with your ability to multiply 17 x 32 in your head. Instead, it’s a psychological phenomenon that causes you to treat money differently depending on where it comes from, where it is kept, or how it is spent. So mental accounting posits that you’d treat $100 from an ang bao very differently from $100 you’ve worked hard to earn. Mental accounting causes you to spend $500 in your vacation allowance way more freely than you would for the same $500 in your savings account.

But mental accounting has a dark side too. It causes you to be flippant when you’re dealing with “surprise” or “additional” money, like your bonuses, or your gambling gains. Ever find yourself winning a hand at poker, and then aggressively calling or raising in subsequent rounds? That’s mental accounting at work, and it could easily work against you.

Two Systems to Prevent You From Getting Screwed

The strategy to prevent mental accounting from screwing with you is to set predefined systems, something I practice as much as possible. Go to all gambling games with two predefined rules: 1) a stop-loss and 2) a lock-in percentage.

Most people are familiar with a stop-loss, which is a predefined amount you’d be fine with losing. But few people implement a lock-in percentage, which kicks in once you start winning. For example, if I set a lock-in percentage of 20%, I pocket 20 cents for every dollar I win and don’t touch it for the remainder of the night. These rules have helped me to save hundreds of dollars over the past few years.

But the awesomeness of the lock-in percentage rule goes way beyond Chinese New Year blackjack games – Think about how you can apply it to your bonuses, allowances, inheritances, rewards, rebates, or any sort of “found” money you come across. For example, predefining a rule that states you’ll save 50% of your bonus will help you to save way more effectively than the average cubicle dweller who blows his entire bonus on dumb things to overcompensate for his sad, sad life.

When applied right, predefined rules could potentially save you tens of thousands of dollars throughout your lifetime.

Psychology > Tips

Ask most people how they handle their personal finances, and they’d give you all sorts of tips and tactics like choosing the right credit cards or investing in some obscure growth stock.

However, while we don’t think of it often, it’s interesting how psychology has such a disproportionate influence on our ability to hold on to and grow money. A mastery of a couple of psychological principles could be way more effective than hundreds of money tips and tactics.

So remember this the next time you’re at a roulette table. Don’t say I didn’t do nothin’ for ya. 🙂

Footnote: Definition of mental accounting and casino example taken from “Why Smart People Make Dumb Money Decisions” (aff link) by Gary Belsky and Thomas Gilovich

Image credit: Images_of_Money

Why You Should Never Be Jealous

Credit: http://www.flickr.com/photos/brennuskrux/3356833255/sizes/m/in/photostream/Hola! So sorry for being MIA for the past couple of weeks. It’s the usual November workplace crunch, and I’ve been occupied with a ton of work including, among other things, emceeing my company’s World Marketing Conference – a glitzy 2-day event attended by senior management and hundreds of overseas sales and marketing staff. Here’s what was running through my mind right before the event started:

Emcee-ing W.M.C

I’m standing in the middle of the stage, microphone clasped in my sweaty palms, bright spotlights training on me like police searchlights on a trapped prisoner. In front of me sits a sea of hundreds of business-suited men and women, murmuring in anticipation. My CEO in the front row looks expectantly at me and frowns.

I’m nervous because I’ve never emceed a formal event before, let alone one as huge of a scale as this. Backstage, I silently pray that my scripted jokes wouldn’t be met with stony silence. One screw-up, one waver in my voice, could affect my reputation for years to come. It’s like freakin’ high school all over again.

But then again, no one knows better. Just by looking at me, no one can tell that the only emceeing experience I’ve ever had is hosting my baby cousin’s birthday party. And so I get a stunning revelation:

Just fake it.

I take a deep breath, smile my biggest smile, and start talking. The delivery goes well. My colleagues congratulate me afterwards. No one could tell I was nervous as hell. One of the big bosses slaps me on my shoulder and tells me to get ready for more emceeing gigs. I may not ever be as good as a professional, but I can totally fake a performance that’s good enough.

How Do They Afford All This?

My successful attempt at faking got me thinking about how everyone goes through life wearing masks and faking something.

