Fundamentals I

This is my first post in this blog. Start Early Be Wealthy is a product of Kim Wei and I after some discussion. Our main objective for having this blog is to help young people(*applicable to all ages actually*) see the importance of starting early in managing their finances. It's also serve as a reminder to both of us to manage well of our own finances.

Well, let me start off by discussing about the fundamentals of personal financial management, i.e fundamental of wealth management.

What it takes to be successful in your personal finances? How do you go about managing it? In the financial planning industry, wealth management is a common term used. Whether you like it or not, wealth management is relevant to everyone, regardless of whether you are wealthy, rich, average, below average or broke. This is to mean wealth management is not just for the rich, it's also for the man on the street.

WHAT ARE THE FIVE FUNDAMENTALS OF WEALTH?
This is a framework which gives everyone a rough idea of the five fundamentals of wealth management.

First - Wealth Protection
First of all, you should protect your wealth so as to preserve its value or minimize its losses. It's a norm and compulsary thing to do when you first buy your home, car or other properties. But more often than not, people put little importance in protecting themselves, i.e human life. Adequate insurance covers should be put in place to mitigate the finacial losses that may occur as a result of an accident.

The wealth of an individual goes beyond the physical possessions he has. Through out your lifetime, the greatest wealth you have is your human life. The value of your life is determined largely by your potential lifetime earning capacity. This is susceptible to risks such as accident and illness.

Lets have this senario of Mr. Tan who is a savvy investor. He is able to make about 15% return annually by picking out successful investment opportunities in the past. Nevertheless, he realized of creating an immediate estate upon his premature death that would help his family manage financially. He knew that he could not measure the value of this wealth created by insurance proceeds since the time horizon could not be determined at the onset, but he persisted with an insurance program and treated it as a small regular investment. He knew whenever this investment is "called" upon, it would definitely be valuable.

Second - Wealth Maintenance
After protecting your wealth, what's next?

Well, maintaining a healthy financial position is the stepping stone towards wealth creation. Without proper maintenance of a positive cash flow position for a long period of time, you cannot build wealth.

So, how do you maintain a positive cash flow? To achieve that, you'll need to be prudent in managing your income and expenditure. It's not easy to do that because budgetting is not in the blood of human being. Human nature is to do whatever they feel comfortable with and doesn't like to be bounded by any circumstances. Moreoever, many people growing up not knowing how to manage their wealth. Therefore, it's a real challenge to persist with managing your finances.

Another aspect of money management is the use of credit. Without wise usage of credit, it can be a double edged sword. Many people got into debt because of excessive usage of credit especially those who has just entered the working world. There are just too much temptation nowadays.

Everywhere you go nowadays, there are bankers promoting credit cards with attractive points system which you can redeem gifts, retailers giving discounts, slimming centres 'brainwashing' and make you feel fat without going for their treatment. To make it even more attractive, installment plans are make available with low interest by large companies. All these are just one or another kind of 'trap' to increase your expenditure and worst still, getting you into debts when you don't have enough to pay off the credits you've used at the of the month.

Many people are getting in and out of debts throughout their life, depleting their wealth and sacrificing all wealth accumulation opportunities. Maintenance of a positive cash flow and liability position is thus the stepping stone to building wealth.

*to be continue...*