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What is the fifth point of a compass?
The fifth point of a compass is where are you right now. Similarly, it is important in personal financial planning to know your current Net Worth- where are you right now. NET WORTH is simply the difference of what you OWN less what you OWE.
Example of what you own includes bank deposits, houses, cars, investments, retirement fund such as Employees Provided Fund, personal property and other assets. Assets is simple terms mean anything of value. The first step in calculating your net worth is to add up what your own.

The second step is to less out what you owe. Examples of what you owe includes mortgage, car loans, credit cards, bank overdraft and other liabilities.

The third step is to subtract what you owe from what you own and you will arrive at your net worth.

Knowing your net worth is an important step in wealth accumulation. You may want to multiple your net worth by certain number of years. Before you can multiply your wealth, you may want to create a savings plan. The rule in saving is the earlier you start, the better and easier it is because of the magic of compounding interest Albert Einstern called the magic compounding interest, the eight wonders of the world.

Suppose you are given two jobs, one that pays you RM 1 a day and it is compounded every other day for thirty days and the other job pays you RM 1000 per day for the next thirty days, which would you prefer?
You would be amazed that the first job that pays RM 1 per day and compounded daily for thirty would amount to RM 536,870,912; while the RM 1000 per day when added for thirty days would only amount to RM 30,000. Amazing, isn’t it?

The Doubling Dollar Wealth Accumulation




1 $1000 $1
2 $1000 $2
3 $1000 $4
4 $1000 $8
5 $1000 $16
6 $1000 $32
7 $1000 64
8 $1000 $128
10 $1000 $256
11 $1000 $512
12 $1000 $1024
13 $1000 $2048
14 $1000 $4096
15 $1000 $8192
16 $1000 $16,384
17 $1000 $32,768
18 $1000 $65,536
19 $1000 $131,072
20 $1000 $262,144
21 $1000 $524,288
22 $1000 $1,048,576
23 $1000 $2,097,152
24 $1000 $4,194,304
25 $1000 $8,388,608
26 $1000 $16,777,216
27 $1000 $33,554,432
28 $1000 $67,108,864
29 $1000 $134,217,728
30 $1000 $268,435,456
Total $30,000 $536,870,912

Accordingly to financial planners, there are two types of people in the world. The first type is the Spend-first-and-then-save type. This group of people are usually poor savers because after spending what they have, they will find that they have very little left to save. The second type is the Save-first-and- spend-later type and what this group does is that when they receive their incomes, they will deduct a predetermined amount of savings from the incomes first before they spend. The net result is that the first type of people always end up working for the second type. 

So if you are determined to be the second type, then here are the STEPS IN SETTING UP A SAVINGS PLAN.

Step  # 1  Act now and start saving immediately.
The famous Chinese philosopher Confucius once said, “ The journey of a thousand miles begin with the first step”. Make a decision now to save a predetermined amount every month. Take immediate action and stick to it.

Step  # 2  Determine your cash flow
Find out how the amount to be saved would impact your cash flow. Provide for unforeseen contingencies. Know your sources of income and your expenditure. Determine whether your emergency fund (about six months income) would be sufficient to help you out in the event of glitches in your cash flow.

Step  # 3  Monthly savings projection
Draw up the monthly savings projection and determine the amount of time required to reach your short term, medium term or long term goals.
Short terms goals include things like saving for an overseas vacation, buying a 29” colour television or saving towards a diamond ring. These kind of savings are usually for a short duration from a few months to a year. Medium term goals include things like saving for a marriage, a down payment for a car or the deposit for a house. They are usually for a duration of five years or less. Long term goals include things like saving for child education, retirement fund or long term care at old age. They are usually for duration of ten years or more.

Step  # 4  Pay yourself first
If you are really determined to set up a savings plan, make a decision today to pay yourself first before anybody else. We know it is extremely difficult in today’s lifestyle to save any money. Therefore, unless you make a conscious decision to pay yourself first, you will not be going places.

Step  # 5  Lump contribution
To enhance your savings plan, put in a lump contribution wherever possible such as when receiving a special bonus or when you make a tidy profit from a sale and others. A good example would be the 2% savings from the EPF as announced by the Federal Government recently.

Step  # 6  Review and monitor your plan.
We are living in changing times. At such it is important to review your savings plan, at least on a quarterly basis. Make the necessary changes to ensure the success of your savings plan. Monitor it regularly to see whether you are making progress towards your goals. Someone said that success is the progressive realisation of a worthwhile goal. We agreed a hundred percent.

Jeffrey Chiew Kim Chwee

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