What is Wealth Accumulation and Why It Matters To You
There are many benefits to being financially wealthy, such as having the money to travel, living in luxury and being generous. The financial freedom that comes with breaking the bank helps you break away from the conventional path of life and pursue your passions. Being financially free is one thing that most people dream about having, yet only a few have achieved it.
The term “wealth” can mean many different things when applied to financial matters. Depending on the context, your wealth can refer to cash available for spending, income, possessions such as a car or house and investments you have in stocks, bonds, and cash. Understanding the different types of wealth can help you determine which forms of financial planning are suitable for you.
Given this context, we can already summarize that accumulating wealth is not an easy process, and it should be a long-term goal for everyone. However, many people face different questions and obstacles along the journey of knowing how to accumulate wealth properly. And that is understandable since there are so many ways to do so. At the same time, everyone’s journey is not the same.
However, knowing the proper wealth accumulation, its basics, and the ins and outs of the process will truly benefit you in the long run. Because wealth does not mean spending a tremendous amount of money relentlessly, it is about being financially secure and having financial freedom according to the life you want to live.
Now that we understand how relevant wealth accumulation is today, it is time to understand what wealth accumulation is and how to do it properly in the current economic landscape.
What is Wealth Accumulation?
When many people think of investing their money, they picture the lifestyles of the rich and famous. They imagine a life with multiple mansions and expensive sports cars. It can be great motivation if you are trying to accumulate wealth while working a regular job. But it is not what wealth accumulation is. Wealth accumulation is more of a mentality that many successful investors adopt as they work towards their financial goals.
Let’s get a clear picture of why money accumulation is so vital. If you do not acquire the ability of wealth accumulation, you will tend to spend your money impulsively. It is not a good idea, especially if you want to save for the future. That is why in a nutshell, a planned and disciplined process of accumulating assets to achieve your financial goals is known as wealth accumulation. Without a definite objective, wealth increase causes greater tension and anxiety, like wealth hoarding. To put things into perspective, these are the goals of why we accumulate wealth.
3 Goals of Wealth Accumulation
- To Provide for Family – One of the number one reasons you should start accumulating wealth is to provide for your family. Even if you don’t have your own family right now, it is still essential for your parents to live a comfortable life when they reach old age. At the same time, if you are planning to start and raise a family, this is the perfect way to secure your family’s future.
- To Prepare for Retirement – Wealth accumulation plays a massive part in everyone’s retirement. And it pays off once you are in a situation where you can no longer tend for yourself, and you need to depend on different health services to sustain your life. It may be a scary thought, but this is important to understand and confront.
- To Prepare for the Unexpected – Life is unpredictable, and your life is always at risk. You may face different and unexpected health and other financial concerns requiring you to release a huge sum of money unexpectedly. By understanding wealth accumulation, you can be prepared as much as possible for these risks.
These goals may look easy to attain, but there are many ways to achieve these goals one by one. And you can achieve these by acquiring different assets.
What are Assets?
One of the major components of personal wealth is financial assets, also known as investment assets, including stocks, bonds, real estate, and collectibles. They are valuable and can be traded in exchange for cash or other assets. It is essential to manage well because it provides resources to generate additional money, increasing our financial stability. Identifying the differences among them would help you better understand their unique characteristics so that you can choose what suits your needs and income goals.
Different Types of Assets for your Wealth Accumulation
Savings Account and Fixed Deposits
For starters, it is essential to open your savings account once you reach legal age (but some do even before). A savings account is the most convenient and versatile asset you can easily get. While easy to obtain, savings accounts are also versatile since you can withdraw money from them anytime. At the same time, most savings accounts have a low-interest rate. In today’s time, you can even make your savings account by opening an account online. Yes, you don’t have to go to the bank to open your savings account!
But, while it is convenient, the rule of thumb is to not put all your savings or money in your savings account. It is advised to get another savings account, and that additional savings account will serve another purpose. The rule of thumb is to save at least 3 to 6 months of your monthly expenses in your savings account.
