BASIC STEPS TO FINANCIAL SECURITY

People have different goals, risk tolerance, financial resources and personal circumstances (age, marital status, number of dependents). It is therefore important to develop a financial plan that will guide us and give us a financial roadmap to know where we are and where we are heading.

Below are the 6 basic steps towards Financial Security:

1.) SAVE AND INCREASE CASH FLOW 
- the first step is to get a good grip on where your cashflow currently stands and where it is likely to go in the future. You have to master the art of saving. Without any saving or any cashflow, it is impossible for you to achieve financial security.

2.) GET OUT OF DEBT & STAY OUT OF IT 

- getting out of debt & staying out of debt is not easy. If you are buried under a lot of debt, here are five CRUCIAL ACTIONS you need to make (excerpts from Bo Sanchez 8 Secrets of the Truly Rich)

1. Declare Your Freedom Day - write a deadline when you'll be financially free.Call it your freedom day. Read this goal daily, think about it daily, pray for it daily. Sleep with it, walk with it, work with it, eat with it.
2. Create New Ways of Pleasure - Discover new habits of simple joys. Examine your lifestyle. It's time to cut back on things you can do without. Don't spend more than you're actually earning.
3. Schedule Your Steps to Freedom - With your increased savings from simplier lifestyle, sit down and write how much you can set aside each month to pay your debts. Schedule all payments, starting with high-interest loans first. and if you can, transfer high interest loans to low interest loans.
4. Don't Borrow When You Can't Afford It -- PERIOD! - Don't borrow to buy consumer goods ever again. If you don't have money right now to buy it, then don't buy it. If the credit card in your wallet is a huge temptation, then get rid of it until you acquired discipline.
5. Negotiate with Your Creditors - see your creditors regularly -- assure them you'll pay -- but negotiate to reduce their interest rates. 

"Avoid Bad Debt Like Bad Bacteria" - Bo Sanchez

3.) CREATE EMERGENCY FUNDS

- Rule of thumb, every time you receive your salary get 20% and put it into your savings. To create an emergency fund you should have at least 3-6 months of your monthly salary in your bank account. This will be your instant money so when emergency arises, you have no problem borrowing from others.

4.) ENSURE PROPER PROTECTION

- Protect yourself by having a life insurance. If you don't have any, it's a MUST to get one for yourself.  This will be the safety net of your dependents should anything happen to you, most specially to the breadwinner of the family.Here's the formula: Multiply your annual expenses by 10. So if you spend P100,000 a year, you need P1 Million insurance. If you spend P300,000 a year, then you need P3 Million insurance. Idea is in case of death, dependents can live up to 10 years living the same lifestyle with your income.

5.) BUILD LONG TERM SAVINGS

- You've got to start building your retirement fund as EARLY AS YOU CAN! Don't put your Retirement Fund in the BANK, yes you heard me right... not in the BANK. Evaluate Investment Option. Below are the rules to remember.

RULE 1: Don't invest in something you don't understand. This doesn't mean that you should put all your money in a time deposit because that's the only type of investment you know. Educate yourself. Try to understand the investment product that is being sold.

RULE 2: No Risk, No Gain High Net Worth Individual are the ones who are less averse to risk, they have money to cover possible losses. People with less financial resources, tend to have less tolerance for risk. They want to keep their hard earned money in a "safe" place like the bank savings account. But INFLATION (purchasing power of money ) is real! So if you are content with simply saving money in the bank instead of investing it with MUTUAL FUNDS, UITF, STOCK MARKET, BONDS, don't be surprised if you don't achieve your goals. 

RULE 3: Match the investment product with your time horizon. Professional investor have a term for the choice of investment they make based on the amount of returns they want over a given period of time. It is called INVESTMENT TIME HORIZON. You can make the most out of investing by categorizing it according to your needs. These categories are short-term, medium-term and long-term investment. When you invest, you actually invest also in the power of time.Time is the magical element that makes your investments grow. 

RULE 4: Don't put all your eggs in one one basket.  DIVERSIFICATION is the key to managing risk. It pays to spread your money over different types of investments, issues, terms and funds.

6.) PRESERVE YOUR ESTATE

- estate planning is a tool towards managing the transfer of one's properties, personal and real, to the beneficiaries in an efficient way, either during his lifetime or upon his death. Government shares in the properties of the deceased through estate tax. All properties would normally form part of the gross taxable estate for which the government gets a percentage ranging from 5% to 20% depending on the value of the estates. In other words, when you accumulated so much wealth and want to transfer it to your heirs either you or they will have to pay for the estate tax.