Successful Wealth Management – Part 1

We have to admit that a major part
of our life today revolve around the word “money”. As a Chinese saying
钱不是万能, 但没钱是万万不能! Money is not everything,
but you cannot live without money!
It is all about Dollars and Cents! It should be Dollars and “Sense”.

Having money alone is not sufficient. We
need to have the knowledge of handling it. In the following, we will look at very basic but important aspects of successful wealth management – Financial Planning.

Save


One of the most important criteria of successful
wealth management is the ability to save. If we save a minimum a tenth a year,
in 10 years you have saved what you earn in 1 year. If possible, I suggest we
save at least 30% of what we earn when we are before age 30. Once we are
married at age 30 and beyond, expenses are more hectic due to housing and
children, hence a savings of 20% of income becomes more practical.



Fresh graduates age 25 to
30 ys old – Save 30% of income. This group require savings for at least 5 years
to prepare for marriage and housing. E.g. Average income is S$3.5k per month.
Take back S$2.5k. Save 30% is S$750 per month. Plus year-end additional wage,
should save at least 10k per annum. per person. In 5 years time the
couple will have 100k savings.

For married couples age 30
yrs old and beyong – Save 20% of income. For instance, average household income
is S$10k per month. Take back S$8k. Save 20% is 1.6k per month. Plus year-end additional
wage, should save at least S$20k per annum per household. In 10 years,
the couple will have 200k savings.

Aside from savings for
marriage, housing or investments, we should also keep a portion of cash for
emergency or in situations where we are out of job. The rule of thumb is to
keep sufficient cash or liquid assets (readily convertible to cash) to be able
to last you or your family for a minimum period of 12 months or beyond.

Be consistent in your
savings and soon it will become a habit. 



Expenses & Debt



The first thing after
receiving your monthly income is not to pay your bills, but to keep a part of
what you earn first! Control your expenditures; do not mix up your desires with
your expenses! Pay debt promptly and never purchase what you are unable to pay
for. 



Own Your Own House



Own your house. Do not rent it. If within means,
owning a bigger house progressively when you are young and downgrade to smaller
house when you retire can be a good strategy.
E.g. a house that is worth
S$800k now may be worth S$2 million or more when you retire 30-35 years later.
By the time you are 60 and beyond, you can sell it and buy a smaller house worth S$1 to 1.5 million and
cash out the difference for retirement usage. 


What you Save must Earn



What you save must earn, what you earn must compound
earnings. 



One good way is to invest in stocks what you earn, and let the
dividends or income growth compound. Refer to my earlier blog about compounding
investment. 

Otherwise you can invest in real estate or
start your own business. But before that, make sure you had acquired all
necessary skills and done your own research thoroughly. Before you buy your
first stock or property, first buy yourself few good books to read. Seek
advice from people who had done it before you. These advices are free. 

If you
put all your savings in the bank and earn less than 1% interest p.a., and with
an inflation of 3% per year, your money will devalue 2% each year. Sound investments from stocks give return at minimum 5% per annum with successful ones 10% return or more per year. 

Open your stock account
with Lim & Tan, POEMS etc. Alternatively you
can also invest in STI exchange traded funds and blue chips at affordable rates as low as S$100 per month by opening OCBC blue chip investment plan



Take Calculated Risk

Guard your money from loss. Do not intrigue by
huge earnings when your principal may be lost
. A safe and small return is far more desirable than a high risk return. Study each case carefully before parting your money. Do
not be misled by your own romantic desires to make wealth rapidly. Invest
correctly or entrusting your money in safe hands. Invest in a company with
track records of successful business management or make loan to a man of
reputation to repay. Stay within your core competence. For instance if you are
working in a bank, investing in financial institution gives you an edge to
information and knowledge. Consult the wisdom of those with more experience than
you in managing wealth or investment.



Insure


Provide in advance for the needs of your growing
age and protection of your family. Buy a comprehensive medical insurance
earlier when you are free of illness. Protect your property by buying mortgage
and fire insurance plan. Insure against unexpected risk of death, total
permanent disability and terminal illness. The insurance coverage should be
sufficient to last you and your family expenses until old age. 



Will


Make a will so that you have proper and
honourable division of your wealth among your family members later, without any
dispute. 



Charity



What you earn, you must give back a part of it
to the society. Have compassion for the unfortunate within you reasonable means. 


Wisdom or Money



Without wisdom, money is quickly lost by those
who have it, but with wisdom, money can be secured by those who don’t have it. Is
it better to strike S$1 million lottery or to acquire the skills to earn S$1
million? Once you have wisdom, you have ability to earn and this is the most important criteria in wealth creation. 



Increase Your Ability to Learn



Cultivate your powers to study and become wiser.
When you are young, work to learn and acquire all the experiences and skills. Once
you acquire all the experiences and skills, the pre-requisite of success is
“DESIRE”. Have you ever come across someone who is not as capable or
hardworking as yourself but earning much more than you?

This person probably know
how to impress his boss with his work, and ask for more salary each year, while you work hard
and suffer in silence without asking your manager for pay rise. When his job is
stagnant, he actively seeks for more career advancement opportunity, while you
are contented with your job. Although he does not possess ability to earn more
but he had a strong desire to earn more which is extremely important.




Having the ability to earn
more, means increased savings or investment amount. This can guarantee your
financial freedom faster. As mention in my earlier blog,
 investing S$3k a month and compounding 8% return over 30
yrs give you S$4 million. The same investment with S$7k a month gives you S$10 million after 30 yrs.

The primary focus for young
graduates should be increasing the ability to earn, follow by the knowledge and
skills of investment – stocks or real estates. After-all your 20k portfolio
will only earn you 2k each year for a 10% return, compare to a 200k portfolio
giving 20k return. Having said that, if you are acquiring all the investment
skills to be a fund manager later, then it is a different story as your skills
and experience acquired now will greatly increase your ability to earn later in
your career.

Refer to part 2 …….




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4 thoughts on “Successful Wealth Management – Part 1

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  3. At one stage or another, every man woman or child will be faced with the issue of Wealth Management. Given that its influence pervades our society, its influence on western cinema has not been given proper recognition. Crossing many cultural barriers it still draws remarks such as 'I wouldn't touch it with a barge pole' and 'i'd rather eat wasps' from so called 'babies', obviously.

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