Thought of the day!

I have never come across any textbook on wealth creation, money management and wealth management. Have you ever asked yourself why your teachers in school did not teach you on how to make more money?

Instead, they tell you to study hard for the exams, go to a good university and find a job. When they say job, what they really meant was jobs like lawyers, doctors, scientist, teachers and engineers. As soon as we go to school, we are basically ’programmed’ to study hard and get a good job. We already have a typical average Joe or Jane’s mindset and not a millionaire’s mindset.

1.)Go to school

2)Study hard

3)Get a diploma or degree

4)Get a ‘good’ job

Now, let’s imagine what will happen if we are taught on how to create wealth, generate more income and multiply our income streams. I’m am very sure that we will be happier now and not complaining about not making money. Now, my question to you is, can we blame our education system? Hmmm…that’s a tough one.

Give it a thought.

Achieving your financial freedom day is not easy but attainable.

If getting rich is easy, I think there will not be any financial problems in the world. The real fact is, to be rich; you must put in more than 100% of your effort. There is nothing in this world that is easy. To achieve is your financial freedom day is not easy but is attainable.

The same goes to students who are pursuing their education, they will need to study extremely hard to excel in their studies. The long study hours and sleepless nights mugging for their exams is the activities or input for them to excel in their exams. To be a millionaire or achieving your financial freedom day, you must put in inputs.

For a student to effectively put in their inputs, they must pay attention to their lectures, complete their tutorials and communicate with their lecturers and friends. Studying extremely hard itself is not enough. In contrast to be a millionaire, your – inputs do not mean that you have to work extra hours, get a part-time job and try to increase your streams of income.

To be a millionaire, you have to start investing your money. Make your money work even harder than you. You need to maximise your income exponentially in order for you to shortcut your millionaire dream. Invest! Invest! Invest!

The above paragraph is so common in any wealth accumulation book that when anyone read this kind of book, they will be motivated and start investing. For an individual who have finance background, they will know what kind of asset to invest, what portfolio to adopt, what are the returns and risk involve, how to invest their money effectively and minimise losses. But what happen to an individual who knows nothing about investment?

Actually, what this books fail to tell you is that you have to learn how the fundamentals of investment. I also know that there are books and guides on how to invest money but these kinds of books will never tell you specifically what kind of asset class to invest.

In order to make your first million effectively, you will need to acquire some financial knowledge. Without due diligence, you can never invest your money effectively and reap big returns.

Your million dollar road map!

In the pursuit of achieving your financial dreams, there are some changes that you will have to adapt. These changes are actually yor road map to your first million dollar. Firstly, your will power must be extremely strong. Millionaires have will power that is so strong that they can adapt to any unanticipated changes. This is true when one’s business is making a loss, having a weak will power will only make one to give up their dreams.

Becoming a millionaire is not an overnight process. It takes years of perseverance and endurance. It is not impossible to be a millionaire these days because there are so many sources or streams of income that one can have. However, this does not mean that if you have multiple streams of income, you can be a millionaire.

While everybody is concern about making money and expanding their businesses, they often forget the single most important change that they will have to adapt to be a millionaire; effective cash flow management. Having an effective cash flow management can double up your dream to be a millionaire.

Of course there are many out there that are selling cash flow management products that can help you but all these products are useless if you do not follow them. The problem with having an effective cash flow management is that it is too time consuming and tedious.

When you know how to handle your cash flow, naturally you will want to increase your knowledge on finance. You will learn more in depth about investing your money and how to protect your money. Risk management and investment planning will be your concern now as your goal is to grow your money through the most effective investment vehicle and how to protect your income if anything happen to you.

As you can see, just dreaming to be a millionaire is not enough. There are many other factors contributing to your success. If you do not have the desire to learn, you may as well forget your dream to be a millionaire and continue living your normal live just like the many other average Joes and Janes everywhere in the world.

Rising standard of living and you.

Our standard of living has gone up so high that life has been very competitive. More and more people are talking about high paying jobs, bigger cars, long vacations, 5- star hotels, diamond rings, exquisite dining and many other luxuries. However, what people had failed to talk is how much their income has rose. Does it tally with the high inflation rate and high standard of living? Are they having too many debts?

With debt easily bought by people, there are bound to be many problems. People will start paying debt and not saving money. I have seen people whose debts are more than 50% of their income. . I also met people that do not have savings and have two kids that are growing. Still, they still want buy more debts. In Singapore, one of the many reasons why people cannot get rich is because most people are stuck with debts that are more than 50% of their income. . All this financial problems are very common, and these are the setbacks that you have that will hinder you from achieving your financial goals

The common luxury that many people in Singapore buy is car loans. Almost all Singaporean wants to own a car. Well, the car dealers are not helping either; they come up with attractive ways for consumer to buy debts. With as low as $1, you can drive a car home in Singapore.

