Friday, October 05, 2012

The secret of being wealthy

I'VE been an independent financial advisor for more than a decade and one of the questions that I am periodically asked is, “What is the secret of being wealthy?” The answer, and you may be taken aback by what I am about to reveal, is not about getting richer.

Growing up in a typical middle-income family, I often wondered how wealthy people managed and grew their wealth. In particular, I wanted to know what separated the truly wealthy people from the rich. Both shared an undeniable ability to make money and could afford to lead comfortable and lavish lifestyles. Yet, those in one of these groups were clearly the front-runners because their wealth had the ability to last generations.

In 1998, I enrolled in a Chartered Financial Consultant (ChFC) course to study personal wealth management. In 2000, I started my own independent financial advisory business. In the process of growing the business, I was privileged to learn from some of the best wealth managers and professionals from the United States, Australia and Europe.

I also discovered a unique approach used by the likes of John Rockefeller, Andrew Carnegie, Li Ka-shing and Bill Gates to become not only rich but also tremendously wealthy. Armed with all this knowledge, until 2008, I focused my business on serving clients with a high net-worth, which included a niche group of multi-millionaires and owners of listed companies. In time, I identified a common pattern in the characteristics, behaviour and habits of all these wealthy people.

The wealthy know not to keep or hold on to too much cash in the bank. They are aware that interest rates offered by the banks will not be enough to offset actual inflation. Therefore, one of the most logical steps to take is to keep a minimum amount of cash in bank deposits while investing the rest.
The wealthy constantly review the performance of their investments. They have no reservations in getting rid of underperforming investments that do not meet their expectations. They will not hesitate to take on investments that will generate a handsome profit.

The wealthy are never lulled into a false sense of security over the assets they own. They demand to be made aware of any risks that might reduce or deplete the assets, and will explore methods to safeguard, protect and preserve their wealth.

The wealthy are also very conscious of unnecessary living expenses. For example, they don't like the idea of over-purchasing life insurance policies and paying expensive premiums. They regularly review all their insurance policies and will take action to cease or surrender irrelevant ones .

The wealthy demand more
The fact of the matter is that wealthy people demand more for their money. They are never satisfied with just having money sitting in the bank or having it invested in one or two investment vehicles. If anything, they want their money to work even harder for them. With such a high regard for their money, the wealthy place enormous emphasis on optimising their money. In fact, I'd say it's bordering on obsessive and rightly so!

By contrast, these characteristics and habits of wealthy people tend to be absent in the rich and middle-class. Certainly, the rich generate a high income. They may put their money into fixed deposits, buy one or two properties and invest in unit trusts or shares. However, they are too busy to spend more time optimising what they have. They hope that by earning more money, they will one day become wealthy. The same can be said of the middle class. When their income increases, they fail to optimise their hard-earned money.

Other than the lack of time and discipline, one of the main reasons they failed to optimise their money is that they feel lost and do not know where to place their investments. As a result, they assume that if they make more money, they will become wealthy.

In short, those who are not wealthy focus on one thing and one thing alone how to make even more money.

Moneymaking capability is the ability to generate an active income. Therefore, anyone who works as an employee or business owners has this capability. What most people underestimate or fail to appreciate is the power of money optimisation, defined as the activity of optimising the income and assets that you already have. Money optimisation is about making your accumulated assets work for you to support your lifestyle

Without money optimisation, your hard-earned income may not be translated into meaningful savings. Furthermore, your hard-earned assets will not be able to grow at an optimal rate or be properly preserved and protected against various risk factors. Without money optimisation, chances are you're probably not going to be in a position to support your various needs and wants in life, especially if you stop earning an active income. Most disastrous of all is that you will never be on the fast track to becoming wealthy or get out of the rat race.

Think of it this way: to succeed in any sport, one must not only focus on playing on the offensive all the time. Champions and their coaches will tell you that to win a championship, it is necessary to strike a balance between good offence and having a tactical defence.

