TIME and time again, I’ve noticed how remarkably similar the feedback I received from the audience from the numerous talks and seminars that I have conducted for both private sector and the general public.
In a nutshell, it would be along the lines of, “Mr Yap, what you shared just now is a tremendous eye-opener. I have made many financial mistakes resulting in me losing money over the years. As I am now in my fifties, I only have a few more years of active income earning left to strive for financial freedom. If only I could go back in time with the knowledge I have now!”
Throughout Whitman’s 18 years in practice, we realised that most of our middle-class clients lose an average of RM1.5mil-RM3mil of their wealth due to unnecessary financial mistakes which could have been easily avoided. In fact, we frequently find ourselves helping clients to undo mistakes made from keeping under-performing investments or unsuitable financial products that were wrongly purchased.
A messy task most of the time, but nevertheless essential to put our clients back on track to financial freedom.
It is therefore logical that those who have 25 to 30 years to go before retirement are in a unique position to do something now and save themselves from future financial regrets and heartaches.
But is it easier said than done?
The Millennial Paradox – a generation with the world in their hands but almost nothing in their pockets
Who are the Millennials? According to Wikipedia, Millennials (also known as Gen Y) are the generational demographic cohort born between the early 1980s and early 2000s. Now in their thirties, millennials are primarily occupied and driven by the following financial goals and concerns:
> The upkeeping of their desired living standards;
> Starting or maintaining a young family;
> Purchasing their first home;
> Raising children and planning for their tertiary education funding, and
> Potentially preparing for longer retirement years as life expectancy has increased.
Unfortunately, the millennials have a lot of uphill tasks ahead of them before they could realise their dreams. They face a slew of challenges from socio-economic factors that could potentially derail even the best laid plans. They have to contend with low income levels coupled with slow income growth for the past 10 years, escalating property prices and increasing inflation levels and living costs.
In fact, statistics show an unprecedented level of debt among the Millennial generation. It is possible that social pressure, rise of consumerism (due to the convenience of e-commerce), and the culture of “instant gratification” contributed to the bad outcome. According to a study by the Asian Institute of Finance, young people are experiencing significant financial stress early in their life with many spending beyond their means and trapped in a vicious cycle of paying debts with more debts.
It is not surprising that many income earners in their 30s are finding it hard to own their dream home; even double income families see their monthly budget eaten away by loans, credit card bills and childcare expenses – how would they begin to put aside money for the future?
It seems near impossible for this group of individuals to achieve some semblance of financial stability much less dream of financial freedom.
Start with the present to save for the future
Throughout my years of wealth management advisory practice, I have noticed a lack of financial foresight as being the crux of the problem for Millennials. Without possessing financial foresight, there will inherently be knowledge gaps when it comes to decision making. As a result, when Millennials face financial challenges, they are unable to find a way out and the predicament is likely to perpetuate and snowball into even more serious consequences.
The crucial elements of financial foresight which every Millennial should have but few do are:
Staying on course to ensure income levels increase – Millennials are unable to visualise their income levels having the capacity to rise significantly to reach their peak income earning years. Often, they become impatient and tend to job-hop or pursue new ventures indiscriminately, resulting in a “back to square one” situation over and over again.
As long as Millennials continue to stay on course and remain focused whether on their employment or on business, their income levels will eventually rise.
Be the early bird that catches the worm – children are taught to set aside savings from a tender age, but why has this notion not caught onto the Millennials?
They do not seem to be able to save much nor do they value the importance of starting to save early. In fact, many do not see the point of saving even RM50 a month.
However, do you know that by building the saving habit early in your careers, you’d become part of the “saver” group in society as opposed to being a perpetual “spender”. Starting small is fine, they will be able to save more when their income goes up and slowly, this should put them on track to financial freedom.
However, without this habit, all the extra income you’d earn will end up being spent and you’d find yourself stuck in the rat race indefinitely.
