New definition of 5 Cs:career, comfort, children, consideration and charity

Source: The Malaysian Insider’s, “Think you are rich? Think again… “ by Jeffrey Ong

How do you define wealth or riches? Is having a million dollars in assets
considered wealthy in this day and age?

Today, wealth is commonly defined locally by the “Singapore dream” — or what is more popularly known as the 5Cs — condominium, car, credit card, country club membership and cash. For others, achieving the 5Cs is not a holistic representation of wealth.

While wealth can be perceived in a multitude of ways, it is important to
first debunk the 5Cs myth. Take, for instance, the ownership of condominium and car as a measure of wealth. A condominium may be a sound investment and an appropriate representation of wealth given that it can be an appreciating asset.
However, the investment in private housing should be made after taking into
account an individual’s debt-service ratio — or the percentage of monthly income needed to service long-term liabilities. This typically should be 30 to 50 per cent so that one doesn’t stretch oneself beyond one’s means.

A car, on the other hand, is a depreciating asset. Some may argue that it is
not even an asset but a liability. Also, while investing in a property involves
borrowing for a potentially appreciating asset, in the case of a car, taking out a loan entails borrowing for a depreciating asset. Not a step closer to wealth, you could say.

Take another “C” — the credit card. This again is a questionable symbol
of wealth if it is in the hands of an individual with poor financial planning
skills or one who may be heavily in debt. However, credit cards per se are not bad. Debt traps can be avoided by paying credit card bills on time and in full, without accruing interest and late charges. Used wisely,
credit cards can help an individual plan and manage his or her cash flow more efficiently.

Cash is another “C”. Holding too much cash may not necessarily be wise
given the current low interest rates and high inflationary backdrop that
eats into one’s purchasing power. On the flip side, having very low liquidity is another extreme that should be avoided. This is where having a well
thought-through investment plan diversified across different asset classes
such as bonds, equities and alternative investments — and the advice of a sound financial partner come in. As a general rule of thumb, one should set aside six to eight months of gross income for emergencies.

An increasingly popular notion of wealth goes beyond the traditional
accumulation of material possession to include other aspects of well-being, such as one’s health, quality of relationships, accomplishments, peer recognition, personal impact or legacy. Many immensely wealthy individuals donate vast amounts of their fortune to charitable foundations and notable causes. In doing so, many of them make an impact and leave a powerful legacy beyond their lifetimes.

Others need not miss out on extending their legacy to the next generation — this can still be accomplished via a will or insurance that ensures the next
generation enjoys the wealth for years to come.

It may be that we are much closer today to achieving the other 5Cs as
articulated by then Senior Minister Goh Chok Tong at a National Day dinner last year: career, comfort, children, consideration and charity.

While material possessions and creature comforts are relentlessly pursued by some as symbols of wealth, needing to sustain a lavish lifestyle may not result in net wealth. For others, the fundamentals of real wealth mean living within one’s means or being debt free on the one hand, and leaving an impact on the community on the other. — Today

Jeffrey Ong is the head of Investment Counsellors at Standard
Chartered Bank.

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