Securing The Future

This article just came out in today's The Star newspaper, 7th June 2012 written by Elaine Dong. I guess all women should take advantage and read this good piece of work on managing their finances. Happy reading!!!

Teaching women how to manage their finances

 

Women usually take the lead in managing their family finances, and it’s important they learn how to make money work for them.

MEN have often jokingly (and some seriously) referred to their wives as the Home Minister and Finance Minister. It turns out there’s more truth in that statement than mirth.

At the recent Women and Money Asia Convention in Kuala Lumpur, the role of the woman as custodian and manager of a household’s finances was the focus of much discussion.

Often, by default, financial responsibility falls on a woman’s shoulder, whether she is the sole breadwinner, equally contributing to a two-income family or not working. By financial responsibility, we don’t just mean the earning of income, but the planning of how it is to be used, saved and invested.

Dr Jeffrey Chiew, the chairman of the International Association of Registered Financial Consultants, international speaker and published author, weighs in on some practical tips for women.

“There are four basic areas that a woman must look at. She should set aside an emergency fund (three to six months of income), put in place a family income protection plan (through insurance products), have education funding if she has kids, and make sure there is adequate medical insurance for the family,” he says.

Beyond this, the next step is to put in place a will (if there are children involved) and a retirement plan for herself and spouse.

According to Dr Chiew, women need to be aware of the different types of financial goals.

High priority goals are related to children’s education, retirement funding, family income protection, medical coverage and long term care.

Low priority goals are when you aim to go for holidays abroad three times a year, or play golf three times a week.

Entrepreneural goals are what you intend to do to keep yourself occupied for the next 20 years of your life, such as setting up a business, or investing in a startup and more.

“While all three categories are important, financial independence is basically meeting all your high priority goals. This takes precedence over your low priority goals,” he says.

“Once you identify your high priority goals, work aggressively at saving in instruments that have elements of compulsion or semi-compulsion. EPF is an instrument of compulsion by law. Life insurance, investment-linked, and properties have an element of semi-compulsion by having a damper on early withdrawals.

“Products that have elements of compulsion and semi-compulsion are good instruments for medium to long term investments. Bank accounts and quick liquidity products are not so effective as saving products to meet your medium and long term goals,” he says.

A lot of times, we hear people around us saying that they don’t have any savings. Dr Chiew attributes this to poor discipline, and as such, the products that have an element of compulsion as mentioned above would be good to start with.

Once you have consciously and actively put aside enough funds for your high priority goals, you are on the right path to financial independence. You can then start to think about investing and making your money work for you. For this, you would need to know the four types of money and what to expect from each.

In his book, The Millionaire Formula, Dr Chiew highlights four money types that you have to be aware of. The first is serious money, the kind reserved for education funds, medical funds, retirement funds and so forth.

“For these types of financial goals we don’t need a high return. We just want a fair return. The most important consideration in investment is not the return on your money but the return of your money. A timely return is all important in the above mentioned events. Serious money are for serious needs,” says Dr Chiew.

The second is idle money, which refers to the excess monies in your bank account.

“You need to maintain three to six months of your annual income as an emergency fund. Anything in excess of the six months are idle money and should be invested to give you a higher rate of returns to meet your financial obligations.

“Another kind of idle money is the equity buildup in your house equity. These moneys can be utilised to help in your wealth accumulation process,” he says.

The third is borrowed money. Borrowed money must give you a high rate of return to justify your borrowing. “For example, you borrowed money in the form of overdraft facility to start your business. Your business profits must give a reasonable return to cover your cost of borrowing, and give you a healthy profit to justify it,” he says.

The fourth kind is leverage money, which means using a small amount of money to acquire a large asset through financial leverage. Knowledge and skills are essential in using leverage money. An example is you putting ten percent down to purchase a multi-million dollar property. A high return is required to cover the cost of money leveraged.

Financial planning need not be something intimidating. With the right tools, information and knowledge, you could start carving out a viable plan for you and your family, and set in place a financially secure future.

Source: The Star, 7th June 2012

kumaran nadaraja