Whenever I hit the clubs, I can’t help but observe the dudes sitting at the VIP tables. They’d be surrounded by other rich-looking, beautiful people, as if they just stepped out of a Like A G6 music video. Just like me, they’d probably be dressed in a casual shirt and jeans, but their shirts are $400 apiece from Armani and mine are $40 from the sale rack at Uniqlo. They’d be downing champagne by the bottle, while I’d be chilling with my bottle of Tiger Beer. Once the night is over, they’d be driving home in their Porches or Maseratis, while I’d be stumbling to find a cab (or a Night Rider bus if I’m not too tipsy).

For a brief moment, I’d think to myself: “How do they afford all this?” I’d start to wonder what they do for a living, and how awesome it must be to be them.

Wealth – The Easiest Thing To Fake

And then I remind myself that I’m simply jumping to conclusions. What if they’re faking it, just like how I was faking my prowess as an emcee? After all, wealth is the easiest thing to fake. Blow a couple of months’ salary on clothes and drinks, and anyone can look like a superstar.

The truth is, I don’t know anything about them. I don’t know if they’re prudent in their spending, or if they spend every cent they earn. I don’t know if they earn thousands of dollars in passive income, or if they lie awake worrying about how they’ll keep up their lifestyles. I don’t know if they have a rock solid portfolio, or if they’re so deeply in debt that even their enormous paychecks can’t make a dent in their credit card bills.

Redirecting the Moolah

And then I remind myself about just how much I’ve been pouring into my savings and investments, month after month, without fail. No wonder I haven’t bought a new pair of jeans in 4 years – I’ve been too busy shoveling cash into index ETFs and building up a downpayment fund so I don’t have to take on too much mortgage debt.

No wonder I can’t afford to celebrate the end of the year with five bottles of champagne, because I’d much rather set aside a few hundred dollars every month for travel, funding trips like my $3,500 West Coast vacation. It’s not that I can’t afford to spend on nice clothes and drinks, I just choose to put my money towards things that I value much more: freedom and experiences.

Lots of people fake their wealth. But without looking at their audited personal financial statements, there’s really no way to tell if they’re the real deal, or if it’s just a well-polished illusion. We simply can’t make assumptions just by looking at people.

So keep that in mind the next time you watch an emcee on stage, or catch yourself getting jealous of that well-dressed dude at the VIP table. They might just be faking it. 😉

21 Ways Rich People Think Differently

I usually hate Yahoo! Finance, but occasionally they’ll post an article with a grain of truth (or in this case, 21 grains of truth).

It’s titled 21 Ways Rich People Think Differently. I love articles that focus on the psychology of being rich, because hatching a rich life is more about mindset than a bunch of “33 tips to save money” or some scammy investment strategy. You should check out the article for the full details, but here are the 21 ways in summary (with my comments thrown in whenever I couldn’t resist):

1. Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.

2. Average people think selfishness is a vice. Rich people think selfishness is a virtue.

3. Average people have a lottery mentality. Rich people have an action mentality.

4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.

5. Average people long for the good old days. Rich people dream of the future.

6. Average people see money through the eyes of emotion. Rich people think about money logically.

7. Average people earn money doing things they don’t love. Rich people follow their passion. <;;– I don't quite agree with this one. Check out Cal Newport's article on Fast Company, as well as his new book So Good They Can’t Ignore You

8. Average people set low expectations so they’re never disappointed. Rich people are up for the challenge.

9. Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich. <;;– Again, the whole idea of psychology trumping a bunch of tips

10. Average people believe you need money to make money. Rich people use other people’s money. <;;– Also don't fully agree with this statement. Most investment advisors will advocate the whole "Good Debt, Bad Debt" argument, but I've seen how leverage can destroy a person.

11. Average people believe the markets are driven by logic and strategy. Rich people know they’re driven by emotion and greed.

12. Average people live beyond their means. Rich people live below theirs.

13. Average people teach their children how to survive. Rich people teach their kids to get rich.

14. Average people let money stress them out. Rich people find peace of mind in wealth.

15. Average people would rather be entertained than educated. Rich people would rather be educated than entertained. <;;– Yeah, you should be reading as much as you can. But more on books like I Will Teach You To Be Rich rather than Twilight.

