Last Updated on December 12, 2020 by Rat Race Running
Back in 2015, I was invited by a friend to attend a financial literacy seminar in Makati.
During that time, I was just starting out in the corporate world and still learning many things. And personal finance was one of the topics that caught my attention.
That seminar was an eye-opener for me. I realized that having a stable job is not enough, and working for the next forty-or-so years is not the route for me if I am to live a more meaningful life.
I remembered the Parable of the Wise and Foolish Builders. One man built his house upon the sand, while the other built his house upon a rock. So when the rain, flood, and wind came, the house built on a stronger foundation remained. (Matthew 7:24–27)
Just like in construction, you need to build a strong foundation for your personal finance.
This diagram shows a proper money management hierarchy based on IMG‘s Building Blocks of a Financial Foundation.
This is where we should focus on personalizing our personal finance. Like Maslow’s Hierarchy of Needs, personal finance should also follow a step-by-step process.
The first block and the foundation of a strong personal finance is our self. We may earn a high salary, but if our health fails us and force us to stop working without a healthcare insurance, things will be difficult.
HMOs are usually provided for private company employees and can cover many health-related expenses but only for a short time or until you stop working. That is why we also need long-term healthcare in case we live longer.
Depending on your lifestyle and hereditary illnesses, your healthcare coverage should also be personalized for your needs.
Getting healthcare insurance is more important if you are a freelancer since you don’t have access to comprehensive HMO benefits or even PhilHealth.
Life Insurance may be more popular now because many insurance agents are doing cold-contacts. But insurance is more important than most of us think.
It is more than just buying something that you may not use. Essentially, purchasing insurance is a transfer of risk.
You are transferring risk away from yourself and to the insurance company. It is like buying peace of mind that your family would not be financially burdened if anything happens to you.
Isn’t it ironic that many people buy home insurance, car insurance, even travel insurance but not life insurance? This step is crucial, especially if you have a family or you are a breadwinner.
In case of untimely demise, the financial burden should not be added to the emotional stress that they will going through.
There are so many insurance in the market, and it should be tailor-fitted to you and your family’s needs. Insurance agents are trained to prioritize the needs of their clients more than their commission.
If you are still uninsured, contact your trusted insurance agent-friend immediately.
The most important insurance.
If life insurance is often neglected, there is one other insurance that holds eternal value. That is the soul insurance. If ever we’re to use our life insurance and meet our Maker, I hope that you’ll also have the assurance of salvation through faith in the Lord Jesus Christ.
There is a peace and assurance that only God can give.
For God so loved the world that He gave His only begotten Son, that whoever believes in Him should not perish but have everlasting lifeJohn 3:16 (NKJV)
6 Be anxious for nothing, but in everything by prayer and supplication, with thanksgiving, let your requests be made known to God; 7 and the peace of God, which surpasses all understanding, will guard your hearts and minds through Christ Jesus.Philippians 4:6-7 (NKJV)
3. Debt Management
Some say that there are good debt and bad debt. Good debt has potential return like a business loan while bad debts have no potential return such as online shopping credit card debts and personal loans. But personally, I want to avoid any kind of debt as much as possible.
Debt culture is one of the deeply embedded approaches of Filipinos to money.
I’ve seen this both in private and government employees. Most of the time, the debt is not caused by the lack of salary; but instead, it is the lack of financial education and discipline.
If you are currently coping with debt-related stress, you should read the “snowball method” of Dave Ramsey.
4. Emergency Fund
The emergency fund is your financial safety net if unexpected things happen. These unforeseen events can derail your finances like losing a job, an immediate house repair, or getting sick.
As a rule of thumb, your emergency fund is three to six months worth of your income. I already wrote a separate article on how to save for your emergency fund here.
Most people don’t trust the process and go directly to investment. Maybe because there is a feeling of prestige when you say that you have an investment. But in reality, if your financial foundation is not built correctly, one major incident can wipe all your hard-earned investments.
Your investment should match your need, your current situation, your skillset, your budget, your personality, and many more.
Proper wealth management needs a proper understanding of this basic concept.
Sure, it seems nice to have an investment early on, but we’re living in uncertain times. Unexpected events can happen that can be very damaging financially.
Following the proper steps can be frustrating. You may even feel that you’re wasting time by not investing immediately. But there is a reason why following these steps are crucial – they are safety nets from different unfortunate events.
Trust the process.