Wealth creation versus inflation

WHEN defining wealth, reports usually refer to it as the accumulation of resources. Individuals are said to be wealthy when they are able to accumulate substantial and valuable resources of goods and/or assets. Net worth is the most common expression of one’s wealth.

In Malaysia, wealth is acquired either via inheritance or generated from earned income, with the latter often associated with entrepreneurs, businessmen and professionals.(Of course what transpired here is through decent ways not by ill gotten ok!)

Wealth creation is the key to financial freedom and building one’s wealth requires having the right information, planning and making skilful investment choices.

Having executed this, the result would be having enough financial resources at one’s disposal to enjoy a blissful retirement and ensuring a prosperous future for one’s children and heirs.

Creating wealth is no doubt the aim of every Malaysian. However, research shows that many admit they do not take a proactive approach nor do they have in place a strategy to build wealth.

Survey shows that Malaysians tend to only start planning or be actively involved in building wealth for retirement at the age of 45, when it becomes apparent that the funds saved will not be sufficient to provide for their retirement.

The perception among many Malaysians is that their discretionary savings, together with their retirement funds from the Employees Provident Fund (EPF), would be sufficient for their retirement and their children’s needs.

One of the most common factors contributing to this mindset is that they often find the financial world complex and as such, tend to opt for the simple route – leaving their money in the bank in the mistaken belief that it will generate sufficient returns.

Interestingly, an individual often forgets the effect of inflation and how it impacts on their savings. For example, if a daily meal today costs RM20, in 20 years it will cost RM64 – this is on the assumption of inflation of 6% per annum.

If one forgets the effect of inflation and do not utilise their assets to generate a return higher than the rate of inflation, there is a possibility that the value of their wealth in terms of spending capacity at retirement could be smaller than what it is today.

One of the ways to avoid this is to engage in the process of compounding.
Compounding is the process of reinvesting one’s investment returns in the hope of generating higher earnings. In effect, the longer an individual leave the compounding process in action, the more money they will have – it’s literally that simple.
It has been described as the eighth wonder of the world because it is the most effective tool in helping build wealth, and yet it’s often overlooked by most.
To illustrate the impact of time and compounding, two types of investors are being featured:

# Smart Saver invests RM250 per week starting at age 25 until retirement at 65.

# Late Saver saves RM250 per week starting at age 35 until retirement at 65.

In this example, there is an assumption of a 10% rate of return and that all earnings are re-invested.

The chart shows that in the end, Smart Saver has accumulated the most, with over RM588,370, or 159%, more than Late Saver, and this is purely due to the effects of time and compounding returns.

To replicate the success of the “Smart Saver”, one of the first lessons to learn is to understand that wealth creation is not easily achieved. One needs to be disciplined as well as persistent to be financially sound now and in the future, not just for oneself but for their future generations as well.

In executing this, always remember the famous saying: “You don’t have to be wealthy to be an investor but you need to be an investor to be wealthy”.

Besto Regardo,

My advice to ya'll is pretty simple. Start saving early. When i say "saving" i don't mean to save your money by just putting it into your piggy box or conventional bank, but to save it for investment.And the best if you could generate huge cash at the early age and dump most of'em in your investment. That will be too damn delicious buddy.Many financial advisors are telling that, at least put away 10~20% from your earning for saving and the rest can cater for expenditure but...hehe what i have been practicing since adolescent age is totally contradicting.If Black Eyed Peas have their song saying PUMP IT, i have mine which sounds as DUMP IT..Ooh yeah.So what are you waiting for pal..dump'it..dump'it.As long as not remp'it. Cheers !!

以上です。