A Fixed Deposit or FD is simply a deposit that gives you a guaranteed return on investment (ROI), also known as interest. Historically, an FD has been a low-risk savings instrument that provided you with a secure and decent rate of return on your money. But over the years, banks have tweaked the product to earn you more than other savings instruments.
Central Provident Fund (CPF)
The Central Provident Fund is Singapore’s mandatory social security savings scheme funded by contributions from employers and employees. As an active taxpayer of Singapore, you are entitled to have your CPF because this serves to meet your retirement, housing, healthcare, and other basic needs. Under CPF, there are different savings plans such as CPF LIFE and Medisave.
You can take advantage of your CPF by religiously contributing to your account. However, if you are self-employed, the mandatory contribution is only restricted to Medisave. But even if you are self-employed, you should opt for voluntary contribution because the benefits CPF has can benefit you in the long run.
Buying a Property
One of the most important goals of a person is to have a place to call their own “home”. In Singapore, paying for rent can be too expensive, but at the same time, properties are also costly to acquire nowadays. However, you can find a place that you can call your home through different strategies that you can take. One of those is that you should be realistic about the property you want to buy. You can’t expect to have a big property instantly, and that is why it is advised to take things slow. Setting a realistic goal for the property you want will make your mind clearer in planning for the best property.
Now, once you set your goal, you have to understand its cost and save. Saving is the best option that you can do. If it is too much of a task for you, you can engage a professional financial adviser who can help you strategize a sound financial plan to help you fund the property you desire..
Get a Capital Gain Products
Capital gain products are financial products with a positive capital gain or an opportunity to sell at a profit. These contain stocks, bonds, mutual funds, and other securities. Investors purchase assets that are growing in value and they can either sell this asset for future profit.
Get an Endowment Insurance, Investment-Linked Insurance or Retirement Income Insurance
These insurances are a must-have, but you should choose one with riders available that can waive future premiums in the event of a covered critical illness claim. It is important that your available funds be freed up so that you can seek treatment for your illness. The definition of critical illness changed last 2020, so you should take advantage of the change and get one that will support you once you are in critical health.
Manage Your Debt
You should also know how to manage your debt more than owning different assets. We all know that you cannot avoid accumulating other loans from the assets mentioned above over time. And to manage your debt, you should learn the basics of debt management.
What is Debt Management?
Debt management is a process where you work with professionals to get your debts back under control. Debt management operations provide services to individuals with multiple credit obligations who wish to combine all of their debt into one monthly payment. This can be a debt consolidation loan or other solution that works for you. One example of Debt Management is mortgage loans. A mortgage loan is often used to buy a property, and we all know how important it is to acquire a property of your own. And this loan allows you to purchase one by paying it using your future income.
Wealth Accumulation Works with Discipline
To be honest, wealth accumulation will not work if you do not discipline yourself, especially your spending habits. It is not realistic to acquire all the assets we mentioned, but it is vital to aim for at least two to three assets to secure your future correctly.
It is easy to spend your money but earning and investing it is a different challenge. However, if you want nothing but the best for your future, it is time to consider accumulating your wealth for a greater purpose.
You can start this by contacting a professional financial advisor to share your needs. To know more about wealth accumulation, visit our website and check our upcoming events.
The views and opinions expressed in this article are solely that of the author and do not reflect the opinion of Professional Investment Advisory Services Pte Ltd. The information contained in this article is for general information only and does not constitute the provision of financial advisory services. The precise terms, conditions and exclusions of any services or products mentioned are specified in their respective policy contracts. For customized advice to suit your specific needs, consult an Apex Financial Advisor Representative
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References
1IFPAS. (2020, September 7). Wealth Accumulation – Thought Process & Financial Planning Tool. C.A.P.S Chapter Four. Retrieved March 10, 2022, from http://www.ifpas.org.sg/CAPS-chapter-four.html#
2Mae, C. S. (2021, November 29). Uniquely Singaporean Ways To Accumulate Wealth. SingSaver. Retrieved March 10, 2022, from https://www.singsaver.com.sg/blog/unique-ways-to-accumulate-wealth
