Author of Set Yourself Free by independent financial adviser Yap Ming Hui talks to deputy news editor Thean Lee Cheng about his childhood years and how they shaped his views on financial planning as well as the burning need to write. This is his sixth title and he explains why he is dedicating it to the middle class.
StarBizWeek: What prompted you to be so prolific on the subject of financial planning?
Yap: I come from a middle-income family. My father was a shoe trader and my mother, a housewife. They were poor money managers. They did not save, invest, or have insurance. Growing up as a child, there was much financial uncertainty. When I gained entrance to a local university, my parents were not able to fund my university education.
Instead, the Lee Yan Lian Foundation funded me. Without that scholarship, I doubt I would have completed my studies. That made me very focused and I graduated with first class honours. It was growing up with such financial uncertainties that taught me the importance of money management. It is this factor which continues to drive me today and to write.
I want to provide a road map to financial freedom. Robert Kiyosaki (author of Rich Dad Poor Dad, How to Buy and Sell a Business among others) is of the view of that if you do not become rich, you become poor. I look at things differently. If the middle-class can plan to be comfortable, if they can optimise their money, they can become financially free. So Set Yourself Free is dedicated to the middle-class.
If they are between 30 and 40 years old, their income will continue to increase. But there is also the likelihood that they may fall into the middle-class syndrome, which is to spend freely. In other words, they become a victim of consumerism with holidays and branded goods. It feels good to be able to able to spend, but can one afford it? I can assure you, (if they take this route) when they retire, they will not have financial freedom.
But if they are mindful of their expenditure and is equally mindful of the years when their income reaches a peak and be aware of the need to save, and invest their surplus, they will be able to achieve financial freedom. For the poor, it will be very challenging. But for the middle-class, this is possible.
At what point did you decide to focus and produce a book for the middle-class?
When I started my business 12 years ago, I dealt only with rich and wealthy people. There is a difference between being rich and wealthy. I did not service the middle-class.
A person is rich if he has high money-making ability but low money optimisation capability. Although the income is high, most of it are spent to maintain a luxurious lifestyle. That means the financial resources are not fully-optimised. This person will not be able to maintain this lifestyle if unexpected financial disaster strikes and the current source of income is lost.
A wealthy person has high money-making capability and high money-optimisation capability. The high income is balanced by a comfortable but not luxurious lifestyle.
In 2008, I met a single mother from Johor who asked me to help her. I told her I was unable to assist her. She earned RM150,000 a year but after telling her that, I felt bad. I used the same tools I used for my high-net worth clients and it was at that point I discovered that if she did not manage her money well, she would fall into the poor category when she retired.
I had a certain feeling which I never had when I was serving my high-net worth clients.
When I helped the high-net worth individuals, it was to help them to be more wealthy. But when I helped this single mother, and if she implemented my suggestions, it was to put her on a path to financial freedom. I felt motivated because I had made a difference in someone else's life.
What advice did you give her?
I advised her to go into investments that provided a hedge against inflation without taking too much risks. I also suggested that she save more so that she will be able to have a larger retirement nest egg. Since then, I have began to service the middle-income group.
The financial institutions have gone into very sophisticated products mini bonds, flexi-loans, investment-linked insurance or income plans. Ordinary people may have difficulties understanding and dissecting these new products. The novice hears only the good part, the risks and costs are not explained. It is situations like these that prompted me to write.
Robert Kiyosaki takes a different stand. He writes about "aiming rich", "quit your job and start a business", "take a lot of loans, buy properties and get the tenants to pay for them."
I take a different course. Instead of chasing after money you do not have, why not focus on the income that you have? Many people want to make money that they don't have. Friends will suggest buying unit trusts, insurance, commit to this and that with their Employees Provident Fund money, or to buy properties.
The middle-class want to make money they don't have but they are too carefree with the money that they have. This is doing a great disservice to the money that we work so hard to earn.
Some years ago, there was this insurance plan being offered where one pays for five to six years, and after which one need not pay anymore and instead the company will pay a certain sum over a period of time. But if you really examine the product, the return is very low.
One must exercise one's analytical skills. If inflation is 5% to 6%, those who bought into such plans will be losing money. If you invest in real estate investment trusts or an equity fund, there is the potential for growth.
The situation today is as follows:
Products are getting more sophisticated;
There is little time to analyse them, or we may have little knowledge how to analyse these products;
Sales personnel are persuasive and they capitalise on the relationship they have with you;
Inflation is high;
Spending temptation is high; and
There are many financial goals to meet and fulfil with aging parents to take care of, retirement and children's education to consider.
When the middle-class combine all these factors, the situation can be very daunting.
However, I don't advocate people to be so extreme as to torture themselves. But I also do not believe in spending like there is no tomorrow because no matter how much you have, you will not have enough if you take this route.
Money optimisation is different from making money. You can make money, or earn money, from doing what you do. Money optimisation is making your assets work for you, which can be saving, or deriving an income from your investments.
Money optimisation is different from investing.
I discovered the purpose of my life after my two-year part-time studies to be a chartered financial consultant. I started my business in 2000 and I figured that if this worked in the United States and Australia, it will also work here.
I believe every one of us deserves the ideal life but what is your definition of this ideal life, if money is not a factor.
At the end of the day, money is a means to an end. "The end" is to live the meaningful life. But when you are caught in a vicious consumerist cycle, you cannot help but think that money becomes "the end". People who are caught in this cycle feel trapped, and they don't realise that they have trapped themselves. If they can say "no" to some of these things (that they are so caught up with), they will be able to get out sooner from the grip of this vicious cycle.
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