10 smart wealth management moves

With clear financial strategies and an action plan, you would have had a clearer picture of your timeline, allowing you to grow your money steadily. — Bloomberg

READY to bid farewell to the financial frustration of 2023? We’re all too familiar with the cycle: enthusiastic promises made at the start of the new year, only to lose steam as the months unfold.

It’s no surprise – even well-intentioned plans falter without proper knowledge and resources. But this year can be different. 2024 is your chance to break the cycle and build a secure financial future, one step at a time.

Before you get swept away by the hustle of 2024, before the year’s busyness drowns out the financial goals that you have every intention of achieving this year, take a moment to do an inventory of your financial position – where you stand, your goals and how far you are from reaching them.

With clear financial strategies and an action plan, you would have had a clearer picture of your timeline, allowing you to grow your money steadily.

Here, I would like to share 10 smart wealth management actions to take as you navigate this journey to improve your wealth management and achieve greater financial success.

1. Imagine your ideal lifestyle and set meaning financial goals

Start by envisioning the life you want to live and break down each desire by evaluating why you seek that wish or intended result. Remove what is unnecessary, leaving only the essential elements. This is an inherently personal process, because what is essential for your financial happiness differs from that of anyone else. Recognising exactly what is most valuable to you enables you to create a financial future that reflects your values.

In short, managing your wealth begins with your values. Beyond financial necessities, you need to identify the financial goals that matter most to you. What type of home is ideal for your family? What kind of tertiary education do you envision for your kids? What type of retirement life do you desire?

Ask yourself what sparks joy in your life and the type of life you want to design. It is time to establish financial goals that will make that envisioned life come true.

2. Provide sufficient emergency cash reserve

It is essential to have a sufficient cash reserve on hand to weather market downturns, enabling you to avoid selling investments at a loss and potentially missing out on future opportunities.

However, striking a balance is crucial, as having too much cash on hand could be counterproductive. In Malaysia, where inflation is high, keeping excess cash uninvested means its value steadily erodes as inflation creeps up.

The rule of thumb here is to hold around six months of living expenses as your cash reserves, particularly if you are working and earning active income. For those in other volatile industries, it is advisable to consider setting aside more than six months’ worth of living expenses.

3. Optimise your insurance coverage – pay for protection you need, nothing more

Assess your insurance plans to ensure you are neither over nor under protecting yourselves. While insurance plays an important role in safeguarding your financial well-being, over-investing out of fear could hinder your ability to grow and accumulate wealth.

The rule of thumb is to limit your insurance premiums to no more than 15% of your income. If you have no dependants relying on you for financial support, this percentage can be much lower. To determine just how much coverage you would need, it is best to create a holistic financial plan that assesses your needs and risks throughout your life.

4. Lay the groundwork for your children’s tertiary education

As parents, we want to give our children the best possible start. Channelling our resources into their education is a profoundly impactful means to furnish them with the tools to sculpt their own destinies. It not only lays the groundwork for realising their dreams but also empowers them to lead lives of their own choosing.

Yet, navigating the funding for your children’s education becomes a complex task without a clear picture of all your financial goals and their respective timelines. You may end up overspending on one child, potentially affecting other financial goals, or worse still, jeopardise the education fund for your other children.

5. Have a retirement plan ready, your future self will thank you

People are often tempted to view retirement as a future problem rather than a present concern. However, ideally, you should start planning for it at least 20 years before your expected retirement age.

According to the Employees Provident Fund (EPF), individuals retiring in 20 to 30 years will need at least RM 900,000 to RM1mil to cover basic necessities in retirement. This would be the bare minimum after taking into account inflation. Meanwhile, those retiring in five to six years will need RM600,000. The reality is that only 4% of EPF contributors could afford to retire.

Let’s be honest – relying solely on EPF is unlikely to be sufficient to fund one’s retirement lifestyle. If you are approaching retirement within the next five years, it is crucial to explore alternative sources of retirement income such as liquid investments or property investments with rental potential.

Ultimately, if you fail to plan, you may have to resort to drastic measures such as working part time and downsizing your home in order to have sufficient funds to cover the basics. This can be a challenging feat, especially in your later years.

To figure out exactly how much you need for retirement and when you can reach that goal, a holistic financial plan with monthly projections based on your life expectancy is the way to go.

6. Don’t leave things to chance – revisit your will

Neglecting to review your will may render all the efforts invested in growing your assets for the benefit of your loved ones futile.

