By Efren Ll. Cruz, RFP®
What better way to launch our maiden blog for this website than with a bang! So let’s not talk about being just millionaires. Instead, let’s tackle the steps for becoming multi-millionaires.
You would probably be surprised if I say that the steps for becoming multi-millionaires have been in existence since man first walked on the planet. It is just that it was only in recent times that these steps had been articulated and put in a structured form. And what form would that be? Why in the “CD-RW management pillars©” of personal finance of course. CD-RW stands for Cash, Debt, Risk and Wealth management.
To start on the road to becoming a multi-millionaire, you need to learn and practice the art of Cash management. Knowing where the bulk of your money comes from, where it goes and the timing of such flows will not only give you confidence but will also avoid for you fund shortage surprises.
Knowing your cash flows will also allow you to practice effective Debt management. Surprises brought on by fund shortages will compel you to take on easy to avail but high interest loans, with some rates being as high as 300% p.a. Five-six is one type of borrowing where the low daily amortizations mask the high effective interest rates.
Once you have gotten a firm grip on your cash flow and debts, you should now minimize the downside to personal finance by practicing Risk management. We all know that the chance of passing away is 100%. We just don’t know when your appointed time is. So don’t let your family get caught flat-footed by having inadequate and, much worse, no life insurance protection. By nature, humans are risk averse. We dread losses. So why not mitigate that fear by protection from the loss of a most valuable thing in this world.
Finally and only after you have protected your downside, should you start to think about practicing Wealth management. Wealth management involves not only investing in financial securities like stocks, bonds, currencies and commodities but also in a business.
CD-RW management has to be practiced in precisely that order. Do not invest if you have not yet protected your downside. Do not buy life insurance if you still have enormous debts to bring down to more manageable levels. And do not incur debts if you still do not know how to manage your cash flow.
Money can be intoxicating and addicting. But there’s a secret to avoiding such side effects as I will reveal through a story about a host of one of our talks who was bringing us back to the airport.
In leaving the hotel, we needed to pass a narrow strip of two-way street, which was also being used by giant delivery trucks by the mall across the street. We could not get out of the road because a large truck was blocking our path. Moreover, other vehicles started to pour into the street from the main road despite seeing the traffic jam. The situation prompted our host to make a simple but meaningful remark. He said that in situations such as this, the cardinal rule is that you must first give way to those who are exiting, before others can enter.
Our host struck a chord and led me to realize that what he said was actually applicable to the larger things in life. Just observe how successful businesses first invest heavily in providing that product or service that can best answer the need of their target customers before they can reap the rewards. Money has to flow out first before it flows in.
The same is true with growing your wealth. Learn how to figuratively empty yourself first for others and then you will see riches beyond your wildest dreams. Be selfish and see how what you may have earned at the start will quickly fade away.
As they say, money is like butter – it is useless if it is not spread.
Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author of “Pwede Na! The Complete Pinoy Guide to Personal Finance” and bestselling co-author of “Pwede Na! The Complete Pinoy Guide to Retirement and Estate Planning”. Questions about this blog may be posted here, sent by SMS to 0917-505-0709 or emailed to efren@personalfinance.ph.