LESSON 1. SAVE first, then SPEND
Most people spend first then save what’s left. Too often, you have nothing left to save because you’ve spent it all. If you save first, then spend what’s left, you are on your way to being wealthy.
LESSON 2. EMERGENCY FUND
What happens if you lose your job? What happens if you have to go on sick leave for two months without pay?
Setting aside an emergency fund worth six months of your salary should be enough to tide you over for short-term emergencies. If you followed lesson 1, and are able to set aside say 10% of your salary every month, it will take you 60 months (5 years!) to accumulate a 6-months-salary emergency fund. If you save 50% of your salary, it will take you 12 months to accumulate the emergency fund. So save as big a slice of your salary as you can to build that fund.
LESSON 3. CRITICAL ILLNESS FUND
What happens if you suffer from a heart attack, stroke or cancer? Do you have at least P1 Million for surgery and treatment?
People who have accumulated some assets, end up selling those assets to cope with such a medical tragedy. If they have businesses, they end up selling their business or a huge part of their business so they can generate the funds to cope with the medical bills.
For those who have limited assets, they end up borrowing from family, relatives, and friends, shifting the heavy burden to those people.
Any financial planner worth his salt will tell you one thing to prevent such a financial tragedy from happening – get insurance!
LESSON 4. INVEST WHAT YOU CAN RISK
Now that you have some savings, set aside some of those savings for INVESTMENT. What’s the difference between savings and investments? Savings are geared towards PRESERVING your money, whereas investments are geared towards GROWING your money. Investment carries risks. The higher the risk, the higher the potential reward. Pick investments that suit your risk appetite. The younger you are, the more risk you can afford. As you get older, shift your portfolio towards less riskier investments.
LESSON 5. PRESERVE WHAT YOU HAVE ACCUMULATED
You’ve now accumulated your wealth, and protected it against emergencies and against major financial loss due to medical reasons. You should now consider preserving your wealth for your children and grand children. The government will eventually impose an ESTATE TAX on your wealth. Have a plan in place to protect and preserve your wealth for the next generation.