From Financial Planning to Wealth Management

"Money is not everything, but everything in this world NOW needs money!!!"

The statement clearly emphasises that every single thing we do now involves the element of money. The first question which arises - "If everything thing needs money, how do we make one (substantial amount)?"  and

the second question - "How to ensure that our money is not depleted?"

In other words, everyone is concerned about making money, however, people are equally concerned with maintaining their money so that it's not over even after heavy consumption. The answer to both the questions is actually only ONE i.e Financial Quotient (FQ). Knowledge makes people wealthy, moreover, not only Academic & Professional Knowledge, but Financial Knowledge.

The good news is that Financial Knowledge can be attained at a relatively easy manner, either from self-learning from various enriching financial books, or through learning from the masters. In Indonesia,  there are 2 Financial Quotient (major) masters one can learn from, one is Financial Planning Association and the other is Certified Wealth Managers  Association. 

The next question which comes up to mind - "Which of these 2 sources is better than the other?"; well the answer is - "Both are equally good, hence they are the major masters of the Financial Quotient."

Actually, if one understands carefully, their naming itself already makes things very crystal clear. Financial Planning, as the name suggests is directed to plan one's moves to make financial decision in order to achieve wealth to fulfil one's financial objectives. On the other hand, Wealth Management as the name suggests, is directed to manage one's wealth in order to achieve one's financial objectives. Therefore, these 2 knowledge sources can be classified in stages. First attain wealth through planning, then maintain wealth through wealth management.

Knowledge is Power: 

Academic & Professional Knowledge gives one the power to compete and excel in what he/she does.

Financial Knowledge gives one the power to make and maintain the money from what he/she does.

BEWARE: Know Who You Are Hiring !!

Commission-based planners aren’t really planners, advisors, or counselors at
all — they’re salespeople. Many stockbrokers and insurance brokers are now
called financial consultants or financial service representatives in order to glam-
orize the profession and obscure how they’re compensated. Ditto for insurance salespeople calling themselves estate planning specialists. 

A stockbroker referring to himself as a financial consultant is like a Honda
dealer calling himself a transportation consultant. A Honda dealer is a
salesperson who makes a living selling Hondas — period. He’s definitely not
going to tell you nice things about Ford, Chrysler, or Toyota cars — unless,
of course, he happens to sell those, too. He also has no interest in educating
you about money-saving public-transit possibilities!

Salespeople and brokers masquerading as planners can have an enormous
self-interest when they push certain products, particularly those products
that pay generous commissions. Getting paid on commission tends to skew
their recommendations toward certain strategies (such as buying investment
or life-insurance products) and to cause them to ignore or downplay other
aspects of your finances. For example, they’ll gladly sell you an investment
rather than persuade you to pay off your high-interest debts or save and
invest through your employer’s retirement plan, thereby reducing your taxes. 

TIP: A good financial advisor advices and leaves you, as the client, educated to make your own financial decision.

Solution to Fuel Price Problem

In the fluctuating economic, social, and political conditions of Indonesia, where the hottest issue is the tentative increase in the fuel price, one needs to have a cushion on his/her personal finance. It's known that an increase in the fuel price and increase one's cost of living through inflation and decrease in one's income (some cases might be the end of one's income through company's lay-off decision). Here are the following steps that might come in handy in order to prepare safety net before the event actually takes place.

1. Avoid being actively involved in a mass demonstration, it does not and will never serve  as the core solution to the problem, it just adds to the damage (who knows you might end up as one of the victim being attacked by the law enforcement, severely injured, spiked medical bills for recovery)
2. Re-evaluate your monthly personal financial statement, minimize your tertiary needs (luxury needs) and focus only satisfying your basic needs. Time to tighten your belt a little bit. Minimize the use of bad debts (credit mostly used for consumption - credit card)
3. Replace the money you usually spend on tertiary needs towards self improvement, in other words invest heavily on upgrading your skills. The logic is very simple, as the decision of fuel price comes into action, many companies you work on will try to minimize their cost of production. Unless you upgrade yourself, you have weak competitive edge to remain in the company to sustain your income. The game is called the survival of the fittest (the ones with more competitive edge remain).
4. Start learning other means of investments which can give you return that is not raced by the inflation rate. With the fuel price increase, it's expected that the inflation rate will increase, keeping your money in the bank will not serve as a wise move. One can now consider money market as an instrument which gives higher return than the bank with high liquidity or some other investment instruments (business -franchise, stocks etc)

The answer to anticipate the above problem is by upgrading yourself. Your personal finance will remain strong if you are continuously upgraded.

Facing Your Financial Reality

Let’s get down to business! The most important part of the path to wealth is taking stock of where you are now.  You need to build up a picture of your current financial position. Some of this will be about the ‘hard’ numbers, such as how much wealth you have (Net Worth) and current levels and sources of income. Some of it will be about the ‘soft’ stuff, such as understanding why you are in the position you are in—this may relate to your attitude to wealth or to poor habits with money. No matter what the picture looks like,  you need to have a very firm grasp of your current financial reality before you go any further.

Everyone’s reality is a little different. Most likely you have been working hard since the day you left school or finished whatever education or training you undertook. We have all been told that’s what we need to do to succeed in life. However, you (and many others) have probably found that it isn’t true, that this recipe has not taken you very far. Even when you have got further, you may not be in the place you want to be. You may have a high Net Worth but are still having to work hard. Habits can be hard to break! 

