How Do You Build A Solid Financial Foundation?
January 30
If there is one lesson that I have learned during this pandemic is the importance of being financially prepared in case of a prolonged calamity such as this pandemic. Several times in more than a decade, I tried building up my financial foundation.
However, every time I could save some amount, different emergencies come.
Greetings to you, my awesome sponsors, subscribers, and friends. Probably, by this time you too, have realized the importance of building up your financial foundation. In this time of uncertainty caused by the pandemic, most of our regular means of income have been greatly affected.
A lot of people lost their regular jobs. Some, just to keep their source income have to compromise with their employers to have lowered salaries, with reduced working hours too.
The question is, how can one build or rebuild a strong financial foundation during this time of pandemic?
Looking back
Before the pandemic, I have saved an amount approximately equivalent to three to four months of our monthly expenses.
When the pandemic hit, all of my major sources of income halted. Since I am working only part-time, the extended school break has depleted my savings in a matter of six months. Thankfully, my wife is a public school teacher, so, I was able to stretch out my savings that long.
Thanks To Read.Cash and Noise.Cash
Thankfully, I found read.cash and noise.cash. My earnings from these two platforms have helped me a lot in stabilizing my income.
How Do You Build A Financial Foundation?
What do I mean by a solid financial foundation anyway? Just like when you build a house, the very first thing the engineers do is to lay down a stable foundation. In building a solid financial foundation, you need to build it from the ground up.
Meaning you have to cover the most important first before you go to the next.
The image below shows the structure of a solid financial foundation.
Protection
This means Insurance. This must be your first priority. Let's say, you are saving $300 a month, (that's $10 a day), if something serious happens to you that you can no longer work or earn, your savings will not last long.
This is what I feared when I got admitted to the hospital last April because of the terrible pain that I thought I would die.
Some people insure their cars, houses, and other properties but don't get a life insurance policy. There are several types of insurance. I will only mention only the most important two. Life and medical or health insurance.
Note that traditional life insurance policies are no longer being offered. These days, life insurance policies come with investments. Some even offer different value-added coverage like for accidents, partial or permanent disability, and hospitalization. Different insurance companies have different terms.
As much as possible though, avoid term insurance. Term insurance is a policy that covers one year of protection only. Normally they are for insurance policies that cover accidents only.
The bottom line is, getting an insurance policy will give you peace of mind. If something serious happens to you (God forbid) that you can no longer earn, you will have an income replacement or you can still provide for your family's needs NOW.
I will write more about Insurance policies in the near future.
Debt Management
This is the biggest bane when it comes to personal finance. As much as possible avoid accumulating bad debts. Debts that are used to buy a new 42-inch TV because your neighbor bought one yesterday.
However, if you are in debt, try to get out of debt as soon as possible. Work on the ones with the biggest interest rates first.
Emergency Fund.
As I have mentioned earlier, I was building up my emergency fund before the pandemic started. However, the small amount that I had saved up was depleted in just a matter of months.
Some financial gurus recommend saving up the amount equivalent to three to six months of your income. Some, suggest that you save up based on your monthly expenses. The way I see it, if you are just an average income earner, aim for three to six months' worth of monthly expenses first. But don't stop there when you reach that amount.
You can put your emergency fund in a bank for safekeeping and easy access.
Invest.
Lastly, invest. Investment should be long-term. This is for your future.
You have probably heard a lot of financial gurus and even some authors here saying invest only the amount you are willing to lose. But how much are you willing to lose.
Here are my thoughts on this.
Get protection first, then pay your debts, and then build your emergency fund! After that, you can start investing comfortably. There are various ways you can invest your money. including cryptocurrency.
However, if you remember, I mentioned that life insurance policies these days come with an investment package. This is called Variable Universal Life Insurance or VUL. With VUL, you are assured of what you need for NOW in case something happens, and your money will grow for your future.
I will try to explain these more one by one in the future.
Thanks For Reading
Author's Notes:
I have undergone training in financial planning a few years ago. Though I am not practicing in this field, I am a licensed financial adviser under a Filipino owned insurance company.
The content of this post however is for educational purposes only.
Acknowledgment:
Reference:
Saving Your Future by Xuan Nguyen (c) 2015
Published by www.worldsystembuilder.com
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Lead Image: Created using Inkscape, based on the book mentioned above.
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Bad debts are really dangerous for our financial stability. That is why I always save money before purchasing something that I want.