IN the midst of growing complexity throughout the world, there is much to be said for getting back to the basics of personal finance and dependable advice.
We've all looked around at the colourful swirling constellation of individuals milling about us and, without meaning to, have effortlessly and quite automatically paid special attention to some of them and ignored others.
If you mull over this, you'll realise that even without meaning to do so, you've found it surprisingly easy to pick out those who exude the quality the French call je ne sais quoi (pronounced zhe-na-sai-kwa), which has crossed over to English. It denotes a hard to define yet appealing characteristic.
Those with that trait possess both charisma and a special something extra tied to confidence. They charmingly emit signals of the super-successful. Of course, whether they truly are successful or not is a completely different matter.
So, what does it take to be genuinely successful? As legendary motivational speaker Earl Nightingale said in his bestselling audio programme Lead the Field, first published on New Year's Day 1976:
"Success is the progressive realisation of a worthy goal or ideal."
At a mere 11 words, it is the most succinct and accurate definition of success I've ever been exposed to; also, I have discovered gradually over time that it applies to every serious field — shall we say "canvas" — of human endeavour, including economic progress.
Regarding the economy, all of us know that large scale macroeconomic tracking is done at both country and regional levels through the metrics of absolute gross domestic product (GDP), and the GDP percentage may change from one particular year, quarter or month to the next.
However, at the other end of the spectrum, namely the smallest, most granular level of any economy, we find the solo individual. And one step up from him or her is the family or household. How do we then measure small-scale economic success?
Based on what I have observed while running my financial planning practice for many years, when we look through the specific lens of financial planning, three distinct dimensions are evident:
1. Wealth protection;
2. Wealth accumulation; and
3. Wealth distribution.
Whenever I elaborate upon this P-A-D (Protection-Accumulation-Distribution) model for understanding, and then hopefully implementing useful financial planning principles to new clients and also to my seminar, workshop and webinar attendees, I always make sure to cover this foundational information.
P: We "Protect" our wealth and our potential for future wealth generation mainly — but not exclusively — through various forms of insurance. The four main types of insurance most of us should consider utilising are life, critical illness, hospital and surgery, and personal accident insurance.
A: We "Accumulate" our wealth after, of course, first earning (or more rarely inheriting) it by competently managing our precious cash flow, which boils down to the basic skill of budgeting our various cash outflow items, keeping their total consistently below our aggregate cash inflow sources, and then saving and investing the net surplus for short-term adequacy needs and long-term financial growth.
D: We "Distribute" our wealth through the judicious use of a will and possibly, if we're wealthy enough and our circumstances warrant it, a private or living trust. I recommend everyone draws up a carefully considered will.
Not everyone, though, needs a trust; most people never will (pun intended!) because a trust is usually the preserve of those with sizeable levels of wealth and unique family circumstances, or philanthropic goals that require careful structuring.
(Note: In Malaysia, the wealth distribution norms of Muslims are different from the conventional guidelines I've outlined for non-Muslims. Therefore, I recommend you seek out specific advice on setting up a wasiat or Muslim will if that applies to you by reaching out to the Financial Planning Association of Malaysia (FPAM) through its website www.fpam.org.my/ and putting out feelers through the "Contact Us" tab.)
LIFE GOALS
It is worth noting that a private (or living) trust used by the very well-heeled as part of their wealth distribution goals is a markedly different entity from a unit trust fund, which can be a usefully versatile building block of saving and investing activities associated with effective wealth accumulation.
I suspect those eager to maximise their return on investment (ROI) from reading this Money Thoughts column should reread it carefully and intentionally with pen in hand to jot down notes on each dimension of holistic financial planning, and then take proactive steps. The tragic truth is most people won't bother to do so.
But the minority that does so will enjoy an elevated likelihood of attaining the core aims of the financial planning process: To meet their life goals through the proper management of their finances.
So, in closing, I suggest you identify your numerous life goals, rank them by priority, select the top five to 10 — say retiring comfortably, educating your kids at university, travelling the world, funding worthwhile charities, leaving a lasting legacy, feeding the hungry, scaling Mount Everest, funding a library, or frankly anything else that "floats your boat" — to borrow a colourful Americanism — and then incrementally construct your 3D financial plan through the vision and life-expanding financial planning process.
© 2022 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).