The eight golden rules
Published on May 2, 2008, The nation
Wealth managers offer advice on saving for a comfortable retirement
A common question asked by salary earners who are unsophisticated about investment is how do billionaires amass the huge fortune that they have today.
You might earn enough to live on today, but still you have that gut feeling that your financial situation might be quite vulnerable when you are much older.
Let the experts reveal their secrets for financial planning, which will not only lead to stability during your retirement but also perhaps to a big fortune. Here are the eight golden rules of personal financial planning as preached by wealth specialists who manage billions of baht for the rich. Their suggestions are not that complicated, but they are effective.
First, start planning.
It is well known among wealth managers here that most Thais hardly do any planning for their personal finances, particularly for retirement.
"They hope that their children will look after them during retirement, while some save money but fail to add value to their investment. Not many people think about it. Most of them work hard. So, they go without the independence and happiness that they should have in life," says Adisorn Sermchaiwong, CEO of SCB Securities.
Start planning today by thinking about your goals in life, associating them with how much money you expect to spend at each stage, including marriage, first home, children's education, travel and retirement.
Second, start saving now.
The earlier you save, the better you can handle expenses during retirement. Like insurance premiums, starting to save when you are young will reduce the monthly amount you need to stash away to meet your savings objective, compared to those who start saving in their forties.
A good way to save is to cut out spending on luxuries. This is, however, easier said than done. To make it not so difficult, set a figure for the money you need to save first. Then, spend the rest.
Third, avoid big debts.
It is unwise to create unneeded major liabilities when inflation is rising. The Bank of Thailand recently upped its inflation forecast this year to 4-5 per cent from 2.8-4 per cent.
"It's a concern as many people are spending more than they can earn particularly via credit cards. Cardholders can easily withdraw cash without posting any collateral. Easy credit leads to easy spending and then a big debt burden. Most of them don't have savings," says Metha Pingsuthiwong, executive vice president and head of treasury and private banking at Tisco Bank.
Fourth, don't buy too big a house.
Carrying a big mortgage, you will never have money left for other things. Some might think that applying for big home loan when you are still young would make it easier to get out of debt later. But huge monthly instalments will limit your opportunities.
"If you need to pay too much in monthly instalments, your liquidity will be low. Then, you'll lack the opportunity to invest. Not living in a big house will spare you funds for investment," says Pavin Rodloytuk, director of retail banking for Citibank (Thailand).
Fifth, don't follow your friends' investment choices.
Decide on your own risk profile and then stick to it as an investment strategy. Invest to the extent that you do not exceed your risk profile. Colleagues or friends with good intentions might give tips on how to earn good returns, but they might not have the same risk appetite as you. "Don't invest because your friend said so. People have different risk profiles. So, you need to know yourself. When they make a loss, they might not want to tell you either," Metha said.
Sixth, don't invest in something you don't know.
The sub-prime crisis in the US is an example of investors who picked up assets they did not really understand. Despite high returns, investors finally got their fingers burnt.
"Don't invest in what you don't know. For example, if you want to invest in a stock like PTT, you need to know the company quite well. Also, derivative products may be too complicated for general individual investors. So, just stay away from them," Pavin said.
Seventh, diversify.
Experts have long advised not to put all one's eggs in one basket.
"Once you put away enough money for emergencies, put the rest in investments. Don't put your savings only in bank deposit accounts. Put some of the money in corporate bonds and blue-chip stocks too," said Patcharin Wongsiridej, first senior vice president of Kasikornbank.
Lastly, manage your personal income taxes wisely.
Salary earners have several options for deductions to reduce tax payments such as long-term equity funds and retirement mutual funds. Up to Bt100,000 of insurance policy premiums can be deducted from taxable income, up from Bt50,000 last year.
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