Today I will discuss about our personal finances. One should take note that 'personal finance' includes a lot of money topics such as savings, expenses, budgets, insurances, investments, and debts. We should understand that all these topics are not only necessary but that they also affect each other in our goal towards financial security. Thus, here, I will emphasis the importance of building a solid financial foundation so that you and your family will achieve your goal of financial freedom.
*Courtesy of IMG
Let me ask you, shall you invest first or buy an insurance? Well, from the chart above, like building a house, we must build our "financial dream" from
the ground up. Maybe, we can get a hint from the, 6 Steps To Financial Freedom", as well. Let me expound a bit. We have extra money or some savings and if we put it in an investment first, which is normally for the long term ... but we don't have a health insurance or an emergency fund; then, it would be a waste in a way if suddenly we have an emergency like being hospitalized as then you have to take your invested money. What if the market is down so you will be forced to redeem and incur some losses. Therefore, before you think of investing, make sure that you have your emergency fund in place. And before that, you have to settle or eliminate your debts, if you have. Interests on debts, like the credit card is 3.5% per month or about 42% in a year. So, what good is it to have an investment earning 12% but your debt is costing you 42%, yah?
Build it Right, Build it Strong. So, in order for your financial 'house' to be strong and withstand all the problems and stresses in life, we should build it right. And building it right, is following the diagram above. We have to have, first of all, a healthcare insurance as when one gets sick in the family, we are covered. We all hear of stories how devastating it is for families when one gets sick. With the ever increasing cost of hospitalization and medications, one's finances will be shaken or will crumble should one of these dreaded diseases befall upon us or our families. So let's first of all be protected with a health insurance.
Next step, we should protect our income. Our families depends on us for their survival as a whole. And we know for a fact that our life is just borrowed. It is just a matter of when is our time coming. So, what if we die too soon? This is where life insurance is so handy! If the bread-winner or income-earner is insured, then our families would be provided for the lost income that will ensue. They say, "die a hero" ... leaving behind money to your love ones, not debts. To all those who have experienced death of loved ones in the family, you will know that death entails a lot of expenses, from the coffin to the funeral parlor's services, to the snacks and food during the wake, and to the burial ground. And how about the schooling of the kids that are left behind, especially if the other spouse is not working or just a housewife perhaps? Well, life insurance is the best gift you can give to your family in case of an untimely death.
From here, we should start eliminating our Debts. It's just so expensive having debts with all those exorbitant interest rates and fees. Am not against credit cards. It is such a great financial tool, for one; you don't have to carry a lot of cash around when you shop; you need a credit card to pay for online shopping, say like for airfares and hotel bookings; you are able to use the cards money for a month should you dont have the cash now;and then there are the different credit card perks and promos, where one can get freebies. So as long as you pay in full for your credit card and also pay on time, then, it is good. But do away with the 5-6 type of debt, as you are paying 20% interest on that! Another kind of debt that is good, is a bank loan where you use it for business which will bring you income. But never get a bank loan to buy appliances and the like! If you can wait and save up for the thing you want to buy, then the better... delayed gratification is a trait worth practicing in our quest for wealth.
Once we are debt free, we can now start saving for our emergency and investment funds. As my financial mentors thought me, "Income - tithe(10%) - savings (20%) = Expenses
From the 20% savings , you set aside 10% towards your emergency fund and then the other 10% savings, should go towards your long term retirement fund. This is not a hard rule, as you can increase it depending upon your present financial status.
Best of luck to you ... and all of us, in our journey towards financial freedom! Let's all be financially savvy in our finances and retire wealthy!
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