So, to come back to the question: “What is the secret of being wealthy?” The secret of being wealthy is not about getting richer; it's about optimising what you have and striking the balance between focusing on both your moneymaking and money optimisation capabilities in equal measure.

Yap Ming Hui/Thestar

Thursday, October 04, 2012

Can you retire with RM1mil?

A MILLION ringgit is a lot of money. In the past, it was always considered “the benchmark” in terms of a person's success. After all, having RM1mil officially makes you a millionaire.

However, realistically, is RM1mil big enough to survive on today, especially once you retire?
According to official statistics, the average Malaysian male has a life expectancy of up to 75 years, while for females its up to 77 years. This means that a retiree aged 55 has to support hinself or herself for another 20 years or more.

But let's be a little bit conservative for the purpose of this article, let's put the average life expectancy at 80 years old. With RM1mil at 55 years old, you would need to divide that money to last you another 25 years, which comes to an average of RM3,333 a month.

Dwindling value: With the high cost of living and rising inflation on an annual basis, RM1mil won’t be sufficient to retire for long. Dwindling value: With the high cost of living and rising inflation on an annual basis, RM1mil won’t be sufficient to retire for long.
Is that enough to sustain you?
“It really depends on your living standards,” says Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui. “With rising inflation on an annual basis, that monthly sum (of RM3,333) will be worth a lot less as the months and years go by, so it's definitely not enough to sustain you for 25 years,” he tells StarBizWeek.

Yap nevertheless believes that a person is able to “make do” with RM1mil once he or she retires.
“You would definitely need to readjust your lifestyle,” he says, adding that a person without financial obligations, such as a pending house or car loan can still survive on RM3,333 a month.
“Of course, if you have a posh lifestyle, especially when you're living in Kuala Lumpur, then that amount won't be enough. But if you live outside Kuala Lumpur and live within your means, then it's still possible.”

MyFP Services Sdn Bhd managing director Robert Foo says living for 25 years with RM1mil in today's environment “would be tough.”

“If you're married and have a few children and ongoing commitments such as a loan, it's tough. If you're not generating any more money after 55, it will definitely run out.

“By the time most people are 55, their children are probably working but some of them might still depend on their parents. They could be living under the same roof or might need financial help to buy their first car, for instance.”

CTLA Financial Planners Sdn Bhd managing director Mike Lee also feels that RM1mil would only sustain a person for a limited period of time.

“RM1mil might be enough for the first few years. However, with the high cost of living and rising inflation on an annual basis, that sum won't be sufficient.”

Foo maintains that it is ultimately up to how the individual manages his or her lifestyle.
“It truly depends. For some people, RM1mil might not be enough to even last them 10 years.”
He says RM1mil might not be sufficient for a bachelor with no commitments to retire on.
“As a bachelor, you're probably going to want to go out with your friends and see the world. You're unlikely to be cooking your own food, staying at home everyday and living hand-to-mouth every month.

“That's not considered living, that's existing!”

How to retire with RM1mil
While RM1mil might not be enough to retire with, it's still a lot of money, which can be used for investment purposes and to grow your wealth even further.

Foo believes the best thing to do is to continue working well into your retirement years if health permits,.

“Don't retire! We advise our clients that if it's possible, they should continue working. At 55, you're still young enough to generate more income for yourself. Even if it's just half of the amount that you used to earn, it's still money coming in,” he says.

Yap says readjusting your living standards would also help, adding that an individual could further invest his or her money in shares, unit trust or even property.

In terms of shares, Lee says a retiree should put some of his money in stocks that provide good dividend returns.

“Real estate investment trusts also give good dividends. Have a mixture of investments and don't just leave everything in your fixed deposit account.

“Leaving all your money in the bank is not a good idea, as it won't generate good interest rates. With the inflation rate growing at an even faster rate, you'll just end up losing out.”
Foo says it's also a good idea to start your own business.

“By the time you retire, you would have acquired valuable skills that still make you marketable,” he says, adding however that starting your own business can be either a rewarding or risky endeavour.
“Starting your own business can generate high returns. But you can either make it or lose everything.”


Wednesday, October 03, 2012