16. Average people think rich people are snobs. Rich people just want to surround themselves with like-minded people. <;;– I'd also hesitate to jump to this conclusion. I've been reading The Millionaire Next Door, where the author Thomas Stanley shows that the average millionaire is a 54 year-old blue-collar business owner living in a modest neighborhood. He doesn’t look like a millionaire, and he certainly doesn’t hang out with Paris Hilton.

17. Average people focus on saving. Rich people focus on earning.

18. Average people play it safe with money. Rich people know when to take risks.

19. Average people love to be comfortable. Rich people find comfort in uncertainty.

20. Average people never make the connection between money and health. Rich people know money can save your life.

21. Average people believe they must choose between a great family and being rich. Rich people know you can have it all.

The New Psychology of Spending Money

So last weekend, I met up with a friend who’s kind of a huge foodie, like she wouldn’t think twice about dropping 200 bucks for a meal at a restaurant. She’s really fussy about her food, which I can never understand because I pretty much eat anything. Except papayas, they’re gross.

Anyways, this friend was thinking about checking out this flashy new Michelin Star restaurant that just opened. She was excitedly telling me about her plans, but abruptly stopped herself and said, “But you probably wouldn’t approve.”

I was a little taken aback. Why wouldn’t I approve? “Because you’re all about saving money and personal finance,” she retorted.

And then it struck me: Most people believe that “personal finance” and “spending money” are polar opposites. This couldn’t be further from the truth – I’ll tell you exactly why following a personal finance system means you can spend on what you love (and no, you don’t have to wait till you’re all white-haired and wrinkly).

The Toilet Paper Thief vs The Guy Who Spends On What He Loves

Let’s compare 2 friends – we’ll call them Mike and Paul. Mike is your typical frugal saver. He doesn’t have a personal finance system but he tries his best to save more. He cooks ramen at home to save money. He takes the bus instead of the subway so he can cut 10 cents per day on his trip to the office. He wears the same pair of jeans every time he goes out. When he goes travelling, he steals the toilet paper and soap from the hostels. He picks up 5-cent coins from the ground.

Paul doesn’t scrimp as much as Mike does. In fact, he spends on what he loves. Paul manages to do this because he has a kickass personal finance system: He’s automatically saving and investing pre-determined amounts every month. He’s automated his credit card and phone bills so he never has to worry about missing a payment. He’s set aside “Big Play” money for parties and vacations.

Once all that is done, Paul has a few hundred dollars left over each month which he can spend on the things he loves, no matter how much they cost: Clothes, meals, drinks, massages – in short, everything that makes it awesome to be young.

Paul doesn’t break a sweat if his cash runs out before the end of the month. He simply stays home, cooks, and reads a free book to pass the weekend. In a couple of days, he’ll receive his next monthly salary, automatically save/invest/pay off his bills, and with the amount of money left over, continue spending on the things he loves.

Who do you think leads a richer life?

Old Psychology vs New Psychology

Most people assume that just because I write about saving and investing, I’m one of those crotchey old personal finance dudes, hobbling around with a gin and tonic in one hand, nagging people to stop spending money. That’s the old psychology of spending money, the one that most clueless people mistakenly follow.

There’s a new psychology of spending money: If you’re faithfully following a personal finance system, you’re allowed to spend on anything you want with the money left over.

In the past 2 months, I’ve had a $325 dinner, went on a $3,505 vacation, bought a new Amazon Kindle, and last night, I paid as much as $14 for a beer (that last one was totally not worth it). I did all of the above absolutely guilt-free, because I’ve built, and followed, a personal finance system that takes care of my saving, investing and payments.

There’s a key difference between the following two statements:

Crotchy Personal Finance Dudes (like Mike): “I will never ever spend on a $200 dinner”

People who read Cheerfulegg.com (like Paul): “I’ll totally spend on a $200 dinner, as long as I can afford it after I’ve saved and invested.”

Which person would you rather be?

PS: Leave a comment or send me an email (cheerfulegg@gmail.com) on how you feel about spending money. What do you spend on and why? What is the one biggest thing you struggle with when it comes to spending? What would you like to learn from my blog to help you overcome it?

