18 Apr 2013 by Adeline CM –
How do you define someone who is financially healthy?
“People often define having a good financial health as becoming financially independent with one million dollars in cash, debt-free, owning cars and houses, and retiring comfortably,” said Dr Wong Hong Meng. “But if you’re wealthy and burdened with anxiety, fear and insecurity, then you are financially unhealthy. It is not how much you have but your attitude towards money.”
On April 13, Dr Wong Hong Meng, former management consultant and banker gave a financial talk to about 40 young adults at the headquarters of the Full Gospel Business Men’s Fellowship (FGB) in Kelana Square.
Plan for your Retirement Young!
Most of us start working at 22 years old, where by 95 percent of our income comes from blood, sweat and tears. We exchange our time for income. But at the age of retirement, the ratio is turned upside down whereby 95 percent of our income must come from passive means, incomes that should not require an exchange of time.
“The good news is that we have 33 years to prepare for this! You may think you have a lot of time. But that’s not true especially when you’re preoccupied with chasing a girl, getting married and raising children,” chuckled Dr Wong.
Your EPF Would Not be Enough
He recalled the day when he retired.
“You get traumatized because you still have to pay your bills. You realize you have to generate more income! Your EPF is not enough. Most people spent them in the first three years following their retirement,” said Dr Wong.
Conventional wisdom has it that to maintain the same standard of living after you retire, you need only two-thirds of the expenditure before retirement. For example, if you’re used to spend RM6000 before retirement, after retirement you only need to spend RM4,000 to maintain the same standard of living.
Be careful of the Lure of Making Money during Retirement
Recognizing that many retirees are struggling, the government has lengthened the retirement age to sixty, adding five more years to your working life thereby giving us another five years to save for retirement.
When people retire and realized that there’s not enough money for retirement, they scramble to make money. They would typically get involved into some form of multi-level marketing, which very often turn out to be pyramid schemes. Others may start a new business with little or no business background.
“Statistics had shown that nine out of ten new businesses fail. When you start a new business, the probability of you succeeding is ten percent. So, when someone says he or she has a proposal that would sure make money, run away and think twice before you say yes!” said Dr Wong.
From the first paycheck you get, learn to save and invest. Do not think you have time to plan for retirement later on. When you’re in your 20’s, you thought you were too young to think about saving and investing. In your 30’s and 40’s, you thought that your EPF is enough. And at 55 years old, by the time you’re ready to retire, you would think it is too late.
Start with your Financial Goal
Hence, we need to manage our financial health just as we manage our physical health. To do that you need to know how healthy you are financially, how much more healthy you want to be and how to get there. This is goal setting 101; know where you are, where you want to go and how to get there.
To know where you are, you need to prepare personal financial statements. Just as financial statements are vital for businesses, you would need them to manage your own finances. A personal net worth statement is like a business balance sheet. It shows you the assets that you are using which do no not generate a return, your investment assets as well as your liabilities. Similar to a business profit and loss account, you would need to prepare your income and expenditure account. These should be done at least on a yearly basis. By comparing the statements from year to year, you would know how your financial health is doing.
Dr Wong reminded us, “As your income goes up, your expenditure also goes up. That’s dangerous for the young people,” said Dr Wong. “I’m not asking you to be a miserly person. But if don't let your expenditure go up on the same curve as your income, you can increase your surplus or savings.“
There are only 4 key elements in finances i.e. income, expenditure, asset, and liabilities. When your income is more than expenses, you have surplus to invest in
a an income-generating asset, which in turn increase your surplus. You can also use your surplus income to pay off your liabilities, which reduce interest expense and in turn increase your surplus . That’s why living within your means and learning how to save and invest is so important!
“That’s why people say money makes money. Ultimately, you want to have zero liabilities,” said Dr Wong.
What if your expenditure is more than income?
Young people might resolve to use their credit cards or borrow from Ah Long, which are both unwise moves because that would increase liability. Remember that failure to pay back your credit card would subject you to an exorbitant interest rate of 9 to 16 percent.
“Young people used their credit cards to pay for a lifestyle they cannot afford. Then, they open another account of credit card to pay off the debt of their previous credit cards. Please pay off your credit card debt FIRST. It is not worth paying for their high interest rate,” said Dr Wong. “I use credit cards as well. They are not bad. They build a good credit record and they give reward points as well. But pay them on time.”
HOW DO I REACH MY FINANCIAL GOAL?
Improve your Skills and Knowledge for Promotion
You can increase your income by employment income, investment income and business income, considering both quality and quantity.
“You cannot increase your employment income in a short duration. But you can increase it in long-term. Why do you allow a 15 minutes interview of your year-end performance determine your future?” said Dr Wong.
He recalled interviewing candidates to fill a supervisory position.
“I used to ask each of them: what have you done in the last 12 months that made you promotable? A common reply is: I did a good job. Well, everyone’s doing a good job. What makes you different? If you want to be promoted to a position, get ready to be in that position, learn about what it takes to be in that position. But do it righteously,” said Dr Wong.
Reducing expenditure is easier than increasing income. Determine what your luxuries, discretionary and essential expenditure is. Using the Pareto Principle, you can quite easily cut down your expenditure by 20% without too much pain. And lastly, if credit card or Ah Long debt servicing is a big outflow, sell your assets to reduce debt.
Ask yourself these questions before buying:
Do you need it?
Can I afford it?
Is it worth it?
Avoid impulse to buy and buying bargain you don’t need.
Remember that the Bible says that the borrower is slave to the lender (Proverbs 22:7). The danger of borrowing money is the probability to default.
Lastly, Don’t be Greedy and Be Contented
“When I was younger, my father taught me this; If you are not greedy, you cannot be cheated,” said Dr Wong reminding the crowd that there is no such investment that gives a huge return at a low risk.
Dr Wong also reminded the crowd that ‘godliness with contentment is great gain. ‘For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that (1 Timothy 6:6-8).’
Again, don’t be greedy and be contented!
And also Paul wrote in Philippian 4:11-13, ‘for I have learned to be content whatever the circumstances. I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do everything through him who gives me strength.’
What great nuggets of wisdom! Did you know that 16 out of 38 parables are concerned with handling money and possession? Ten percent of the Bible or 288 bible verses deal directly with money. In fact, more than 2000 bible verses were related to money and possession, 1500 more than verses on prayer. This shows us the importance of stewardship of God’s resources for us.
Be wise and start young in planning for retirement!
Note: Dr Wong Hong Meng is a member of the Governing Council for the Full Gospel Business Men’s Fellowship and a veteran speaker for life enrichment seminars. Please contact him through FGBMF at http://www.fgb.com.my/ContactUs.html if you’re interested to have him speak to your congregation or members.
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