with Raziah Ahmed
the trade publications by author Stephen Covey, effective
people are characterised by the ability to begin with
the end in mind. Dr Wayne Dyer expounds the same philosophy
in his publications; he calls it end thinking.
In our pursuit of financial independence, we took a simplistic
view of the broad concept of savings last week; today we advance
the concept into the arena called estate creation.
The creation of a savings plan is the genesis of the creation
of an estate. Your plan will reflect your desires and will
be a mirror of your personality. It will be testimony to the
cares and concerns you feel for other human beings, as well
as your own self-esteem. Conversely, your plan may reflect
your self-interests, hang-ups, grievances or your grudging
As human beings, we have a right to enjoyment of the good
things of this world and we have an obligation to earn that
enjoyment by virtue of fair work. We also have an obligation
to leave a decent estate for our heirs, since the family would
not die off when we do. Survivors remain and we leave them
better off or worse off; it's all about being proactive; it's
about end thinking.
An estate is comprised of all the property you own. Property
is divided into two broad headings: real property and personal
property. Real property is land and anything on the land that
is affixed to it, attached or growing. Personal property is
Personal property is divided into two sub-headings: tangible
property and intangible property. Tangible property is that
which has an intrinsic value; it is the thing itself, such
as a car, furniture and jewelry.
Intangible property has no intrinsic value. Its value, however,
is represented by physical objects, commonly pieces of paper,
eg. a certificate of deposit (CD), a stock certificate or
an insurance policy contract. The value that is represented
can be very significant indeed and tally to millions of dollars.
The sequence in which you create the estate will vary but
it does begin with some holding of cash. The acquisition of
tangible property normally requires cash outlay as well as
liabilities. The liabilities are twofold: first you may leverage
your income by getting a loan, thus creating debt; and secondly
you should be bound to maintain and/or develop the property,
which also requires cash.
Saving after-tax dollars in bank accounts, acquiring property,
and so on, normally equate to saving fair dollar value exchanges,
that is you save a dollar and you exchange it for a dollar's
worth of property.
Life insurance contracts offer a unique opportunity to create
an estate without an exact dollar exchange. How is this possible?
The main element of this contract is a promise to pay, upon
the death of the insured, a predetermined sum in exchange
for monthly premiums.
Assuming that a 25-year-old female has a premium of $200 per
month, which purchases a policy with a death benefit of $200,000,
should the insured die in the second month, the policy should
pay $200,000. The estate thus created is $200,000 in cash
But young people do not buy insurance because they will die
soon. They buy insurance typically because they want collateral
to buy property for estate creation. It is about ambition.
As Dyer says in his 2004 publication, The Power Of Intention:
If you don't believe that you're worthy of fulfilling
your intentions for health, wealth... then you're creating
an obstacle that will inhibit the flow of creative energy
into your daily life."
Continued next week
* Raziah Ahmed is a registered financial consultant