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A Comprehensive Approach To Building Personal Wealth

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When it comes to success in personal finance, investors oftentimes relate their personal wealth to a measuring performance index. We are immersed in our busy schedules primarily to create more wealth.

It is fair to say that when it comes to wealth creation, everyone will be interested, but not everyone will know how to achieve it. Some may end up getting a less desirable outcome from their wealth creation attempt.

Creating More for the Future

Generally speaking, the goal in mind in wealth creation is so that our future wealth will be more than the wealth we presently have.

If you are not careful, however, you can get wealth reduction as an entirely opposite outcome instead. This will be unfortunate as we will not be able to turn back time, which eventually means we will have to either delay our plan, or make drastic adjustments to the new reality of the future.

Invest to Create Wealth

A simple way to wealth creation is to increase income while keeping expenses at status quo, or spend less while income remains status quo, or we achieve additional wealth via investing.

However, chasing more income requires trade-offs like having less time for other aspects of life such as family time, hobby or leisure. Likewise, to spend lesser also requires compromise in not living the most desired lifestyle or you may have to forgo changing to the next new smartphone, or fashion trend. Investing our hard-earned money also has a trade-off. It needs the investor to take a risk and accept that “cash is king” is not always right.

Throughout my experience and the many cases I have seen, it is common to observe that people have their primary focus on growing their wealth so much that they at times overlook some factors. Avoiding wealth reduction or reducing the extent of wealth reduction is perceived to be one step closer to greater future wealth.  

In sport, sometimes people say that the best defence is the best offence, because you are more likely to be in a position of not being defeated. Thus, we should try to train ourselves to consciously pay attention to minimising the leakages or waste in our financial system while we attempt to invest to grow our wealth. At least when we do this simultaneously, we will have more than “one engine” running our wealth creation process.

In the worst case scenario, investment outcome may be capital loss and wealth reduction due to certain vagaries such as paying medical bills from our own hard-earned savings, penalty on income tax bills, or under-estimating inflation, overlooking on currency hedging, children’s education expenses, and so on.

Wider View of Personal Finance

As a financial planner who believes in comprehensive financial planning, I would suggest that a person look at personal finance from a comprehensive angle that includes:

  • Cashflow and debt management
  • Retirement planning
  • Education fund planning
  • Asset protection planning
  • Tax planning
  • Estate planning
  • Insurance planning
  • Investment planning

It is not difficult to hear real life stories where a person has set forth to invest their money hoping to see a positive return on investment (ROI) in a few years’ time, only to find that their capital was lost. In fact, it could be that only a handful of investors are well aware of what they are investing in. Many of us may not know that we are paying excessive fees for the investment, or some may not even know that such fees exist. Ultimately, fees are always a factor that will eat into our return.

Risky Ventures

I have also seen investors who disregard the need to have health insurance, but they are very focused in making risky investment such as penny stocks, or leveraged investing. Wealth creation strategy like this generally assumes that life will move in a straight line and the anticipated investment return will be positive and without much volatility that may hurt their standing.

But in real life, anything could happen, and we may have sudden need of cash and fund, if we are not careful and do not have a decent financial foundation, we may then be forced to put our hand into our investment and make unplanned withdrawal, if at the point of withdrawal, the investment is making a loss, we will then be realising those losses. This is a sure way to lose your money, and if you are sane you will not be interested to do this.

Apparently, “cash is not king” but cashflow is king. Therefore, when we set out to take adventurous ventures with our money, or to create a new business start-up, it is best we ensure that our cashflow position is within our control and is stable, and that we have a safety net to cushion us should there be an unexpected fall. This is what people usually call an emergency fund or buffer.

When our cashflow situation is healthy and we also prepare a safety net to weather challenges and unexpected events, then our wealth creation process will become less risky. An entrepreneur personal financial management will very likely impact the financial success of their business, and vice versa. So, it is also important for business owners to separate their personal financial affairs from their businesses. As we embark on the journey of wealth creation, perhaps it is in our best interest to recognize that there are things that are well within our control to reduce or increase wealth creation process will become less risky.

An entrepreneur personal financial management will very likely impact the financial success of their business, and vice versa. So, it is also important for business owners to separate their personal financial affairs from their businesses. As we embark on the journey of wealth creation, perhaps it is in our best interest to recognise that there are things that are well within our control to reduce or increase wealth.

About the author

kevin neohKevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my

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