How To Never Have Monday Blues Again

The Mondays after a long weekend or a vacation are the worst. You get into the office, and it’s like walking into the set of Night of the Living Dead. Everyone is a freakin’ zombie: blank eyes, slack mouth, and shuffling (not the LMFAO kind). This week started with one such Monday – we had a public holiday on Thursday, so most people took time off on Friday to enjoy an awesome 4-day weekend. The Monday hangover was especially severe.

I was feeling a little out of it myself on my way to work (totally losing control here – 2 glasses of wine is enough to destroy me… and I’m only 27). My Kindle had mysteriously stopped working which only served to annoy the hell out of me. So out of boredom, I turned to YouTube and scrolled to SNL’s classic Can I Have Yo Numba? video. Okay it’s not like the funniest video in the world, but it made all the difference:

It made me smile.

Everything changed after that. I got off the bus feeling considerably lighter than when I got on. That brought on another smile because I thought about the awesome things coming up in life: a stable salary, an upcoming holiday, and great-tasting coffee in the morning for 65 cents. Grinning, I stepped into the coffee line and breezed a cheerful “good morning!” to a colleague. She looked at me like I was crazy and exclaimed that she’d never seen anyone so cheerful on a Monday morning.

Behavior –> Motivation

It sounds clichéd, but smiling really does work, even if it’s forced. In 2002, researchers led by Robert Soussignan performed an experiment where participants were asked to grip a pencil horizontally between their teeth, naturally activating the muscles used for smiling. The participants had no idea that the experiment was about happiness, but reported considerably more positive reactions to several videos they were shown.

Say you attempt a fake smile. Just try it. Right now. Go ahead, I’ll wait.

Does your brain know that you’re faking it? Of course it does. But that action tricks your body into producing chemicals that make you feel happy anyway. It’s a textbook case of how your actions can trigger internal motivations – not the other way round.

By the way, this applies to saving and investing too. Most people wait for years to get the “motivation” to save and invest, and end up never starting because “willpower” never works. The truth is, all they had to do was get started – to save and invest as little as $50 a month. Once you get started, your body adapts itself to towards the action you’re performing, developing an “investor mindset” that triggers further investing behavior.

A System To Destroy Monday Blues

So – back to Mondays. I know, it sucks to go to work on a Monday after you’ve partied all weekend (Or in my case, had TWO WHOLE GLASSES of wine. Yeah, you know party rock is in tha hoouuusseee toniiiiight). But if you’ve gotta be at work for the next 5 days anyway, you might as well try to enjoy it, right? So SMILE. You’ll feel happier. And it’s been proven that happier people do better work, are more effective, and are more likely to succeed.

One tip: Set up a system to remind yourself to smile. Yes, it’s corny, but it works. Simply set a daily reminder to SMILE on your phone’s calendar to go off at the same time every day – I set mine to coincide with the lowest point of motivation in the day: walking from the bus to the office. My phone buzzes, I let out a huge grin, and the day automatically becomes awesome after that.

Try it out 🙂

Act Now and Change It

So here’s the thing: I’ve been reading some literature on the psychology of influence and persuasion, and one of the things that particularly struck me was this:

A change in behavior leads to a change in attitude

Most of us think it works the other way round. Think about it. If we were normal, rational human beings, we’d wake up in the morning and say “okay I’m gonna quit smoking” or “I’m gonna go on a diet” or “I’m gonna start saving more”, and then we’d go ahead and do it. The thing is, how often does that work? Think about how many unhealthy, fat and broke people there are in this world who’ve ever tried saying those things to themselves, and then failed, even though they know that it’s good for them.

Now, it seems to make sense that by mentally changing our attitude, our minds would cause our bodies to act in the way that we want to act. Mind over matter and all that shizz. But it just doesn’t work that way. By the way, that’s also why campaigns that bombard people with information fail miserably most of the time. I was at a mall once and I happened to see these posters with pictures of decaying teeth and craploads of paragraphs urging you to go get your teeth checked out at the dentist. They were proclaiming that “40% of Singaporeans will suffer from <insert obscure medical term here>”…. yet was that going to scare me into making an appointment right there? Nah. More likely, I’d go “Hmm, that’s interesting..” and then forget about it.

