PIME 002: Where to Start Your Journey to Financial Independence?

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.

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Financial Literacy: Where Should You Start Your Journey?

Here’s the truth – we often realise the need to educate ourselves about money at different ages of our lives.

Some people realise it early in their lives, some at the middle of the road, and some due to the pressure of upcoming retirement.

With these diversities, how would we even know where to start our journey to financial literacy?

I. First, we have to understand what MONEY is.

It’s a tool, a commodity, that we use to exchange for products or services.

Money by itself is neither GOOD nor EVIL. Thus, the saying “Money is the root of evil” is a complete fallacy.

How we use it and what do we do with it is the one with morality. We either use it for good intentions or for the wrong reasons.

Firearms are used by soldiers to protect a nation. It’s also used by terrorist to spread terror. Firearms are neither good, nor bad by itself.

We use knives as a tool in cooking, to feed people. Some use it as a weapon on crimes. Knives are neither good, nor bad.

Money is a tool. Nothing more, nothing less.

II. The Goal is to have a plan.

We can look at money as grease to a machinery, and our lives as the systems to those machines.

The main goal is to keep the grease flowing (easing friction), to have sufficient grease flowing from one system to the next (Investing), while ensuring possible leaks are covered (Insurance).

In short, the goal is to look into our own lives and prepare for what’s ahead (Plan A), while looking outside and to those lives connected and dependent to us just in case life turns out different from what we have expected (Plan B).

There is no one-size-fit-all Financial Plan. That’s why it’s very important to assess ourselves – the things that we have, the things that we might have in the future, and the things that we may lose when we don’t reach the future.

III. We’ll eventually learn and look for instruments that we can use to address different areas of our lives.

Financial literacy is not just about investments, nor just about insurance, nor savings.

It’s a combination of all of these instruments in consideration to several factors of our lives – age, personality, dependents, financial resources, and more.

It’s about how to handle money as a tool, and make it work towards the attainment of what we want to happen in our lives – ensuring that they will happen, with or without us.

If you are just starting this journey, it’s true that there is still a long way ahead, with a lot of things to learn. And it will never end.

But as we go along this journey, we’ll eventually realise that it’s not really about the money. It’s really about getting it out of the way so we can focus on the things (people and relationships) that really matter.