I am not saying that you cannot buy a car, dream of luxuries and increase your asset. What I want to tell you is that you must not forget the reason why you are working and why must you avoid having too much debts

Personally, I save 40% of my income without fail. It is not an easy task but I just have to do it. What I did was that I have a budgeting plan that is realistic and I track whatever that I buy. It took my 8 months to perfect my budgeting skills and spending pattern but it was all worth it.

I am not suggesting that you must have the same saving habits as mine. However, financial experts suggest that 10% of your income should be saved. Anything less than that, you are gone. It is better to start small than just planning for the day that you will start saving. If you have dreams of having your financial freedom day, you must start with saving your money. Saving money is your key to your financial freedom.

Quantifying your retirement goals.

If you are not working to be a millionaire, you should at least work to have a comfortable retirement years. With the advancement of medical technologies, human beings are expected to live longer. When you live longer, it also means that you will need more money for your retirement.

Retirement funding is a no joke process. One must quantify their retirement goals and must be aware of their retirement fund. It is too late to plan for your retirement if you have reached 50 and above. Hence, retirement planning should start as soon as one starts too have an income.

As a financial planner, I met with a lot of people that do not think that retirement is important. Most of them think that they should settle their current financial problem first, and then they will look at their retirement needs. The more you procrastinate on your retirement goals, the more difficult for you to reach your retirement goals.

Let me give an example:

Eugene is 42 years old who earns $40,000 annually. His current investments are worth $50,000. He plans to retire in 20 years time and expected to live until the age of 85. He also indicated that he will need 60% of his last drawn income for retirement.

Assumptions:

• Investment rate of return before retirement: 8% pa
• Investment rate of return after retirement : 5% pa
• Inflation rate : 2%
• Wage growth rate: 3%

Therefore;
• First year retirement income : $43, 346
• Resources needed to fund retirement income : $738, 318
• Projected value of current resources at retirement : $238,048
• Retirement fund shortfall : $505,207
• Annual funding required at the end of each year: $11,041

As you can see, Eugene needs additional $505,207 for his retirement and he is required to have $11, 041 yearly to accommodate his retirement shortfall. This yearly funding cannot be achieved just by savings alone, it also needs some investments.

If you plan later, your yearly funding will get more and sometimes, it will be impossible to get that amount. When you cannot meet your yearly retirement funding, your retirement years will not be an enjoyable one and it will be too late for you to regret. I am sure that you do not want to work all your life.


Note: Calculations were made on a financial calculator.

Cash flow problems?

Have you heard of this phrase, ‘Good things will come only to those who wait’? In your journey to become a millionaire, you have to delay your gratification. You have to live by your needs and delay almost all your wants. We all know we must let our money work for us. The more money we have, the better.

Being frugal is not an easy task. In fact, it can affect your lifestyle. Nevertheless, being frugal gives you big rewards in the future. One of the first steps to be a millionaire is to be frugal. If you cannot live like that, your journey to be a millionaire can take much longer.

The idea of being frugal is simply how you manage your cash flow. Managing cash flow is one of the most difficult and tedious tasks to do. It requires you to be discipline, honest and patient. You have to monitor your balance sheet, cash flow statement, monthly budgeting, annual budgeting and daily expenditures. Basically, you have to know exactly how much money go in and go out. Every single cents count.

The idea is to create awareness on how you spend your money. If you know exactly how much you spend and how much you are left with, you can end up saving up more money. You can reach your financial goals within a shorter period of time only when you have a prefect cash flow management system.

The daily updating is the one that make your financial goals faster. When you are actually recording and tracking whatever you buy, you will realise that you are spending too much money on something or not. With all the technology now, tracking on what you buy can be tricky.

I personally have a good cash flow management and been saving 20% more of what I have been saving. I did not do this overnight; I took 4 months to perfect my cash flow management skills even though I have all the tools. As you can see, managing cash flow is not easy but it is worth the pain.

You will become frugal automatically when you monitor and track your expenditures. If you need any help or advice on how to manage your cash flow, do drop me an email.

All financial goals must be quantified!

With the ever competitive market, one must be aware of their industry players. Upgrading one’s skills and education is far more demanding then many years ago. To stay competitive in the market, one must be well- equipped. As a financial planner, I too want to always edge out my competitors.

As financial planning is growing it’s popularity, I have no problem looking for my competitors. Financial planners around Singapore always have road shows in shopping malls to attract clients. Well, what I did was very simple, I went to one of the road show; get a financial planner to advice me on my financial goals.

