Category: How-Tos

When it comes to success in personal finance, investors oftentimes relate their personal wealth to a measuring performance index. We are immersed in our busy schedules primarily to create more wealth.

It is fair to say that when it comes to wealth creation, everyone will be interested, but not everyone will know how to achieve it. Some may end up getting a less desirable outcome from their wealth creation attempt.

Creating More for the Future

Generally speaking, the goal in mind in wealth creation is so that our future wealth will be more than the wealth we presently have.

If you are not careful, however, you can get wealth reduction as an entirely opposite outcome instead. This will be unfortunate as we will not be able to turn back time, which eventually means we will have to either delay our plan, or make drastic adjustments to the new reality of the future.

Invest to Create Wealth

A simple way to wealth creation is to increase income while keeping expenses at status quo, or spend less while income remains status quo, or we achieve additional wealth via investing.

However, chasing more income requires trade-offs like having less time for other aspects of life such as family time, hobby or leisure. Likewise, to spend lesser also requires compromise in not living the most desired lifestyle or you may have to forgo changing to the next new smartphone, or fashion trend. Investing our hard-earned money also has a trade-off. It needs the investor to take a risk and accept that “cash is king” is not always right.

Throughout my experience and the many cases I have seen, it is common to observe that people have their primary focus on growing their wealth so much that they at times overlook some factors. Avoiding wealth reduction or reducing the extent of wealth reduction is perceived to be one step closer to greater future wealth.  

In sport, sometimes people say that the best defence is the best offence, because you are more likely to be in a position of not being defeated. Thus, we should try to train ourselves to consciously pay attention to minimising the leakages or waste in our financial system while we attempt to invest to grow our wealth. At least when we do this simultaneously, we will have more than “one engine” running our wealth creation process.

In the worst case scenario, investment outcome may be capital loss and wealth reduction due to certain vagaries such as paying medical bills from our own hard-earned savings, penalty on income tax bills, or under-estimating inflation, overlooking on currency hedging, children’s education expenses, and so on.

Wider View of Personal Finance

As a financial planner who believes in comprehensive financial planning, I would suggest that a person look at personal finance from a comprehensive angle that includes:

• Cashflow and debt management
• Retirement planning
• Education fund planning
• Asset protection planning
• Tax planning
• Estate planning
• Insurance planning
• Investment planning

It is not difficult to hear real life stories where a person has set forth to invest their money hoping to see a positive return on investment (ROI) in a few years’ time, only to find that their capital was lost. In fact, it could be that only a handful of investors are well aware of what they are investing in. Many of us may not know that we are paying excessive fees for the investment, or some may not even know that such fees exist. Ultimately, fees are always a factor that will eat into our return.

Risky Ventures

I have also seen investors who disregard the need to have health insurance, but they are very focused in making risky investment such as penny stocks, or leveraged investing. Wealth creation strategy like this generally assumes that life will move in a straight line and the anticipated investment return will be positive and without much volatility that may hurt their standing.

But in real life, anything could happen, and we may have sudden need of cash and fund, if we are not careful and do not have a decent financial foundation, we may then be forced to put our hand into our investment and make unplanned withdrawal, if at the point of withdrawal, the investment is making a loss, we will then be realising those losses. This is a sure way to lose your money, and if you are sane you will not be interested to do this.

Apparently, “cash is not king” but cashflow is king. Therefore, when we set out to take adventurous ventures with our money, or to create a new business start-up, it is best we ensure that our cashflow position is within our control and is stable, and that we have a safety net to cushion us should there be an unexpected fall. This is what people usually call an emergency fund or buffer.

When our cashflow situation is healthy and we also prepare a safety net to weather challenges and unexpected events, then our wealth creation process will become less risky. An entrepreneur personal financial management will very likely impact the financial success of their business, and vice versa. So, it is also important for business owners to separate their personal financial affairs from their businesses. As we embark on the journey of wealth creation, perhaps it is in our best interest to recognize that there are things that are well within our control to reduce or increase wealth creation process will become less risky.