How much are you leaving for your family upon your death? Is the amount sufficient to offset your family’s loss of income? Can it fund your children’s tertiary education and sustain your spouse? These are all important questions to address when planning your will.

If you have already drafted a will, ask yourself when you last reviewed it. Have you acquired additional assets since then? Have there been any changes in your family such as an addition of a kid or a divorce? Is there a designated executor for your will whom you can trust upon your passing?

If you haven’t put together a will, perhaps it’s time to draft one for the benefit of your family.

7. Tune out the hype, tune in to your target return

Establishing the right investment return target is a fundamental step in the investment journey. The temptation to chase quick profits based on market trends can be strong but it is crucial to resist the noise and take a strategic approach.

Before stepping into the world of investments, it is crucial to have a clear roadmap. That is why, as a licensed fee-charging financial planner, I emphasise the necessity of a holistic financial plan for my clients. This plan helps them determine the ideal target of return on investment (ROI) they need to achieve their financial freedom.

When you don’t have a clearly outlined financial plan, determining the appropriate ROI and risk appetite for your investments becomes challenging. If you aim for an excessively high ROI, like 20% or 25% per year, you may risk losing your hard earned money due to the high volatility.

Conversely, targeting too low an ROI, you may end up growing your wealth too slowly and not achieving your desired financial outcomes.

8. Save first, fun later – kickstart a healthy saving habit

Building a solid savings foundation isn’t just a financial strategy – it is a habit that shapes your wealth journey. This is where you begin accumulating the funds you will need for a rainy day (emergency fund), investments and resources for other lifestyle goals.

There are two ways to accumulate savings: Saving after spending and saving before spending.

If you find yourself saving only after spending, brace yourself for a potentially unwelcome revelation. You might have already observed that there is little to nothing left by the time you follow this path. Consequently, it proves to be an ineffective strategy, marked by a lack of discipline and clarity. This approach can pose a challenge in building up savings over the long run.

A more effective approach to saving involves setting aside a portion of your salary before diving into your monthly expenditures. Consider this practice as vital as paying your regular bills. Think of your savings as a non-negotiable “self-payment” – something you prioritise before allocating the remaining funds for leisure and other expenses.

If you are not sure how much to save, the rule of thumb is to save 30% of your salary before deductions if you are an EPF contributor. This equates to 19% extra savings in addition to your 11% contribution to EPF. For non-EPF contributors, the recommended percentage increases to 35%.

It is important to understand the purpose behind building your savings – to invest and grow your wealth. Therefore, the 30%-35% rule serves as a general guide, particularly for those in their active income earning years who have ample time to accumulate wealth.

To ensure your savings align with your unique financial goals, consider crafting a comprehensive financial plan. This plan should factor in significant life events such as funding your children’s education, property acquisition and retirement funding. By working backward from your goals, you can pinpoint the precise amount you need to save and invest to achieve them.

9. Don’t put all your eggs in one basket – diversify your investment portfolio globally

Some individuals lean towards investing only in one asset class, be it the stock market or the property market. The crucial point to note is that putting all your eggs in one basket exposes you to significant risk.

It is important to recognise that no single asset class is perfect on its own. No one likes to admit this but professionals will acknowledge this reality. Each asset class has its strengths and weaknesses. The key is to construct a well-balanced portfolio by combining these asset classes to offset the weaknesses of other asset classes.

Without a well-thought-out plan for diversifying your investment assets, you might inadvertently overinvest in one asset class such as property, putting your money at risk if the property sector crashes.

10. Discard poor investments and do it quick

A common financial mistake is to continue to buy new investments without first evaluating existing investment assets and purging the ones that aren’t working well for you.

Therefore, it is crucial to review each of your investments and ask yourself:

> Is it still relevant in the current investment environment?

> Is the investment performing well compared to its peers?

For properties, assess if it is giving good rental and capital appreciation. For stocks, compare its performance with others in the same sector. For Malaysian equity unit trust fund, check if it performs better than its peers in the Malaysian market. If the answer is “yes”, keep it. If “no”, sell it and convert it into cash.

Ultimately, wealth management is an ongoing journey, not a destination. By embracing these wealth management moves, you position yourself for a year of financial success and resilience.

Don’t be discouraged if you stumble along the way – even the most seasoned investors do. What matters is taking consistent steps to actively manage your finances. And remember, you don’t have to go it alone. Seeking professional guidance when needed, you can transform your resolutions into reality.

Yap Ming Hui is a licensed financial planner. The views expressed here are the writer’s own. Any reliance you place on the information shared is therefore strictly at your own risk.