Wealth Planning

Introduction

It is not difficult to be financially secure as long as one is living within his/her means and planning finances properly. Besides having sufficient insurance protection, this means saving and investing wisely.

This is what wealth planning is about. Planning for the creation, accumulation and diversification of wealth. It is part of the overall process of financial planning.

In today's highly competitive society, unless one is lucky enough to have a large inheritance, a person would be hard put to accumulate sufficient wealth over the long term by simply putting his/her money in a savings account. One needs to invest wisely. Making knowledgeable investment decisions can make a lot of difference over the years. A successful approach can provide for a comfortable retirement, send the children to university, and provide the financial freedom to pursue things that are meaningful to the person.

Smart investing is not rocket science nor does it require the IQ of a genius. All it needs is for one to be knowledgeable about the activities, opportunities and pitfalls in the investment markets and to have sound principles and a sensible approach. If this is not to be because of lack of time, exposure, experience or knowledge, then consider leaving the actual investing to the specialists such as fund managers.

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Wealth Planning FAQs

1.	How much debt is too much?
A:	A high amount of debt is a burden that makes it tough to save for retirement because money that should have gone for retirement or other long term goals are now spent on paying interest. It is alright to borrow but not in excess. Borrowing is monitored by taking the total payments for servicing of interest and repayment of debt/debts as a percentage of the take-home income (pay and other income net of taxes and deductions). This is called the debt ratio. A debt ratio of over 33% is considered high and a debt ratio of 50% or more would be considered excessive. Such high debt ratios are frowned on by banks when one applies for borrowings.
2.	How can one tell if a person has debt problems?
A:	The following are some indicators: i. Borrowing from one source to pay off another source ii. Applying for and getting turned down for credit iii. Paying an abnormally high interest rate for borrowings iv. Borrowing using several credit cards and paying only the minimum allowed v. Chasers from creditors for payment vi. Borrowing to pay utility, rental or other regular bills (indicates lack of regular cash inflow)
3.	How does one avoid debt problems?
A:	Here are some general rules: i. Borrow only if you have a regular source of repayment. If you borrow and get caught out because of irregular income sources, you would have to pay an extremely high penalty interest or worse, be forced to liquidate an asset at the wrong time to settle the debt and hence incur a loss that you can ill afford ii. Do not borrow for spending or frivolous purposes, such as going for a holiday or a shopping spree. Borrow if you must for purposes that benefit you in the long term, such as for renovation that increases the value of the property iii. Avoid high interest borrowings. Easy money offered by credit companies or banks for consumer loans (such as for the purchase of a home theatre system) are invariably high interest borrowings iv. Avoid credit card debts. Such balance accumulations attract a high interest rate that gets compounded monthly and you are not likely to find any investment that earns you a steady return to pay for such interest v. Be disciplined. Stick to a budget that keeps your spending in check. And keep your hands off funds set aside for long term purposes unless unavoidable

Approaches: Wealth Planning > Retirement Planning >>

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