At the beginning of the meeting, the financial planner was very accommodating with all the available products. He then asked me my financial goals and quantified my goals. To my surprise, he did not quantify my goals accurately and made a lot of assumptions. He did not even have a financial consultant calculator with him.

I thought to myself that I should give him another chance and set up another appointment. On the second appointment, I gave him all my financial details and goals. Again, to my astonishment, he did not bring a finanicial consultant calculator and made assumptions. I then asked him how much it will be enough for me to retire.

Immediately he told me that my retirement is around $1million. He said that will be a save amount to consider. To prove that his assumption is wrong, I asked him to calculate for me why he said that it’s around $1 million not other value. All he can tell me was that retirement fund is difficult to calculate.

I am sure as hell that retirement fund can be calculated. There is a way to do it. Firstly, you have to know what is your annual income expected when you retire. This amount is calculated by your current annual income. Then you need to calculate how much is the total retirement fund needed, the available resources and funds, and then get the retirement fund needed. All this values are calculated in future values and can only be calculated with a financial consultant calculator.

If your current or future financial planner do not use this method to calculate your retirement account and do not have a financial consultant calculator, I think you should not listen to his advice as it is based on assumptions, not real facts.

Investment is more than just risks and returns!

In the world of knowledge based economy, information can be passed faster than a speeding train. Information can be attained from mediums like internet, calls, sms and newspaper etc. With all these information available at the tip of your fingertips, buying and selling of your investment is done faster.

However, some of this news can be fact and some are just speculations. Speculations can be the market’s greatest enemy. Half of the time, people buy and sell their investment because of market speculations. ‘Hot’ tips are very common among investors. These ‘hot’ tips sometime kill investors as they do not actually analyse the tips that they got.

Brokers and bankers are famous people for investors with little or no knowledge about investment to get tips from. Whatever that brokers and bankers share to investors will be regarded as a hot and valuable. investors react to these ‘tips’ almost instantaneously hoping that they will not lose money or hoping that they will gain a large amount of returns. At the end of the day, investing on an asset is based on who gets the best ‘tips’ and which brokers or bankers are the most credible.

Investing on an asset is actually more than science. You will need to do a lot of research and acquire some skills on technical and fundamental analysis. There are a lot of things that you must do before you invest your money. It is your hard earned money at the end of the day. Investing your money on an asset is not about ‘parking’ your money in an asset and pray that it will grow!

Does this mean that you can never be rich and can never invest your money because you do not know how to? The answer is no!

There are courses, seminars and people who actually can help you to invest your money. This help you get will also incur some costs but it is an investment if you think about it. In order to be success in your investments, you need to know the science of it. The more in- depth you know about the investing, the less money you can avoid to lose. Investment is more than just risks and returns!

Already planned for your retirement?

When asked if you know how to manage your money, I am pretty sure that you will say yes. When your answer is a ‘YES’, why in the name of god do you not have enough savings and find it very difficult to meet your ends need towards the end of the month. As you know, managing your finance is not a simple task. Managing your cash flow is more than the art of science.

I have seen many people who think that their method of managing their cash flow is good. I have also seen people who are not bothered about their cash flow and are just ignorant. These kinds of attitudes are very dangerous especially for those who have wishes to be rich.

Only after you know how to manage your cash flow, then you will know can plan for your insurance planning, investment planning, retirement planning, tax planning and estate planning.

As a financial planner, I have to quantify goals for my clients. Sometimes, these goals are overly impossible to achieve and sometimes, they are just vague numbers. Retirement planning is the most complex amongst all as it is the furthest goal at least for most of the people.

E.g. Ming is a 40 year old man that wishes to have $1,000,000 as his retirement account. Currently, his savings in his bank account is $100,000 and he is drawing a $2,500 worth of pay. He also has an endowment plan set to mature at the age of 65 and the maturity value is $50,000. Assuming that he has no dependants and wish to retire at 65; this will be his shortfall

Retirement account= $1,000,000
Net surplus= $850,000
Years to retire= 25 years
Monthly savings= $2,666 (impossible)

Savings itself is not possible for Ming to achieve his retirement account. He will have to have some kind of investment that will pay him good interest. in order for him to enjoy the interest, he will need to know some kind of investment knowledge or at least get someone that can help him.

Factors like inflation rate, return rates on investments, future dollar value and power of compounding must be considered in planning one’s financial goals. Even if you have the best plan, sometimes things can go wrong too. Financial plans have to be monitored and must be analysed on an annual basis.

Assuming that he made some changes to his cash flow management, engage a financial planner and try to come up with some recommendations, this is how it would look like

Investment of his $100,000 @ 10% interest after inflation=$1,083,470

As you can see, Ming seem to have hit the $1,000,000 mark that he wanted for hid retirement fund but let me tell you something, that $1,000,000 that he plan is not even a number that is accurate. Having an accurate retirement fund is not a number game; there are ways to calculate it. If you already have a financial planner that you think does not plan your retirement fund appropriately, you will be at a losing end when you reach your retirement years. It will be a good move if you have the right financial planner.

