FINANCIAL PLANNING
- 

Financial Planning Strategies for 21st Century

Below are some financial planning strategies for the 21st Century.

Understand the Value of Money

Learn how to value each and every ringgit that flows into your life. Because you can achieve financial freedom on just a Ringgit a Day! That's right. A Ringgit a day. When you think about it, financial freedom all starts with a single Ringgit.

You see, prosperous people don't think a ringgit "is just a ringgit." They imagine it is a seed... a money seed... that has the power to grow into a huge money tree, giving off fruit to fulfill every one of their dreams.

And they are absolutely right.

So, how much is one those seeds really worth? That depends on how long you let it grow and at what rate of growth. Let's suppose you take one ringgit and put it into a special bank account that will let the ringgit grow, untouched by taxes and fees. How long will it take for this ONE SINGLE RINGGIT BILL to grow into a MILLION RINGGITS? That depends on what interest rate the bank account pays. If it's like ordinary bank accounts, paying 3 to 6% interest, then it's going to take a long, long time.

At 3% it will take 468 years for a single ringgit bill to grow into a million ringgits. But at about ten percent interest, it will grow into a million ringgit at only 56 years. And 10% returns are historically achievable by proven investment instrument such as unit trust or investment linked funds with long term investment horizon.

Remember, money that's compounding never sleeps. Every second of every day. 24 hours a day. 365 days a year. You've got to figure out a way to get money working for you instead of you working for money. And all it takes is a few lousy bucks a day! You don't have to be a financial genius. You don't have to own a big company. You can do it from your kitchen table using the money that you're now foolishly throwing away. If you just re-divert a few of your ill-spent ringgits and funnel them to some well-timed investments, you can achieve financial success. It's within your grasp.

Constantly save. Consistently Invest. Like clockwork. Old Faithful. It might be boring. It might be dull. It might be hard. It might take discipline, persistence, sacrifice. No matter. Just do it.

Suppose you could sock away RM200 per month. You set a target to have it grow at 20% per year for the next 20 years. Now, 20% is no small feat, but with some fancy stock picks, some real estate and perhaps a small business on the side, you think you can pull it off. According to a financial calculator, RM200 per month at 20% for 20 years grows into RM632,000. Not bad!

Now, suppose, instead of starting now, you wait a year to get started. This leaves you only 19 years of growth instead of 20. How much is in your bank account in 20 years from today? Only RM516,000. That's RM116,000 less than what you could have had if you had started on schedule. In other words, your procrastination cost you RM116,000 future ringgits! Procrastination is expensive.

For each of the 365 days that you waited, your future portfolio was shrinking by over 300 ringgits. (116,000 / 365 = RM317.81) In other words, every day you put this plan off, costs you RM300 future ringgits. Every hour you wait costs you more than RM13. You are wasting 13 ringgits an hour, 24 hours a day.

What if you were to invest the same RM200 per month over thirty years? The cost of waiting that extra year is now a whopping RM842,803. That's right! Waiting an extra year cost you almost a million future ringgits. That's over two thousand ringgits a day. Or almost RM100 per hour!

Let me say this again for emphasis. Every day you wait, every hour you delay, is like burning up your financial future. Do it now. Yes, it will take sacrifice. It means deferring gratification for a while to allow your money tree to grow. When you prematurely pick the fruit from your money tree, you stunt it's growth and this can dramatically slow down the time for you to enjoy a fully matured, fruit bearing money tree.
 

Control It

Most people have one simple faucet or main source of income -- their job. This income flows into the bathtub of their life and flows out through the drains at the bottom. Most everyone spends every sen their earn. They never retain any money in savings. They spend it all. Obviously, the only way to have an overflowing prosperity in your life is to plug up those holes and to turn on more faucets... to have multiple streams of income.

The key to financial planning is cash flow management. You've not only got to get the cash to flow into your bathtub. You have to manage the leaks so that there is money left over at the end of the month (profit.) With this profit you buy stuff - assets. You may also buy stuff by going into debt. The object of the money game is to accumulate enough assets so that eventually the income from your personal assets will support you instead of your personal skills.
 

Save it

Strategy #3 is to save money. Wealthy people love to save money... you know, to buy things at wholesale. They never like to pay retail for anything. And now, you know why. But they don't stop there. You see, anyone can save money by buying at a discount... but do they save the money that they save? That's the hard part. A friend of mine quit smoking and was bragging about the RM50 a month she was saving by not smoking. I asked, "Where is the RM50?" She didn’t know. She had saved the money but she hadn't saved it... put it away. When you save money by changing your buying habits, take the money out of your purse or wallet and get it out of your spending grasp. Put it into a savings jar, and frequently deposit this money into your savings account. That’s when you’ve truly save it.

And here’s another tip. Would you like to learn how to cut your living expenses by 30% in 30 seconds? You would? Well, take out your credit cards, put one away for emergencies, and cut up the rest. Statistics have proven that this simple exercise will automatically and almost effortlessly cut your living expenses by an average of 30% over the next 12 months.
 

Invest it

With the money you’re saving plus the 10% of the money you pay yourself off the top, you must learn how to invest your money at billionaire rates. Anyone can park their money at 3%. The trick is to get it to grow at 10 to 20%. There are many traditional investments that are ideal to park your money. At the low end of the interest scale are bank savings accounts and fixed deposits. Then, you have government treasuries and bonds. Up the ladder are corporate bonds... then the stock market... and some of the most popular investments these days... Mutual Funds or Investment Linked Funds. 

You should have money in all of these areas. Imagine a series of buckets where money is siphoned off from your bathtub. The first bucket should be your emergency bucket. Let your 10% flow there first until you have at least six months worth of living expenses saved. You'd be surprised how many people in this country are only one pay-cheque away from bankruptcy. Don't let that be you. This money should be in the safest place, a bank account at the highest interest rate you can find where you can access to your money within days. Once this first bucket is filled up, the stream of 10% will overflow into one of three additional buckets -- labeled, conservative investments, moderately risky investments and very risky investments. If you are older, you should have more of your money in the conservative bucket. The younger you are the more risk you can take. Check your investment risk profile with our Risk Profile Test.

The best way to invest for average people is in Mutual Funds or Investment Linked Funds. A mutual fund is a collection of individual stocks purchased by a major company and managed by professionals. You give them a small amount of money, they add it to that of thousands of other investors and they watch over it for you. 

Here are a few rules about investing.

1. The longer you invest (leave your money in the market) the lower your risk.

2. Don’t invest unless you’re willing to leave it for 5 years or more. It's sole purpose is to grow and compound. Anything shorter than a year is gambling.

3. Remember, it's almost impossible to buy low and sell high in the short run. So don't play the market.

4. The key is long term dollar cost averaging. Dollar cost averaging simply means, you should invest every single month, regardless of where the market is heading. Don't even read the newspapers... just buy month in and month out. Over the long run, this is the best strategy. Do it automatically. Inform your mutual fund company to automatically withdraw the funds from your account each month.
 

Shield It

Making money is one set of skills. Keeping it is another. As you work toward your financial goals, you will need to learn how to preserve the wealth you are creating. 

The worst mistake one can make today is leave large amounts of personal assets unprotected. Get a liability insurance, get a health and life insurance -- you don't want to spend all your hard-earned money on medical fees should you fall prey to serious illness or become disabled, do you?