Have you ever thought about setting up a financial plan? How about one that involves the members of your family?
The truth is, financial planning is an optional thing. You can go through life even without any kind of financial plan.
Similarly, you can also travel to a new place without having an itinerary at all. Have you tried travelling that way?
Would you do the same to your finances and your money?
If the answer is no, this article gives you a kick-start on one of the financial planning methods recommended by expert financial planners around the world.
The Pyramid Approach To Financial Planning
At the base of the pyramid are financial plans that should in place no matter what. They include various forms of insurance, emergency funds and short-term savings which intend to address your short-term financial needs and goals.
It answers such question as:
- What happens to my family when I die? Will my children still be able to go to college even if I’m not there to personally do it?
- What happens to my income when I get disabled? Will I still be able to maintain this kind of lifestyle that I currently have when I’m kicked out from work?
- What if my house get burned down by fire?
- Is my cash flow sufficient enough to cover our family’s fixed expenses?
- Am I on-time in paying my credit card and other bills?
Many of these questions are very emotional in nature. If they strike you at the very core, that’s because personal finance has an emotional dimension to it.
But let’s face reality. If you are to be a functioning member of a society that uses money on a daily basis, you need to setup a strong foundation at the base of your wealth building activity. Make sure you have:
- Savings or Checking Account
- Health insurance (medical coverage)
- Auto, Home Owners and liability insurance
- Disability Insurance
- Life Insurance
- Emergency fund
- Short-term Fund (Down Payment for your house, car, or family vacation)
- Debt Management Plans
This stage in your financial plan includes medium to long-term to Savings and Investments. Once you have your cash flow under control and the essential needs are covered, it’s time to shift to a higher gear in your financial plan. On to the Wealth Accumulation Stage, you need to setup:
- Retirement and Pension Funds
- College Education Fund for kids
- Business (for those who are inclined to be in business)
Mutual Funds are one of the most convenient investment vehicles you can use at this stage. There are various types of mutual funds you can invest in to address your medium and long-term financial goals like retirement and educational funds.
Important Note: You can’t afford to be too careless when doing these plans. You’ll soon find out that in the Philippines there are a lot of these so called investment opportunities look very good on the presentation side, but are merely just promises. Be very careful. One of the main motivations I have in putting up this website is for my visitors to avoid such traps and become a real educated investor able to control his own financial affairs.
Once you have accumulated “enough funds” and you feel kind of secure for the future, don’t rest on your laurel yet. The financial challenge is just starting. But first, see to it that you celebrate a little and congratulate yourself for a job well done. You’ve earned that money and it’s time to preserve it.
- umbrella liability insurance
- long-term care insurance
- other insurance
At the end of it all, there will come a time when you finally take a long break from work or business.
Retirement is a little scary for anyone who is used to the daily grind at work. That is a destination we all must share, unless you really want to work for the rest of your life.
And there is the other kind of retirement that we all must face: retirement from life. Rich or poor, famous or not, that’s our common ground.
Assuming you have really reached the peak, what will you do with the money that you have accumulated this far?
It doesn’t take a philosopher to realize that sooner you will be forced to think about this question: “What now?”
Should you spend it all by visiting the new 1000 places to see before you die?
Should you leave a legacy to your children and their children’s children?
Would you like to give some to your favorite charity?
This is the stage where you begin to answer such questions and you address through:
- Retirement planning
- Estate planning
There are many ways to approach financial planning, but most financial planners recommend using the Financial Planning Pyramid Approach shown above.
The nice thing about following this method is that you don’t miss out of the most essential parts starting at the bottom and then get more and more sophisticated as you go all the way up to address those higher financial needs.
Keep this in mind when approaching your own financial plan.