Never underestimate the effect of compounding investment returns – another lack of financial foresight on the Millennials’ part is the inability to appreciate the power of starting investing early and letting the investment (and returns) continue to compound and grow.
It would surprise them to know that an extra 1% increase in their average investible asset returns could translate into an extra million to their wealth by the time they are 60 years of age. The ability to acquire investment knowledge early to grow money steadily will eventually separate those who get to enjoy an independent, comfortable retirement from those who continue to depend on their children.
Avoid losing money unnecessarily – when you are young and still in your prime income earning years, you are less likely to feel the actual impact of losing your hard-earned money in the stock market, money games, bitcoin and other high-risk investments. It is only when you are in your sixties and look back (with much regret) that you realise how much more money you would have accumulated if you hadn’t indulged in risky money-making schemes and made losses in the process.
Millennials can prevent these losses from happening by being careful in their investment decisions. If you need guidance on investments, professional advice is the best way to go.
Delay purchases even if you can afford it – Millennials fail to fully understand the benefits of delayed gratification, being confronted daily with lifestyle advertisements, peer pressure to live up to social expectations and “in-your-face” promotions and offers that urge immediate action. It is hard not to act on impulse, especially if it is within your means.
However, have you ever considered the potential options that can open up, if only you would put your purchases on hold and allow your money to accumulate longer?
Rather than settling for a “nice” dream home now, perhaps, you may afford an “amazing” dream home a few years down the road. The same goes for other forms of major spending like car purchases, vacations and lifestyle-related expenditure.
It is entirely understandable that the vast majority of millennials sorely lacks the necessary financial foresight as it is not something that can be learned or gained overnight. The right financial foresight can only be gleaned by having the big picture of your financial position. In order to achieve this, one would require a roadmap to financial freedom, in other words, a tailor-made financial plan based on one’s unique financial position.
Through the roadmap, you will be able to see the impact of every financial decision, no matter how big or small, good or bad, on your financial future. As a result, you can immediately gain valuable financial foresight in your decision making, namely:
> You are able to estimate how income stability and growth over time can help meet your financial goals;
> You would be able to see in actual numbers how your savings can grow with compounding returns;
> You are able to see the potential of long-term investment when you start early;
> You are aware of risky investments that can adversely affect your roadmap and learn how to avoid them; and
> You can appreciate the benefits of your wealth accumulating, as opposed to spending.
Once you have your roadmap in front of you, any further financial decisions should be made in reference to the roadmap to ensure that it is in line with your overall financial goals. Financial service providers who sell you financial products without first referring to your roadmap should be viewed with caution as they may not have your best interest at heart.
Address the root cause not the symptoms
It is crucial for Millennials to identify solutions which addresses the root of their problems rather than merely trying to deal with the symptoms.
For example, when you find yourself unable to foot all your monthly bills on your present take home pay, what would you do? Moonlight as a Grab driver or do some freelance work on weekends just to earn enough to cover the shortage? It can only take you so far. Instead, what you really need to do is to find out why you are in the red. Doing so will enable you to have a clear idea how to plan for the long term, rather than put a band-aid to merely close financial wounds.
Despite the challenges, millennials need not feel disheartened or discouraged to think that you have to cut a lot of corners in order to survive. On the contrary, there is nothing to stop you from living the life you want, including enjoying holidays with friends and loved ones or even pampering yourself with the latest handphone model. What is important, is that you do not short change yourself in the future by your lack of financial foresight.
Take the initiative to look for a wealth management advisor who is able to help you develop your roadmap to financial freedom, and continue to guide you to stay on track. Advancement in technology and the connectivity of the Internet has broken down a lot of barriers.
That’s why, if you were to search wisely, you may be pleasantly surprised that you can tap into wealth management services which need not come at a cost of an arm and a leg.
Yap Ming Hui (firstname.lastname@example.org) believes that wealth management services should be enjoyed by everyone, not just for the wealthy. Yap has recently put in place a wealth management mobile app that he believes have the power to change many people’s financial destinies and leave a lasting legacy.