Money Optimisation

Money optimisation is the activity of optimising the income and assets that you already have. Money optimisation is also about making your accumulated assets work for you to support your lifestyle. Why Money Optimisation? Without money optimisation, your hard-earned income may not be translated into meaningful savings. Without money optimisation, your hard-earned assets will not grow at an optimal rate. Without money optimisation, your hard-earned assets may not be properly preserved and protected against various risk factors. Without money optimisation, your hard-earned assets may not be deployed effectively and efficiently to support your various needs and wants in life Some people may mistake money optimisation for another area of personal finance, i.e. money management. According to Cambridge Dictionaries Online, money management is the 'activity of organising and investing your own or someone else's money.' However, the process and characteristics of money optimisation is more complex. It involves the following key components:

1. Money optimisation is comprehensive and balanced In addition to budgeting, investing, banking and taxes, money optimisation also includes risk management and estate planning. Risk management is a major component of money optimisation because you do not want maximise your money alone. You need to maximise your money with reasonable risk so that you protect and preserve your accumulated assets at all times. One common mistake Malaysians make is to spend more time on the areas that interest them like investment planning and spend less (or no) time on areas like estate planning or risk management. This imbalanced approach often means that they risk overlooking some opportunities for money optimisation. The eight areas of personal finance that money optimisation covers include: 1. Risk management and insurance 2. Investment planning 3. Education planning 4. Retirement planning 5. Asset protection 6. Estate planning 7. Debt and loan management 8. Tax planning

2. Money optimisation is a holistic approach  You must not look at each of the 8 areas of personal finance in isolation. To optimise your money fully, you must manage each area by taking into account how it will influence and affect other areas of your personal finance. For example, you cannot commit to maximum life insurance premiums without taking into consideration your need to accumulate assets for your retirement. Similarly, you cannot continue to invest in more properties without considering its implication on your ability to repay the loans.

3. Money optimisation is 'Life Goals' driven  You cannot just grow your money for the sake of it. To optimise your money to its fullest potential, you need to link your money optimisation activities to support specific important life goals. Examples of life goals are such as your children's university education, a dream home, a comfortable retirement or your family's financial security. Because money optimisation supports your financial goals throughout your lifetime, it requires you to address it in a longer time perspective than money management.

Money Optimisation & Moneymaking: Finding the Optimal Balance Moneymaking is the activity to generate active income. You may derive an income from your job or business, but to have good moneymaking capability, you must concentrate your time, resources and effort to one area where you do best. For example, a general practitioner focuses his resources to become a heart specialist. He is able to increase his moneymaking capability from medium to high because he is able to charge higher fees for his level of expertise. Likewise, a small business owner increases his moneymaking capability from medium to high when he concentrates his resources and successfully grows his business to become a market leader in his industry. Both Money Optimisation & Moneymaking must work hand in hand in order to achieve financial success. You must not only focus on one, and forget the other. Both are equally important. To show you how tightly money optimisation & moneymaking correlate with each other, we must first understand about the Money Matrix.

The MONEY MATRIX The MONEY MATRIX is a tool created by Yap Ming Hui to help you understand the current state of your finances and how you can move towards financial freedom and, eventually, wealth. Moneymaking Capability: The Y-axis measures a person's moneymaking capability. Specifically, it measures your ability to generate an active income – the higher your moneymaking capability, the more income you generate. Money Optimisation Capability: The X-axis measures a person's money optimisation capability. Specifically, it measures your ability to turn your active income into assets and then use it to support your lifestyle in the most optimal manner. The higher your money optimisation capability, the more assets you will accumulate and preserve. There are 2 reasons why a person's money optimisation ability could be low: 1. The person fails to pay attention or put any effort into money optimisation activities 2. Some effort was made to optimise money, but the results have been disappointing due to limited knowledge and experience. The activities undertaken for money optimisation will vary depending on a person's intention to move towards self sufficient, financially free or wealthy, in the money matrix. A person with high money optimisation capability would most likely gain a very important life lesson – the freedom of choice. He/she can choose to work because he wants to, not because he has to. Discovering Where You Are On the Money Matrix  There are six unique sections in the MONEY MATRIX. Each person belongs to one section and all people in that section share common characteristics. The sections will show you where you are today and will help you chart a course for where you want to be in the future. To understand how the matrix works, you must first comprehend two important points: 1. Your position in the MONEY MATRIX depends on two factors: your moneymaking capability and your money optimisation capability. 2. Your position in the MONEY MATRIX is not static. This means that you can move from one section to another. This movement is also dependent upon your moneymaking capability and your money optimisation capability.

Now, let us look at each section independently within the MONEY MATRIX. Can you find where you are on the MONEY MATIRX? Poor If you have low moneymaking capability and low money optimisation capability, you are in the Poor section of the MONEY MATRIX. Your income is low and you spend most of it taking care of your living expenses. The risk is that you will not be able to take care of your basic living needs if you no longer have your current active income. You will need to depend on someone else financially for your basic survival needs.

Middle Class  If you have medium moneymaking capability and low money optimisation ability, you are in the Middle Class section of the MONEY MATRIX. You have an above average and decent income but you spend most of it maintaining your comfortable lifestyle. The risk is that you will not be able to maintain this lifestyle if you lose your current active income.

Rich If you have high moneymaking ability and low money optimisation capability, your income is very high, but you spend most of it maintaining a luxurious lifestyle and your financial resources are not fully optimised. You will not be able to maintain this lifestyle if unexpected financial disaster strikes and you lose your current source of active income.

Self-Sufficient  If you have low moneymaking capability and high money optimisation capability, you are in the Self-Sufficient section of the MONEY MATRIX. You may have a low income but you manage your personal finances very carefully. You have some money saved up and may have some of it invested wisely. As a result, you manage to accumulate enough assets to ensure your financial survival in the event you lose your active income. You may live a simple life, but you do not have to depend on anyone else for your survival.

Financially Free If you have medium moneymaking capability and high money optimisation capability, you are in the Financially Free section of the MONEY MATRIX. You control your expenses so that they do not grow in tandem with your increasing income. Instead, you capitalise on the opportunities provided by this increase in your income and focus on saving or investing a high percentage of it. As a result, you manage to accumulate a reasonable size of assets to maintain your current living standard. In the event that you stop earning an active income, you will still have enough assets to take care of your living expenses until you die. However, after your demise, your assets and the income generated will be depleted.

Wealthy If you have high moneymaking capability and high money optimisation capability, you are in the Wealthy section of the MONEY MATRIX. You have an extremely high income and enjoy a comfortable, but not luxurious, lifestyle. You turn a very high percentage of your income into savings and invest it wisely. As a result, you manage to accumulate a sizeable amount of wealth that generates a huge amount of passive income for you which is more than enough to cover your living expenses. In addition, you have deployed the necessary measures to protect your wealth, thereby, making it, in theory, last generations. In order to transition through the MONEY MATRIX, you must first determine which of the six (6) sections you are presently at. Next, use the MONEY MATRIX as a guide to help you improve your financial position until you eventually arrive at the strongest financial position, the Wealthy section. Source: yapminghui.com