Good News: You don’t need to strike lottery to be rich. Neither do you need to hold three jobs simultaneously or stay in the office till midnight. In fact, experts say that following just five easy money rules will put you in control of your cash, for life.
Pay Yourself First
Most of us try to save what’s left over at the end of the month – but nothing is ever left! So before you pay other bills, set aside a portion to “pay” yourself first – that’s your savings, and the basis of your investment plan. Most bankers advise you to put aside 10 to 15 per cent of your income per month and aim to build an emergency fund. It should be cash or easily accessible. This emergency fund will come in handy should you lose your job or face a large medical bill. As a general rule, set aside three to six months of your monthly salary.
* Pay yourself first, into a separate account
* Aim to set aside 10 percent of your salary.
* Start now, so you can benefit from compound interest. It is easier to save $50 a month for 10 years than try to save $5000 a month for 2 years
If you put all your money into a low-interest savings account, you will be sacrificing growth for your security. As we are living longer, investing becomes crucial for our retirement. Without careful planning, many of us could outlive our savings.
There is a wide range of investment products available for different objectives, If you are a first-time investor, list your goals, income and bills, then speak to various financial advisers. You can visit your bank, but also consider independent financial advisers. Don’t be shy to ask questions. Remember, anyone who talks down to you doesn’t deserve your money.
* Develop an investment plan with clear objectives, including how much money you need, and when you will want it.
* Understand your risk tolerance level – shares have a high-risk profile, so do not put all your money in the stock market if you can’t afford to lose it all
* Do not put all your eggs in one basket: diversify your investments
Build Your Safety Net
Financial safety nets are vital. A common perception among many people is that they can get insurance later, when they can afford it. But an important point to note is that premiums get more expensive as people get older.
There is no set rule on how much you should spend on insurance, which can cover your life, mortgage or health, but most experts recommend coverage of at least 8 to 10 times your annual income.
As a rule of thumb, you should spend about 10 percent of your disposable income on insurance, but this will vary with one’s lifestyle and stage in life. You should not overlook the importance of medical and critical illness plans, which should be more crucial than protection for loss of income and lifestyle.
* The sooner you take up cover, the better, as you pay lower premiums
* Adapt your insurance needs throughout your life. Getting married, for example, requires a different plan from when you are starting a family.
Because of their convenience, credit cards are a popular form of payment these days. They are also a useful money management tool – allowing you to make purchases you will only have to pay for 25 days later.
But when deciding on a new card, are you more likely to look at its reward points, privileges and freebies? Or are you also comparing fees and interest charges? It is important to compare credit cards terms and costs so you can select the card that will give you the features and terms which best meet your needs.
* Compare the interest rates of credit cards. When you sign up for a new card, you get a low promotional interest rate. But this lasts only for a specified period. Find out what the normal rate is. How does this bank compare with others?
* Review all charges for each credit card. Besides interest, there may be annual fees, late payment fees, or fees to participate in a rewards program.
Wills – Prepare for a future without you
Will is one of the most important legal documents you will ever sign. It sets out your wishes on how your assets should be distributed after your death.
A will should be drafted as soon as a person has assets. If you do not have one, the appropriate authority will step in. Usually, the authority will take years to sort out assets, leaving a family in hardship while much-needed funds are tied up. And if next-of-kin can’t be traced, the state gets the money. Wills make things easier and prevent squabbles.
* Your will must be witnessed simultaneously by 2 non-beneficiaries aged above 21. (This may vary depending on the country you reside in)
* You don’t need a lawyer to draft your will, but he can ensure it’s legally valid and clear.
Augustine Wu – I Want Financial Freedom