(#4 Wealth Management)
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki
With all the Philippine economic indicators going haywire – rising inflation, depreciating peso, increasing fuel prices, worsening unemployment/underemployment, etc – how financially secure and confident are you to face life’s uncertainties? In the same token, how are you preparing the younger generations in your family?
Whether we like it or not, it’s becoming more obvious how vital financial planning is. We just cannot leave our financial future to chance. Nor can we rely on our government . We need a clear roadmap for achieving our financial goals, managing money, and preparing for unexpected emergencies.
An effective financial planning considers the four foundations of cash management, debt, management, risk management and wealth management. We have previously discussed about Cash Management, Debt Management and Risk Management. This week, we will touch on the last foundation of financial planning… Wealth Management.
Your financial journey does not stop once you have saved and built your finances. Inflation is our silent enemy. The value of the money we saved is eroded because of inflation. Therefore, the next concern is how do we ensure that we protect and grow it to keep up with the rising inflation. This is where personal wealth management comes in. Personal wealth management involves having your own financial roadmap designed to guide you in ensuring maximum growth of your money and minimum risk exposure and losses. The main goal of personal wealth management is to grow, protect, and pass on your money.
You can make your money grow through smart investments. But it also comes with risks and potential losses. You can, however, avoid or lessen the risks by answering these questions:
What are you investing on? – Do you know what you’re getting into? May it be investing in stocks, real estate or business, never go into something that you do not know about. Research, read or ask people to learn important points about your planned investment. Any investment that promises too good a return, especially in our present economy, is something that deserves a serious scrutiny. Do not be tempted by easy or quick money guarantees. This is usually scam.
Why are you investing? – What is your why? We all have our own personal financial goals. That’s why what works for Juan, may not work with you. If you are investing for your long-term goals (such as retirement), it is smart to invest in long-term instruments. The longer time horizon can absorb market fluctuations and provide opportunities to recover and meet your goals. But if you will need the money for short term expense (such as tuition fee or travel), do not go for long-term investments. If your goal is to protect your hard-earned money, such in the case of retirees, it I suggested to go into low risk-low yield instruments. Your money can still grow, even just a little, but the risk of losing is also small. Now, if your goal is to aggressively grow your money, then you can go for the high risk-high yield types of investments. It is very important to know why you are investing.
Where are you investing? Are you diversifying? Remember, do not put all your eggs in one basket. In investing, it is wise to have a portfolio spread across different investment tools. Imagine, you put all your money to stocks then then the market crashed. Or you heavily invested in real estate (condos), then suddenly there’s over supply of it. Having a diversified investment gives you a buffer in case one instrument goes haywire. You may consider mutual funds, corporate or government bonds, stocks, real estate, MP2, REIT, etc. As many instruments are also offering exposure to global funds, you may also consider this aside from investing in our local market. But again, the key here is to learn, be comfortable with it and match it with your money goals.
And to make sure that your wealth is handed down and distributed as you wished, even when you’re no longer around, draw up your wills and trusts. Estate planning will spare your family the stress and expense that usually comes when a person dies intestate.
We all want to be financially independent and capable. The good news is, we can achieve that through an effective financial planning. It may look and feel daunting, especially at the start, but it is just a set of simple tasks done intentionally and consistently. It is an on-going process that can give you peace of mind, a sense of security and confidence, knowing you have funds when you need them. When will you start yours?