If you are like most people, you probably find that it is taking all your efforts just to stay in the same place. You may own a home but still have a considerable amount left on the mortgage. You may be working hard—perhaps harder than ever before— but feel you are unlikely to make much more headway. And you certainly won’t be able to stop work very soon—if at all. Depending on your age you may have more or less anxiety about the position you find yourself in: younger people often look at the work and lives of those ahead of them on the ladder and think that this is an unrewarding path that they do not wish to follow. More experienced people often feel that their oppor- tunities for further advancement have passed and there is little they can do to change their circumstances. If you are the owner of a business you are likely to be working very long hours and perhaps not taking much out of the busi- ness. Your earlier hopes of becoming wealthy and free seem more and more distant. You may even be feeling trapped because you can see no way out. Even thinking about the next business cycle downturn fills you with fear because there may not be much ‘fat’ in your business and you may have high levels of borrowings.

Write your story about your life so far. No one will see this unless you choose to share it, so feel free to be as detailed and as passionate as you wish. Only by being honest to yourself, you will and can come out of the financial mess (problems).

• What has happened so far?
• How are you feeling about your life at present?
• What do you like about your life?
• What is irritating you that you want to change?
• What do you think will happen if you stay on this path? 

source: Coach Yourself to Wealth

How to Get Rich and Stay Rich ?

To become rich, you ‘only’ need lots of assets (somethings you own that will generate income for you). However, to get wealthy and stay wealthy (and therefore have financial freedom) you need three parts to your finances, which are:

         1. Wealth Creating Assets

         2. Income

         3. Security Assets

Wealth Creating Assets - the things that will make you wealthy, the things that you put your money into with the intention of getting at least a 15 per cent p.a. return. They are aggressive assets: high performance and high risk. They are the opposite of the diversified portfolio—they cannot be diversified if they are to achieve a 15 per cent return (or more) for you. There are really only three things that will make you this sort of return:

• Business
• Property Investment
• Shares

These are the only three categories that are capable of giving a high enough return to grow your wealth to financial freedom. However, the ownership of these kinds of things is risky: your own business is inherently risky (many do not last more than five years); property is risky because it has high borrowings, and shares are volatile, going up and down— and sometimes only down.

Income -   the money generated from Wealth Creating Assets, which will be primarily used for consumption, with the hope of generating a surplus after consumption. The question that arises is that "What is to be done with the surplus?". If you consume some of the income and reinvest the remainder in risky Wealth-Creating Assets you are unlikely to remain wealthy for long, because these assets are categorized as risky assets. So some of your income needs to be invested in Security Assets.

Security Assets - they are also investments, but their primary function is to store wealth in a safe place. Security Assets will give you lower returns than Wealth-Creating Assets but they are much safer. This is where you may keep your house and a diversified portfolio of investments. This part of the structure should have no (or at least very little) borrowings.

It is tempting to keep putting everything into your Wealth- Creating Assets, especially when you are doing well there. Keep telling yourself that the biggest enemy of the entrepreneur is over-optimism. Early success leads many people to think that the game is easy and everything that they touch turns to gold. This is an illusion. You are not perfect, you are not a god—you will make mistakes. You may have been successful but that will not make you invulnerable forever. Get the Security Assets started immediately, even if you only put in a little at the beginning. Over time you can divert more into it, paying off your home loan first, and then developing that diversified portfolio.

Getting rich is only half of the story—staying rich is the other half. You need to find a balance from the beginning. 

Non-Treadmill Income

Passive income is income that you receive while you are having lunch, on the golf course, playing with your children, walking in the bush, at home and asleep. It comes from assets that you need do little or nothing with to produce income. These assets are investments that will have no (or at least little) borrowings, so that you are secure in your position. Financial freedom is having enough in good solid investments (well diversified) to be able to live the rest of your life how you want. It can also be described  as having ‘non-treadmill income’—money that you do not have to go out to work for. 


For true financial freedom, the income you have must be achieved passively, not by actively working for it. You only get significant passive income if you have a lot of capital. To be free, your income has to come from capital invested, not time invested. 


source: Coach Yourself to Wealth

What is Wealth and Freedom ?

Having wealth and freedom is about having both the time and the money that you need to live the life you want. Neither wealth nor time is enough on its own—it’s hard to enjoy either money or leisure without having enough of the other. Time without money is not a lot of fun, nor is it fun having money but no time. You need both. It is all too easy to focus on money alone. Many people we see have plenty of wealth but no time or freedom, when we know that time and money are both important to having a life of wealth and abundance.  

Financial freedom is not simply being rich. Many people who are rich are not financially free. Certainly, you need to be wealthy to have financial freedom—wealth is a prerequisite. But having a lot of assets or wealth is not enough by itself. For financial freedom that wealth must be invested in areas that will give you passive income. You cannot be free if you still have to work for your money and/or your money is still at risk.

Financial freedom, then, is about having time and money: your time is your own, and so is your money. You do not have to spend time generating an income, and your money is secure. You need wealth, you need a good income—but it has to be the right sort of wealth and the right sort of income. People who are rich but who are not financially free include:

• People who own a business, even a quite big and very successful business, but who are still tied to it and cannot leave it for any period of time.
• People with jobs who earn well and enjoy good lifestyles but whose income stops the moment they do.
• People who own investment property with large amounts of borrowing that still needs very active management. 

Financial freedom, then, is about having time and money: your time is your own, and so is your money. You do not have to spend time generating an income, and your money is secure. You need wealth, you need a good income—but it has to be the right sort of wealth and the right sort of income. 

Living the life of your dreams means that you will need a plan to both create wealth and secure it so that you have enough passive income to spend your time as you choose. 

source: Coach Yourself to Wealth (Hawes & Baker)