My Two Cents on Financial Literacy





"The single biggest difference between financial success and financial failure is how well you manage your money. It's simple; to master money, you must manage money."
T. Harv Eker, Secrets of the Millionaire Mind

You might be wondering…
Why do we need to manage our money? 
How do we manage our finances? 
Where to start? 
Who can we talk to about this? 

I can help you with that.
Let me share my quick thoughts on financial literacy.

Why do we need to manage our money?

Remember that time when you checked your payroll card or wallet and you're shooketh that you no longer have any money? You can't even remember where or when you've used it... 

...you will be loaning from a friend, a relative or loan institution. Upon receiving your paycheck a portion of it will go to your bills, monthly allowance for your daily needs and wants, and to DEBTS. You will be short of funds again and the process continues that it has been a routine. 

YOU WORK TO PAY YOUR DEBTS.

Without effective money management, we tend to lose track of our expenses. Planning your finances will avoid this to happen, but you need to set your priorities first to achieve this. Just like in school you need to follow rules and develop self-discipline.

How do we manage our money?

For me, the best take on this is to keep track of our cashflow. Cashflow is the movement of your money, in other words, your Income and Expenses. We should always be mindful of the things that are coming in and out of our pocket.
Do not spend on something that you cannot afford or is over your income. This will lead you to debt and interests, you will just realize that you're buried six feet under the ground because of spending something that is way out of your cashflow. Make a list of your wants and needs and think multiple times before you buy something.

Where to start?

There are a lot of institutions where you can save or invest your money. With financial planning, we have a pyramid that you can use as a guide in starting your journey to financial freedom. 

First, you need to build the base of your pyramid which is for PROTECTION. This will give you a good foundation in having financial stability for those just in case moments. Start by reducing your debts. Build your emergency fund, it's basically a savings account that you will use in dire need. Most people start with an emergency fund worth 6 months of their monthly expenses. Insurance is for your protection whether it be for critical illness, disability or untimely death.

Second, SAVINGS AND WEALTH ACCUMULATION, this is where you will start saving and building your wealth and investments. This phase includes buying a new home,, investing in pooled funds like UITF's and Mutual Funds, and other low-risk investments. I highly suggest that you continue with phase only if you have completed your foundation which is the PROTECTION.

GROWTH AND DIVERSIFICATION is an extension of the second level of the pyramid. This is where you start building a non-registered investment portfolio's. Investing in blue-chip companies, stock market, bonds are some investment vehicles included in this phase.

SPECULATION is risky and we should be very cautious in investing in it. One good example is buying multiple condominium units with minimal downpayments for the purpose of reselling them quickly at a profit, buying gold investments, or even investing in private partnerships. Again we should be very careful because this is a high-risk investment. 

Once accomplished in investing you will need to plan your estate as well. Many people think it's something that only rich people do. When in fact it's simply a process of getting your affairs in order so it will be easier for your family members when the time comes. Estate planning is something you do for your family. Get it done, and you'll feel better knowing that you've taken care of them.   

Who to talk to?

The best people to talk to regarding managing your finances effectively is a Registered Financial Planner. They are licensed and regulated, plus they take mandatory classes and seminars on different aspects of financial planning. They are well versed with cashflow management, financial risk management, investment planning, estate planning, and insurance planning.

Here are some of the famous financial planners in the Philippines. 


You can also create your own financial plan, there are a lot of blogs available on the internet that can help you start your journey to financial freedom.

Conclusion

Understanding effective financial management can help you prepare for upcoming events in your life, whether you will start a family, planning to buy your dream house, or even starting your own business.

Setting your priorities and proper mindset will help you achieve your goal for financial stability. If you climb your financial pyramid in the specific order and one level at a time, you will have a solid financial plan and be able to bear up against short periods of financial hardship without jeopardizing your long term goals. 

Comments

Post a Comment

Popular Posts