Sunday 17th April, 2005

 

A millionaire by 40

 
 
 
 
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Money Matters
with
Raziah Ahmed

There was an eagle’s egg that was placed in a chicken's nest. When it hatched, it grew up like other chickens, picking and scratching for food. One day he raised his head and saw in the sky an eagle, soaring high, and wished he could fly. But he didn't try!

We have been looking at ways to transfer assets by means of a will, today we backtrack, and explore some ways to develop and grow assets so we get to leave a legacy.

The reason that 20 per cent of the people own the best assets, and are financially independent, while the other 80 do not seem to cut it, goes way beyond the Pareto rules.

Pareto postulated that 20 per cent of the people are responsible for 80 per cent of the problems, but the converse is also true, 20 per cent of the people do 80 per cent of the work, and that is because only 20 per cent of us plan.

The first step in planning is the choice: do I want to be in the top 20 percentile, or am I the laid-back type, in the 80 per cent group?

You can look at wealth creation as a project. In project management there are three important aspects: planning, scheduling, and controlling. Many of us lack follow-through, and fail in the control aspect.

Control is about monitoring, comparing results, revising the schedule, and the plan, taking corrective action, and deferred gratification.

The famous marshmallows experiment was a longitudinal study (conducted over may years) of preschool children, who were given a choice. The choice was either to have one marshmallow now, or to wait until the end of the session and collect two marshmallows.

Those children who waited for the two marshmallows did better at school, got better jobs, had more stable marriages, and were more in control of their lives as adults.

So among the many and varied plans that we make, here's a supernova.

When it looks impossible for your own self, do a volte face and make the dream come true for your child: turn your daughter into an heiress.

A 30-year-old female can set up an annuity contributing $450 per month. At the best rates on the market, in 30 years, the fund will have accumulated to more than one million dollars, other things being equal.

A 35-year-old can contribute $550 per month and after 30 years accumulate in excess of one million dollars.

Of course we have not factored inflation rates and currency power, but the present value of $1 million, 30 years from now, at an investment return of 10.5 per cent per annum, is just about $50,020.

So if it is easier to deposit that lumpsum into a high yielding individual annuity (you pay nothing else) you can create an heiress in your daughter. If your daughter is 10 years old now, she'll be a millionaire by her age 40.

Of course you will have to set up a trust fund for her to ensure that cash disbursements are staggered, because you don't want greedy young suitors at your doorstep.

There was once a chicken's egg that was placed by a hunter in an eagle's nest. The egg hatched, and the little chicken grew thinking he was an eagle.

One day, mama eagle took her young ones to the edge of the crag, and one by one they flew off into the sky. The little chicken, walked gingerly to the edge, flapped his wings, and fell 1,500 feet! Hunters down below, thought it was road kill!

The lesson for us, don't fail to try, but don't be fooled by others around you either!

—Raziah Ahmed is a registered financial consultant

©2004-2005 Trinidad Publishing Company Limited

Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell