I get asked for investment advice often. Usually, those who consult me are people who recently received a large amount of money and don’t know where to put it.
It’s easy to just recommend the stock market or pooled funds to them, but I don’t, because I believe such financial decisions should be based upon each individual’s goals and unique
circumstance in life.
So I try to get to know them better before I give any advice, and it’s too common for me to discover that most of them don’t even have an emergency fund to start with and, thus, making any investment suggestion dangerous and unnecessary.
Because when they suddenly need money, their only source of funds would be the investments, which might not have had enough time yet to grow.
Frequently, people seriously think about money management only when they are in deep financial trouble or, in this case, when they suddenly get a large sum of cash.
When your finances are neither good nor bad, people tend to just course through life hoping that no financial disaster or emergency happens along the way.
Don’t just trust what you see and feel
I have a friend who looks healthy but, despite his well-built frame, he has hypertension.
He doesn’t exhibit any symptoms, and he feels totally fine; then, one day, he had a mild stroke that gave him a wake-up call to his poor lifestyle.
My friend spends a fair amount of time exercising, but his bad diet, frequent drinking and stressful work schedule have compromised his health—slowly but surely—over the years.
If he only took the time to get regular medical checkups, then he could have managed his rising cholesterol level and bad lipid profile earlier.
So why am I telling you this? Because our financial health is the same.
We often wait for symptoms to arise or cash emergencies to happen before we take the necessary steps to manage our finances.
Just because things are going seemingly smooth for us doesn’t mean we’re not headed toward a financial disaster. It requires a regular study of our cashflow, analysis of our assets and liabilities and an examination of our financial habits to factually conclude if we are financially healthy.
First, focus on the basics
My friend is now living a healthier lifestyle and working toward finishing a triathlon by next year.
It’s a big goal, that can only be achieved by starting with the basics—a balanced diet and regular exercise.
Those are his focus now, and once that becomes a habit, he can progressively move toward building his skills, strength and endurance for the triathlon.
We all want to retire comfortably rich in the future.
But that can also only be achieved by focusing first on the very foundation of wealth—making sure that we do not spend more than what we earn.
Start with learning the habit of saving and ensuring that you have adequate financial protection; once this is done, you can now progress toward investing and finding ways to leverage your time and money to build your wealth faster.
That’s how it is properly done. That’s how it should be done.
Fitz Villafuerte is a registered financial planner of RFP Philippines. Learn more about personal financial planning at the 63rd RFP program this July 2017.
To inquire, e-mail [email protected] or text <name><e-mail> <RFP> at 0917-9689774.