Wealth planning isn’t simply about putting aside as much money as you can. Here are five tips that can help you do wealth planning the right way.
After a few years trucking along in the workforce and carefully watching your spending, your bank account balance is starting to stack up.
With the ability to stash away a comfortable portion of your income each month, your money will naturally accumulate over time. So, all you have to do is to sit back and keep on doing what you’ve been doing, and you’ll be rich before you know it, right?
But rather than passively waiting for your wealth to grow — which is basically the same as leaving things to chance — you can (and should) speed things along by putting your money to work for you. Also, don’t forget that the purchasing power of money left sitting around in the bank will slowly be eroded over time due to inflation.
In other words, wealth planning isn’t just about saving money for some indefinite future. Instead, it is taking an active and informed approach to building and growing that pot of gold.
To help you get started, here are five tips to follow to do wealth planning the right way.
Tip 1: Set up a wealth plan
Failing to plan is planning to fail, and nowhere is this more demonstrably clear than when it comes to wealth.
Thinking that wealth planning is only for those who have money is a tragic misunderstanding — it’s actually the other way around. It’s only when you make a plan for your finances will you see a way to the wealth you want to have.
Hence, the very first step in wealth planning is just that — set up a wealth plan.
Now, this is no simple undertaking, but it is a project that you will hopefully find rewarding and interesting the more you get into it.
Investing is important for two reasons: to enable your money to grow independent of any further effort on your part, and to stave off the corrosive effects of inflation on your purchasing power.
Insurance is crucial in your wealth plan because it prevents your wealth accumulation from getting derailed due to an illness, an accident or any other unexpected events. Imagine being let go from a well-paying job after an unfortunate fall during a rock-climbing outing robs you of your ability to perform the work required. What will that do for your future prospects?
As for income, well, that’s the key ingredient that will allow you to build your wealth. Not only that, how much you earn will also help or hinder your wealth planning, so income is a critical component that shouldn’t be looked over.
Of course, there’s a lot more to say about the 3 I’s of wealth planning, but that’s not the focus of this article. Maybe we’ll delve deeper in another article, but for now, let’s move on.
Tip 2: Learn about alternative investments
Contrary to popular belief, alternative investments doesn’t mean putting your money into risky and unproven markets and praying for a huge payoff (that’s called gambling, and has no place in wealth planning).
Rather, think of alternative investments as investing in non-traditional sectors, such as wine, fine art, farmland and cryptocurrency (or at least, blockchain technology), to name a few.
Why? Because alternative investments can offer greater diversification, are less correlated to the wider market, and can help you hedge against inflation. These are all important for protecting against economic downturns while amplifying your gains during market rallies.
Does that sound good? Well, over 80% of rich people think so too.
Tip 3: Consider using structured products
Once you’ve accumulated a certain number in your bank account, you’re now qualified to be an accredited investor.
More than just a fancy membership in a prestigious club, being an accredited investor also gives you access to new types of investment products that are not available to ordinary retail investors.
One example of these are structured products. These are also known as market-linked investments, and are useful in generating higher returns when compared to traditional deposits. However, they also carry higher risks.
Structured products come in multiple variations, but at their core, the returns they provide depend on the performance of their underlying assets or benchmarks.
Some structured products carry a 100% capital guarantee with typically lower returns, while others offer higher potential returns, but don’t guarantee your capital.
Of course, which structured products to use, for how long, and how much to invest, will vary from individual to individual. But if you get the chance, investing in structured products can boost your wealth plan.
Tip 4: Don’t neglect your CPF
You may have heard of the 1M65 movement, which basically posits that you (and your spouse) can reach a combined total of S$1 million across your CPF accounts by age 65, setting you up for a comfortable retirement.
The founder of the movement, Mr Loo Cheng Chuan, has not only achieved this lofty goal, he and his wife have now set their sights on the next milestone — 4M65 (yep, that’s S$4 million by age 65).
The key to making 1M65 work is compounding interest and time, taking advantage of the night-guaranteed interest to grow your funds steadily and without risk.
Yes, you’ll need to lock up your funds until the age you choose to retire, and you may even need to voluntarily increase your CPF contributions to stay on track, or to achieve your goals faster.
But in exchange, you will be able to secure your retirement years, which is an important part of wealth planning in the first place.
Tip 5: Rope in the professionals
We’ve only barely scratched the surface, but hopefully it’s clear that wealth planning involves quite a bit of knowledge, effort and work to properly pull off.
Thankfully, you don’t have to go at it alone (although you certainly can — many people have found great success taking things into their own hands!). You can garner a team of professionals to help you suss out optimal opportunities, get access to exclusive investments like structured products, and finetune your portfolio.
Such wealth management services are readily available in privileged banking or private banking, and to sign up, you simply need to deposit the qualifying amount — typically around S$200,000 — or prove ownership of assets with a total worth that meets a certain threshold. By the way, qualifying for private banking also qualifies you as an accredited investor in most instances.
Yes, the barrier to entry is high, but if you manage to make it, there is a good chance you will get further in your wealth planning journey and achieve greater outcomes. After all, it’s almost always easier to find success with the benefit of professional help.
Read these next:
22 Ways to Succeed in Your Money Goals in 2022
How To Plan And Achieve Your Financial Goals For 2022
Emergency Fund: How To Build It The Less Painful Way And Where To Keep It
Take This Before You Go: A Must-Read Guide For Budding Investors
Money Confessions: What Would You Do Differently If You Could Restart Your Personal Finance Journey From 10 Years Ago?
By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.