Financial Literacy

When I joined IMG, I was taught that a majority of senior citizens in the Philippines are dependent on their children and relatives, on the government (their pensions) and some are still working, not because they want to, but because they need to, for the sustenance of their needs.  Only a small percentage of these people are financially independent.  And it scared me to think that I will end up with the majority.  The question is, what do these financially independent people have that the majority doesn't have?  What did they do that the majority did not?
Obviously, they have the money, they had their goals and they acted on them, they had discipline, and most importantly, they had the right information.
And this was what they shared with me. 


First, I came to learn of the X-curve concept.

Our financial life , they say, is governed by two lines - the money line and the responsibility line.  At the onset, when we started working, we depend on our salaries for our needs.  Temporary and permanent needs.  These are food, clothing, shelter, debts, education and healthcare.  These needs fall on the responsibility line.  And our salaries on the money line.  These two lines make an X because we need to increase our money line and decrease the responsibility line over time.  As we grow older, our responsibility line decreases.  Our debts may have been paid by that time, and the kids have grown and finished school.  But our basic needs are still there: food, clothing, shelter and most importantly, healthcare.  And we are past our productive years, or we no longer have income to support our needs.  We come to realize that our salaries are temporary solutions to our permanent needs.
First step to increase our money line is to set a goal - how much money (BIG MONEY) do you want to have  by age 50? 60? Or whenever you wish to retire?

There are also two scenarios or "what ifs" we need to think about:
1.  What if we die too soon?
What will happen to our families?  Specially if we are the breadwinners, who will take care of their needs when we're gone?  The answer to this scenario is to have an insurance as income replacement which will help our beneficiaries until they get back on their feet.  Salaries are active income, meaning we get paid because we give service.  We are working for money.  No work, no pay.


2.  What if we live too long?
We don't want to be counted in the 98% of senior citizens , for sure!  The answer to this scenario is to have Investments, where we can live on interest alone by the time we retire or no longer wish to work.  This is passive income, where money is now working for us.
And this I will write about on my next post. 
Hang in there!

Five Equations for Financial Well-being

A colleague of mine sent me this through e-mail.  This is really awesome and worth sharing.  I have already shared this with my Facebook friends and hopefully, they will read it through and realize the need of saving for the rainy days.  

Five Equations for Financial Well-being

New years are befitting of great beginnings. As you promise to exorcise personal demons and execute a new world order, have you looked at how much you’re really worth? Ultimately, changes command financial viability – so be armed with the five financial equations below.

I. Savings » A Sustainable Bank Accounts

Proper partition of income and allowances is key to a bank account that actually grows, not merely dwindle. Here’s a simple equation:

Income – Savings = Expenditure

Or if you want to be snide about it:

Reality – Delusion x Sacrifices = Money for a Rainy day

Cutting corners is a good step towards liquidity. Substitute brand name products (clothes, food, even shoes) for cheaper alternatives. Living within one’s means should not equate to a vow of poverty. It’s more like allocating your resources properly, instead of wasting too much on unnecessary stuff.

II. Investments » Make Money Work For You

A crusade to the stock market may be cheaper nowadays, but it is not for the faint of heart. To know your investment appetite, use this formula:

Disposable Cash / Risks = Investment Appetite (Low, Average, High)

Taking in your Investment Appetite, identify your kind of mutual fund:

Investment Appetite + Purpose = Your Mutual Fund

Mutual funds are perfect for financially naïve investors, which accounts for everyone but those from the financial service sector. You not only let your money work for you, but you get the wisdom of an investment manager for a fraction of the cost.

III. Insurance » Living Protection

Long has it been established that insurance is for the living, not for the dead. Before your own financial grave starts getting deeper, keep this in mind:

Beneficiaries x Dreams = Insurance Policy

Of course, if you’re feeling a wee bit selfish:

Personal Worth / Beneficiaries = Insurance Policy

Insurance policies have already adapted to the changing times, where consumers need not wait a lifetime to enjoy its benefits. Whether you want long-term or short-term, traditional or laced with investments, you can easily find the perfect fit for your dreams.

IV. Health Plan » Best Medicine

An apple a day may keep the doctor away, and a reliable medical plan can stave off monetary destitution. Prove that your health is wealth by:

Lifestyle x History (Dependents) = Health Plan

But if a scare tactic is what drives your determination:

Vices + Virtues / Responsibilities = Health Plan

Hospital bills can easily eat up your rainy day fund. Diagnostic exams can also put a big dent to your budget. And we’re still not talking about emergency procedures due to accidents. Save your loved ones from these woes by availing of a health plan that suits your lifestyle.

V. Retirement » All of the Above

Your nest egg is that comfortable place in the not-so-far future, where the knees are weak but the pockets are still deep. No matter what equation you choose to adapt, you can finally achieve:

Savings + Investment + Insurance / Health Plan = Security

Oh for goodness sake’s, here’s a more truthful formulation:

Life – Savings – Investment – Insurance – Health Plan = Insecure You

From: http://www.itstime.com.ph/2011/02/five-equations-for-financial-wellbeing 

Idol

Why have I not heard of him when I was younger?  This man's wisdom is truly worth sharing.  Let's take it to heart.