An entrepreneur personal financial management will very likely impact the financial success of their business, and vice versa. So, it is also important for business owners to separate their personal financial affairs from their businesses. As we embark on the journey of wealth creation, perhaps it is in our best interest to recognise that there are things that are well within our control to reduce or increase wealth.

About the author

Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my. 

For many millennials striving for success in their careers, starting their own family and seeking to build up a nest egg for a comfortable retirement, the journey of wealth accumulation can often be fraught with challenges and pitfalls.

Many think that wealth accumulation is just having lots of money. In fact, “having money” and “wealth accumulation” are two different things.

Having money allows you to pay for your expenses but it is typically spent shortly after it comes in. The latter goes a step further – it is taking disciplined steps over a period of time to achieve wealth accumulation. Here are some tips for the millennial on how they can accumulate wealth.

Saving, Saving, Saving!

For wealth accumulation, you need cashflow. The very first step is to set a financial goal and stick to it! Once you are clear about your objective, the next step is to be disciplined enough to achieve your money goal.

A good suggestion is to use “automation”. Automation adds built-in discipline to your financial life and reduces the likelihood that you will forget your objective or spend money on things you do not need.

You can set up automatic deductions from your paycheck bank account to send money directly to another savings account, unit trust or investment account. By automating these payments, you are making sure that you are paying yourself first.

Cut Expenses

Cutting unnecessary expenses is the key to living below your means, so you can reach your financial dreams. Challenge yourself by resisting expenses that are most tempting. For example, you might:

• Cook at home every day for a month instead of eating out;
• Refrain yourself from buying any new clothes or handbags for six months;
• Avoid window shopping as that will cause unnecessary spending;
• Say no to cinema and other entertainment places for six months; and
• Cancel or delay your annual trip to another year.

Imagine how much money you could save if you are successful in overcoming the above challenges. You could easily have an additional RM10,000 to RM20,000 to add up to your savings.

Multiple Streams of Income

You need cashflow to build wealth, and the best way to generate that extra cashflow is to earn more money. In Robert Kiyosaki’s book ‘Rich Dad, Poor Dad’, he mentions four types of income streams: Employee, Self-employed, Business Owner and Investor.

For the first three sources of income, you are exchanging your time for money. It is a form of active income whereby you need to be “actively” working for money.  However, please do not underestimate these sources of income, as it can be useful when you want to utilise this as a leverage power to accumulate your wealth.

You may buy your first property with this financial leverage. And if your investment is a positive cashflow, you would probably end up owning the property for free as your rental income is able to pay down your mortgage loan.

The last source of income –  Investor – is the status that people most closely associate with wealth. This is where “money works for you”. As an investor, you earn the best kind of income possible – passive income by investing in assets such as stocks and properties.

Why is it the best? Because you earn money while you were sleeping! If you can generate enough passive income, you may never need to work again in your life. In short, you can retire early.

Get Rid of Your Bad Debt

In the journey of wealth accumulation, we also want to identify the obstacles preventing us from achieving our financial goals. One big obstacle could be having too much debt. However, not all debts are bad – there are good debts and bad debts.

Good debt is money you borrow at a low interest, with which you could make a higher rate of return, such as your mortgage rate. Bad debt, in contrast, is consumer debt. For example, money you borrow at a high interest rate to buy things that do not produce income or grow in value such as cars, electrical appliances, furniture and even luxury trips.

The price of bad debt is the impact of compounding rates of return working against you instead of for you. If you have credit cards or bank loans costing you 18% or more a year, that’s 18% compounding against your retirement.

The Bottom Line

In summary, wealth accumulation does not happen overnight, it is a gradual and a disciplined process that requires proper planning and execution.

Nevertheless, It is always good to have a licensed financial planner to guide you in setting up a blue print for your financial journey. They are generally able to help you to make better investment decisions and make sure your money is being deployed in the best manner.

About the Author

Pauline Yong is the CEO of Sigma Wealth Sdn Bhd. She is a CFP® (Certified Financial Planner), a licensed financial planner with a Securities Commission license (CMSRL) and a Financial Advisor Representative (FAR) licensed by Bank Negara.

She has published five investment and financial planning books and writes regularly for various publications. Pauline is also a regular commentator on stock market outlook for City Plus FM radio station.