I read about a study where two groups of participants were all asked to watch a bunch of Far Side cartoons. While watching the show, the first group was asked to hold a pencil between their teeth, but ensure that it did not touch their lips. The second group was asked to support the end of the pencil with their lips but not their teeth. Unknowingly, the first group had forced their lower part of their faces into a smile, while the second group had made themselves frown. Amazingly, those who forced themselves to smile felt happier, and found the show much funnier than those in the other group. The awesome thing was, the participants didn’t know they were smiling/frowning. Their bodies were just made to act in a certain way, which caused a fundamental change in their attitudes to the same situation. This wasn’t some scammy trick – the smiling participants were genuinely happier.

Behavior works, even if it’s forced. As long as you start doing something, no matter how small, the effect it has on your psyche is amazing. Which is why I like to blog about specific, actionable steps that you could literally do today if you wanted to. You could go to the bank and set up an automatic savings account today. You could log into your account and set up a monthly savings amount for that trip you wanted to take at the end of the year. Doing something, anything, in the right direction will start your mind whirring towards better financial habits. And once you start doing it consistently, say with the help of a system that doesn’t require any “willpower” on your part, then you’ll fundamentally change your attitude for the better.

Most personal finance articles you find in magazines and newspapers will bombard you with a thousand compound interest charts and tell you “oh hey, if you save like $500 each month you could totally be a millionaire by 65”, or “Guess what, if you cut down on drinking beers you could totally save an extra $200 per month”. Sure, that’s interesting but would you actually go out there and do it? More importantly, would you be able to stick with it? Much of what is written out there is pure informational fluff, with no sticking power whatsoever. They are written to appeal to the masses, not to specifically help you.

Do yourself a favor and take a baby step towards better financial habits today. It could be going to the bank and setting up an account with a better interest rate. Or transferring your excess cash to your guilt-free spending account. Or deciding how much you want to save and setting it up in your automatic savings account (Notice I didn’t stop at “decide how much you want to save” – the key is to do SOMETHING with it). On my part, I’ll keep blogging about how you can take further steps to improve your financial life. Pick a few, act on them, and before you know it, you’ll have a whole new attitude towards your own finances.

The Most Annoying Part of Starting a Blog: The Title

So I decided to start this blog like how I usually decide to do most things: on a lark. And I spent a good part of the past week trying to come up with an awesome title for it. I was still thinking about it and typing it down on my phone while getting my hair cut today (much to the annoyance of my barber).

The combinations I came up with:

coffeeandeggs.wordpress.com (some food blog not updated since 2009)
ramenandeggs.wordpress.com (available but too Asian)
crackedegg.wordpress.com (one of those one-post “Hello World!” entries)
scrambledeggs.wordpress.com (deleted by the owner – seriously, why would you delete a blog with such an awesome name)
sunnysideup.wordpress.com (an artsy egg blog not updated since 2009)
happyegg.wordpress.com (Another one of those one-post “Hello World!” entries.. seriously, what is it with these guys!)
explodingegg.wordpress.com (I actually really wanted this one, because I was almost killed by one. Shoutout to my friend Amber! But that’s another story… and yeah, it was already taken)

And finally.. this. Yes, you can tell I really like eggs. I like eggs cause they’re easy. And tasty. And they go with everything. And you can make them in all sorts of different styles. They’re fragile, easily cracked, and sometimes smelly.  Sometimes, there might be a chick in them. Kind of like life, if you think about it. (Okay, I admit I stretched that analogy just a little bit)

But most importantly, I have ’em to start my day off. They’re my favoritest breakfast in the world. In Singapore, where I live, we have this breakfast dish comprising of two hardboiled eggs, toast, and coffee. The eggs are served runny on a small plate, with soya sauce and pepper. They kind of look like this:

I know, it looks kinda gross but it’s delicious as hell. Whenever I have it, it’s like I’m starting the day off on a positive (and tasty) note. And that’s really the whole point, because starting is the most important thing to do. I could spend weeks thinking about that perfect name for my blog, or I could start with my first post and see where that takes me.

And now I have.