Inflation; how serious can it hit you?

What do you understand by the term inflation? Does it matters if the rate of inflation is high? What impact does it have to you and your financial goals? Does your financial planner consider about inflation when planning your financial plan? Does it pay to understand about inflation?

As a financial planner, I am always trying to plan my client’s financial goals and one of the factors that I think is important is inflation. Inflation is the rise of the future dollar compared to the present value. In short, your dollar today will be lesser compared to your dollar tomorrow. Just look at the price of one consumer product like rice, a packet of rice today cost more than 5 years ago.

When making an investment, rate of inflation is very important. Inflation is classified into 2 categories, anticipated and unanticipated. Economist can predict the inflation rate with a high degree of accuracy, this inflation is called anticipated inflation rate. What happens when there is an increase in the price level that comes in as a surprise? For instance, if the market participants anticipated a 3% inflation rate but the actual inflation rate turn out to be 10%; this will then be an unanticipated inflation rate. It will be impossible to make a prediction on the future values if the inflation rate is high and variable.

High and variable inflation rate will generate uncertainty and weaken the link between income and productive activity. Some of the effects are will definitely hit money lenders, distortion of prices resulting in wrong choices , when inflation takes hold, market begin to adapt and an allowance for inflation is generally built into the market interest rate and, for retirement planning, it will have an impact on the future values.

To hedge this problem, you will have to be kept aligned with the changes of the economic activities at least once a year. Having an annual review can help you avoid losses.

Will your dreams be just another dreams?

To be focussed is a trait if you want to be a successful. No one in this world is born with any problems and you can only be successful if you are focussed and very motivated in whatever you are doing. Relationship problems and family problems can change your life forever. A change in your life can be a good, it can also be disastrous.

In the pursuit of your financial freedom, the problems that were mentioned above are the last thing that you want. You will have to be strong in facing these kinds of problems as it can make you financially drained.

I too faced these kinds of problems in my life but I managed to overcome these kinds of problems. In fact, these problems made me more determined than ever to make more money as I realised that the root of this problem is money itself.

Rich people also face this kind of problems but being rich by itself is not enough. There is a significant difference between a person who is born rich and a self- made millionaire. A self- made millionaire has traits that make them who they are. Why? It’s because when these self- made millionaire is starting their journey, they are faced with lots of problem. The problems that were faced by these millionaires actually made them what they are now.

Just remember this, problem make you a stronger person. Before you can become a millionaire, you have to change who you are now. Having a millionaire’s mindset is very important. In fact, it is the single most important attitude/ trait that you have to adopt.

In my experience of helping people realise their financial dreams, most of the times I noticed that some people are so affected by their problems that they can side track what they want to achieve. Brooding over a problem and not thinking of solutions is one of the most common behaviour.

When you dream of something, naturally problems will come. These problems keep getting bigger and bigger and if you cannot handle them, your learning curve will decelerate and your dream will be gone!

Do you know about compound interest?

Over the weekend, I had a great lunch meeting with one of my partners and we sort of talk about what we can achieve in 5 years time. My partner is a very successful businessman with a liquid asset of more than $2 million, impressive for a 33 year old man with not a high education.

His said to me that he would increase his net worth by $500,000 in 5 years time and told me that it was a realistic target. Well, this is where I am good at; I opposed to his target and told him that I could help him increase his liquid asset by $1 million at the end of 5 years.

At first he thought that I was talking about his business but I convinced him that I will increase his net worth with what he has. To my surprise, my partner does not believe in investment. He believes only on ‘parking’ his money on the bank because he is sure that his money will not be gone.

I laughed so loud upon hearing what he said and told him that he forget everything about inflation. In Singapore, the inflation rate is going at 2.6% as at 30th September 2007 and it will increase. On the other hand, banks are offering only 5% interest. in short, he will only earn a 2.4% interest yearly. In 5 years time, the $2 million that he has will only be at $2.27 million.

After hearing what I said, he ask me to propose to him an investment that do not have much risk and still give reasonable returns. I then told him that he should invest his money in unit trust as this kind of investment is safe as the funds are diversified, managed by a team of professionals and perfect for beginners.

I told him that with the right investment skill which I will train him, he will be able to have at least an interest rate of 13% after subtracting inflation rate. With this rate, his $2 million will be at $3.68 million after 5 years. The moment I said this, he eyes almost pop out and asks me to tell him how I arrived at this figure. Well, the answer is simple, power of compounding.