The number one problem in today's generation and economy is the lack of financial literacy. Even if you are now investing since you've learned about stocks, mutual funds, UITF and the like, doesn't mean you are financially secure!
Like building a house, you must build a solid financial foundation from the ground up; build it right and strong. Like Maslow’s hierarchy of needs, you can’t immediately proceed to the next level without ample preparation! We can’t put the roof yet without building first the walls and the foundation. In relation to the Maslow’s hierarchy of needs, even if you really want to help a person but if I cover your nose and mouth, your primary attention and effort will be to remove my hand covering your nose and mouth and then you decide whether or not you have the capacity to help another person!
Consider this typical scenario of a not-so-solid financial foundation:
Most new investors will go straight to investments. We get blinded by the opportunity of earning a potentially high pay-out or rate of return that we don't listen or don’t bother to consider a solid financial foundation. Going directly to investments means a financial disaster waiting to happen.
What happens when you get sick? Sudden emergency spend? Death (dok2 sa lamesa)? You take the money in your investments (stocks, pooled funds, real estate..etc..) and in order to pay for your health needs. We must build our financial plan in this order:
0. LEARN OR INVEST IN YOURSELF - This maybe the not so obvious first step; but what if you don't have money? Simple you start learning. Education is what other people do to you, learning is what you do to yourself! Additionally, learning out of necessity is better than learning easily. This requires action, a lot of action.
1. INCREASE CASH (IN)FLOW - Cashflow are Incomings and outgoings of cash, representing the operating activities of an organization or for our case: the capacity to generate income! In order to pay off debts, get a health plan or protection, set-up an emergency fund, one needs money and in order to get more of that is to increase one's capacity to earn income and this can be through: part-time jobs, freelancing, consulting, teaching, speaking engagements, selling products on the side (retail, Insurance, broker..etc..) and the like. Bottom line: Multiple Income Streams.
2. HEALTHCARE - this will cover our medical expenses when we get sick during our working age and when we eventually retire
– Short-term healthcare: provided by our employers while we are employed but stops when we resign, terminated or retire
– Long-term healthcare: medical expenses coverage during our retirement age
3. PROTECTION - In the event something happens to you/me or us (death or disability), our families would receive a certain amount of funds to cover our inability to earn income. This can be addressed by getting a life, disability or income protection insurance. You don't buy insurance for yourself but for those who you leave behind, generally speaking.
4. ELIMINATE BAD DEBT - You can't invest money you can't afford to lose or to be used for something else. Also, you can’t afford to invest if we are burdened with debt. We must settle and eliminate our debt first. If our debts are interest-bearing, the interest will just eat up both our funds and the potential gains from our investments.
5. EMERGENCY FUND - It is a reserved fund to cover our unexpected expenses during emergencies like disasters and job loss. Typically, it must be at least 3 to 6 months of our income OR better of our expense! If one is earning or spending Php10,000.00 per month then we need to have at least Php30,000.00 to Php60,000.00 (or according to your monthly average spend/expense) set aside as our emergency fund that must be kept in a readily accessible bank account.
6. INVESTMENTS - It is highly recommended that the first 4 steps should be addressed first before investing. You can invest in mutual funds, stocks or real estate, franchising or set-up your own start-up business! It's towards the last levels because it is highly volatile and risky when you invest without adequate protection/mitigation (Insurance, Health Plan).
7. ESTATE PLANNING - Though it is not shown in the image above, this step requires you to already finish most of the steps above before you can even consider this part. Estate Planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. Well, you can't take your money when you die and if you don't want the people you leave behind fight for your inheritance, plan it well!
So ask yourselves..
Do you want to have a prosperous life?
Do you want to learn how to increase your cash flow?
Do you want to plan ahead and make a difference in your life?
Do you want to know about building a solid financial foundation?
Financial Wellness, Security and ultimately Freedom is a lifestyle choice. If you are interested of ways to increase your cashflow/income-stream or getting a health plan option, don't be a stranger, we can talk to help and show you how!