Financial freedom is a mental, emotional and educational process.
— Robert Kiyosaki, the best-selling author of financial education book Rich Dad Poor Dad
EVERYONE dreams of financial freedom and retiring early, but do you know how exactly to do it? Would you suggest investing in a quick-rich scheme so that you can get more money quickly?
No, definitely not! (You might even end up in losing your life savings or worse)
What you should know is how to manage your money wisely. There is no shortcut to financial freedom.
In this article, we explore 8 personal finance tips for wealth management from various financial consultants and experts.
Tip 1: Create & Prioritise Your Financial Goals
The first thing you should do is to create your financial goals. List down your goals. You can’t manage your money wisely without clear goals.
Once you’ve figured out your goals, prioritise your goals according to their degree of importance and urgency.
Sometimes, you may have different financial goals, it can be saving for a comfortable retirement, saving to send your children to college, or managing your finances to enable a car or home purchase.
But it can be hard to know what to focus on first, right?
So, you must remember to ask yourself: “If you delay the goals you’ve set, what is the biggest impact of that decision?”
You’ll have the answer in your mind.
Tip 2: Stick To Your Budget
If you’re figuring out how to manage your money wisely, then you must create a budget to figure out how much you make each month and how much you spend on bills.
Identify and evaluate the way you spend money now, whether it can help you reach your financial goals.
But knowing where your money goes isn’t enough for you to ensure that your finances are under control, you should control your expenditure, Annie Wong, financial consultant of Annieway 96 Consultancy advises.
“Here is an important tip you must remember: Buy what you need, not buy what you want,” says the former Money Mastery Mentorship Programme graduate.
For example, list down the things that you want to buy before you go to the grocery store, shopping mall or any places that will entice you to spend on unnecessary items that are very attractive.
Well, not just that. Avoid emotional spending as it prevents you from making any unnecessary purchases.
Tip 3: Pay Off Your Credit Card Debt
Credit card debt is the number 1 obstacle keeping you from financial freedom.
The easiest way is to pay off your outstanding balance in full every month. No outstanding balance, no interest charges.
If you are only able to pay your minimum monthly credit card payment instead of paying your balance in full, it shows that you have already spent more than you earn.
Tip 4: Develop A Savings Plan
“Do not save what is left after spending, instead spend what is left after saving.”
This is one of the famous personal finance quotes from Warren Buffett, American business magnate, billionaire investor and CEO of Berkshire Hathaway.
I think it’s sage advice.
Most people think of saving in the inverse, meaning you save whatever is left over after all your expenses and spending. In fact, you should save or what we called “pay yourself first”, then spend.
This will put you in financial control and also ensures that you’re saving money and building your net worth.
Tip 5: Have An Emergency Fund
Set up an emergency fund of 3-6 months basic living expenses to cope with the possible financial emergencies, such as job loss, car problems, house repairs, natural disaster, medical or dental expenses.
So what is the ideal saving rates for the emergency fund?
“Save between 10% to 30% of your monthly income for your emergency fund,” says Wong.
She suggests that you should keep your emergency fund at a bank separate from your main bank accounts. So, you won’t be tempted to dip into your emergency fund for everyday expenses.
Tip 6: Asset allocation
Saving isn’t enough for you to build your wealth. It’s also very important to multiply your savings, advise Wong.
“You need to think about an important question: how to maximise our value of savings? This is very important. So, plan your investment properly and leverage the power of compounding.”
But, how to allocate your assets is very important when comes to investing. Studies indicate that your asset allocation will determine up to 90% of your investment returns.
It divides your hard-earned money into various asset classes such as stocks, bonds and cash that gives you the potential to make higher returns while lowering the risk by diversification.
Moreover, asset allocation becomes extremely important for people who want to invest for their retirement planning.
Tip 7: Know Your Net Worth
Keep track your net worth as it will provide a snapshot of your financial situation that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.
Calculate your net worth with this formula:
Net worth = Assets (what you own) - Liabilities (what you owe)
Assets include cash and the value of financial accounts, real estate, cars, investments (stocks, bonds, retirement plans, etc.)
Liabilities include bank debt, mortgage debt, personal loan and student loan.
If you have a positive net worth, that’s good. Continue working to increase your net worth even more.
If you have a negative net worth, you need to take a look at your budget and come up with a plan to increase your net worth. Also, it's time for you to think about creating multiple sources of income.
What you can do?
You can make stock and property investments to get the dividend and rental income plus capital gains; start a business with partners to get profit income, or writing books to enjoy loyalty income. But it all depends on your interest.
Tip 8: Reduce Your Tax Burden
You’ve been promoted and with the new position, a nice salary increment. You’re happy until the tax bill arrives.
Well imagine all that hard work done but you cant enjoy 100% of the additional earned income that you get. Feeling upset yet?
Don't worry! We have plans for you to reduce your tax burden.
The easiest way to reduce your taxable income is through contributing to retirement plans.
Contribute as much as you can to retirement accounts so that you can set yourself up for the future while slashing your tax bill at the same time.
Another way to reduce your tax burden is to maximise your tax reliefs. Keeping full records of your purchases that can get the tax reliefs, such as sports equipment, books & magazines, as well as a personal computer, smartphone or tablet.
Actions Speak Louder Than Words
Identifying and acknowledging your self-financial condition is the first step in managing your wealth. Ignorance can keep you stuck for years and over time erodes your wealth and can even cause you to go backwards.
So, it’s vital you weed out any habits that are limiting you in any way. This is the way to true wealth management, where you will manage your money wisely and over time you will notice your net worth will become limitless.
But you have to always remember that you just can make things happen when you take action!
The Money Mastery Mentorship programme would be a good place to start.
This programme has mentored and coached over 120,000 people from all walks of life, helping them achieve financial independence through a personalised wealth creation system designed according to an individual’s passion and strengths.
The master trainer KC See has coached over 120,000 people over 20 years, making it one of Malaysia’s longest lasting and most trusted wealth creation programme in the country. The graduates include:
- Ahyat Ishak – Founder Of Pejuang Hartanah Community. Having started his property investment journey more than a decade ago, he became a property millionaire before the age of 30.
- Jerome Tan – Founder of PIP Holdings Pte Ltd, Singapore’s leading property investor and owner of over 100 properties, Jerome was famously known as the man who was bankrupt before becoming a millionaire. He is also an author of ‘From Bankruptcy To Multi-Millions In 7 Years’.
- Dr Katalina – a Certified Aesthetic Doctor with the American Academy of Aesthetic Medicine, is also a famous model, actress, singer & brand ambassador.