Starting something always feel difficult and uncomfortable. That’s same for any life experience as it is in money.
In this session, we’ve tackled the first things that we need to understand and accept before really taking the road to financial independence.
Busting the myth: “Money is the root of evil”
Blaming money for most terrible things that happen in life is one of our favourite excuse in failing to manage it correctly. After all, most of us believe that Money is the root of evil.
Contrary that, we have to understand that money is just a tool that does not have life on its own. It is whom who use it has the morality of being good or bad – it us, people.
It is about being a good or a bad person, not a good or a bad money.
In this session, I compared money to a knife.
A knife is a tool often used in cooking our meals – used in cutting meat, chopping vegetables, etc… However, that same knife is used by some people to commit murder and some use it in threatening other people.
Again, there are good and bad people, not good and bad things (money).
The Pillars of Financial Foundation
Once we have accepted that money is just a tool. The next best step is to educate ourselves on how to manage it and how to make it work for us, and not against us (debts).
I. Build an Emergency Fund
We have a habit of giving our own definition of emergencies. The need to buy a luxury bag that is on a DISCOUNT is not an emergency!
Emergency fund aims to safeguard your investments by being the second line of defence in case emergencies happen – the REAL emergencies. I’ve mentioned “second line of defence” since insurance are really the first line defence.
As a rule of thumb, we have to keep at least 3 to 6 months worth of our monthly expenses.
II. Get Protection through Insurance (Life, health, and the necessary non-life)
Insurance stands as our first line of defence to Financial Stress.
During time of need, say you will be hospitalized, or in a vehicular accident, what comes first thing to mind? Insurance, definitely.
Insurance protects us from spending a huge chunk of money during sickness, accidents, and other life’s contingencies. It protects our emergency fund from being spent, avoiding any unnecessary financial stress in the process.
Once both insurance and emergency funds are in place, you’re now ready to invest.
III. Make Money Work for you by Investing
Investments aid us in making our money work for us. We worked so hard to earn money. It’s just right to make money work for us, real hard.
There are various forms of investments. We can invest in our own business, stocks, mutual funds, etc…
Let’s discuss them in future sessions.
IV. Prepare for transferring wealth (Legacy)
After accumulating these wealth, at one point in our lives, we have to transfer them to our heirs/loved ones. If transferring wealth is just as easy as abc, then there’s no need to prepare.
But this is a complex aspect of personal finance, especially if the government is involved.
In the future sessions, let’s talk about Estate Tax.