Saturday September 29, 2012
The secret of being wealthy
MONEY & YOU
By YAP MING HUI
I'VE been an independent financial advisor for more than a decade and one of the questions that I am periodically asked is, “What is the secret of being wealthy?” The answer, and you may be taken aback by what I am about to reveal, is not about getting richer.
Growing up in a typical middle-income family, I often wondered how wealthy people managed and grew their wealth. In particular, I wanted to know what separated the truly wealthy people from the rich. Both shared an undeniable ability to make money and could afford to lead comfortable and lavish lifestyles. Yet, those in one of these groups were clearly the front-runners because their wealth had the ability to last generations.
In 1998, I enrolled in a Chartered Financial Consultant (ChFC) course to study personal wealth management. In 2000, I started my own independent financial advisory business. In the process of growing the business, I was privileged to learn from some of the best wealth managers and professionals from the United States, Australia and Europe.
I also discovered a unique approach used by the likes of John Rockefeller, Andrew Carnegie, Li Ka-shing and Bill Gates to become not only rich but also tremendously wealthy. Armed with all this knowledge, until 2008, I focused my business on serving clients with a high net-worth, which included a niche group of multi-millionaires and owners of listed companies. In time, I identified a common pattern in the characteristics, behaviour and habits of all these wealthy people.
The wealthy know not to keep or hold on to too much cash in the bank. They are aware that interest rates offered by the banks will not be enough to offset actual inflation. Therefore, one of the most logical steps to take is to keep a minimum amount of cash in bank deposits while investing the rest.
The wealthy constantly review the performance of their investments. They have no reservations in getting rid of underperforming investments that do not meet their expectations. They will not hesitate to take on investments that will generate a handsome profit.
The wealthy are never lulled into a false sense of security over the assets they own. They demand to be made aware of any risks that might reduce or deplete the assets, and will explore methods to safeguard, protect and preserve their wealth.
The wealthy are also very conscious of unnecessary living expenses. For example, they don't like the idea of over-purchasing life insurance policies and paying expensive premiums. They regularly review all their insurance policies and will take action to cease or surrender irrelevant ones .
The wealthy demand more
The fact of the matter is that wealthy people demand more for their money. They are never satisfied with just having money sitting in the bank or having it invested in one or two investment vehicles. If anything, they want their money to work even harder for them. With such a high regard for their money, the wealthy place enormous emphasis on optimising their money. In fact, I'd say it's bordering on obsessive and rightly so!
By contrast, these characteristics and habits of wealthy people tend to be absent in the rich and middle-class. Certainly, the rich generate a high income. They may put their money into fixed deposits, buy one or two properties and invest in unit trusts or shares. However, they are too busy to spend more time optimising what they have. They hope that by earning more money, they will one day become wealthy. The same can be said of the middle class. When their income increases, they fail to optimise their hard-earned money.
Other than the lack of time and discipline, one of the main reasons they failed to optimise their money is that they feel lost and do not know where to place their investments. As a result, they assume that if they make more money, they will become wealthy.
In short, those who are not wealthy focus on one thing and one thing alone how to make even more money.
Moneymaking capability is the ability to generate an active income. Therefore, anyone who works as an employee or business owners has this capability. What most people underestimate or fail to appreciate is the power of money optimisation, defined as the activity of optimising the income and assets that you already have. Money optimisation is about making your accumulated assets work for you to support your lifestyle
Without money optimisation, your hard-earned income may not be translated into meaningful savings. Furthermore, your hard-earned assets will not be able to grow at an optimal rate or be properly preserved and protected against various risk factors. Without money optimisation, chances are you're probably not going to be in a position to support your various needs and wants in life, especially if you stop earning an active income. Most disastrous of all is that you will never be on the fast track to becoming wealthy or get out of the rat race.
Think of it this way: to succeed in any sport, one must not only focus on playing on the offensive all the time. Champions and their coaches will tell you that to win a championship, it is necessary to strike a balance between good offence and having a tactical defence.
So, to come back to the question: “What is the secret of being wealthy?” The secret of being wealthy is not about getting richer; it's about optimising what you have and striking the balance between focusing on both your moneymaking and money optimisation capabilities in equal measure.
Yap Ming Hui (firstname.lastname@example.org) observes that far too many people have become lost or confused in their pursuit of wealth. In his new book, Set Yourself Free he shares the secret about how the wealthiest people optimise their money.