Money has affected every facet of our lives since the day we were born. Unless you are still in the caves, it’s not so hard to agree with Madonna: “We are living in a material world!”
It appears that it would remain this way until our final demise from this world. In between these two life stages, it’s best if one can be in good terms with this thing called money.
Since we will be dealing with money for a much longer period of time, here are some good ways to jump-start your personal financial engine.
“It is a kind of spiritual snobbery that makes people think they can be happy without money.” –Albert Camus
1. Setup An Emergency Fund
Very Important: Think of this as your Touch-Me-Not Money.
This is the single most step you can do with to your financial affairs. Before you do anything foolish with your money, set aside an adequate amount that would serve as your buffer in case of unexpected events that would require the use of money.
How much would be the adequate amount for an emergency fund?
There is no hard and fast rules for this one. Ideally you should set up 6 months up to one year worth of your family’s income for this fund.
2. Get adequate Life Insurance
If you don’t realize yet the importance of Life Insurance, it’s time you do some thinking most especially if you have people who depend on you for financial support — like your children, your spouse, etc.
The untimely death of a breadwinner could become the family’s ultimate crisis if the family is caught unprepared for its happening. A lot of similar sad stories are all too common. This is something every conscientious parent or family provider should consider.
Those with higher Financial IQ understand that Life Insurance is an essential tool Financial Planning. It can even be argued that it is a short-cut to achieving your financial goal, should the dreaded event happen… knock on wood.
3. Investor, Know Thy Self
It would be foolish if you just keep your money under the mattress. A better alternative is to dig a hole and bury it underground.
Heheh… Just kidding.
Eventually you will find a way of safekeeping your money, preserving its value and even letting it grow. Now we’re talking investments already.
But before you fantasize of becoming the next Warren Buffet, it would be in your favor to heed the advice of the Oracle from Delphi: “Man Know Thyself.”
I’m talking about understanding your Risk Profile. Some people call it Risk Appetite. It’s one of the biggest challenges you will have to face is yourself. In other words, your attitude towards risk.
Basically, investors can be grouped into three broad categories: Conservative, Aggressive and Moderate – with moderate referring to the fact that he is somewhere in between the two extremes.
Answer this very quickly: What kind of investor are you?
Investment companies and advisors can hand you a questionnaire that would help you evaluate your risk profile. But this reality remains: The only person who really knows you is YOU.
There are a lot of investment vehicles available to you and each one has an associated risk that goes with it. Knowing the kind of investor that you are gives you a clearer picture of the kind of investment you can take — that hopefully gives you a good night sleep.
( See also: How to grow your money in a Mutual Fund? )
4. Set Your Investment Goals
“Money is a great friend, once you send it off to work. It puts extra cash in your pocket without your having to lift a finger.” — Peter Lynch, Learn To Earn
Singing to yourself, “I wanna be a billionaire so freaking bad” every morning when you wake up may provide you with that badly needed motivational high, but it simply doesn’t work that way.
Setting a financial goal is answering the a question of how much and when. How much money do you want to accumulate and when do you want to get it? It’s a good starting point than just shooting for a random target.
( See also: Investing vs Saving — Which one takes you closer to your goal? )
How successful you are in reaching your goal involves depends on so many factors such as the following:
- Inflation
- Rate of return
- Your current assets
- Lump sum investment
- Regular monthly investment
- The country’s economy and political situations
I could list some other reasons, but the point is, your financial goal should NOT be etched in stone. You have to allow for some flexibility so you won’t beat yourself up in times of financial crisis or when things beyond your control happen, as they always do when you least expect it.
And of course, don’t forget to pat yourself at the back once you reach your goal.
