The instruction manual

Every time I buy something, I make it a point to read the instruction manual putting it into operation. By following the manual, I am sure not to make mistake or damage the item I bought. One day during the ECQ (enhanced community quarantine), my mother sought my help in turning on a mobile phone she borrowed from my brother.

As the gadget was a keypad type and an old one, I had a hard time finding the switch. I tried everything but to no avail. Finally I surrendered and told my mother to ask my brother once he comes back. Later, my mother told me my brother helped her and she showed me how.

That was the problem when I tried to turn it on blindly because I do not have the instruction manual. Had my brother left the phone with the manual, I would have found it easy to operate and not waste time experimenting on how it works. Such is the importance of a manual.

Why is it that when it comes to money, a lot of people are in financial mess? I realized the reason is the same. They do not have the instruction manual on how to manage money. All they know is spending on anything the money they earned. It is similar to my experience with the old mobile phone where I tried to press everything to turn it on. By following the instruction on how to manage money, an individual is sure to use his money wisely to his advantage.

Here are the simple instructions on operating money:

1. Increase income. There are two ways to increase one’s income. One is by decreasing expenses by eliminating the wants through proper budgeting. Cutting down on vices will free up money that can be saved. If money is still not enough, then the only recourse is to free up more time to make more money. Time is money. The more time we allot for an income-generating activity, the more money he can earn.

2. Pay yourself first. This is the principle of saving. One pays all of the supplier of his needs but always forgets to pay the supplier of his finances: himself. By paying himself, he is actually saving money. It is good to save 20 percent of his income. This is similar to the story of Joseph when he governed Egypt. He followed God and instructed all to save 1/5 of the harvest in preparation for the coming drought. It is best to continue saving 20 percent up to the time he accumulates an amount equivalent to six months of living expenses for emergency purposes.

3. Minimize risk. Life is full of risks. Ever since our birth, we face the risk of death or sickness as we are merely mortals. We cannot eliminate risk. We can only manage it to minimize the impact. For the breadwinner, the occurrence of such risks will definitely bring a negative impact on the finances of the family. The only way to negate the impact is by applying for an insurance policy as early as possible. Since insurance is a risk management tool, insurance companies will only accept clients who do not pose a risk to them at the time of application. Remember, when one is alive, his insurance policy is in the safety deposit box. When the time comes that he is in the box, his insurance policy comes alive and replaces his income for the family.

4. Invest for long term goal. After making sure his risks are managed, it is time to prepare for his golden age. As a rule, a person must plan for his retirement starting from the time he receives his first salary. The earlier he does it, the lighter his load will be. He will only be needing a small amount to be invested regularly up to the time he reaches his retirement age. Ignoring this principle will guarantee that he will not be able to retire comfortably or that he will be surely a burden to his children. Remember that the only person who can take care of us in our old age is our younger self today. Just avoid investment that promise quick and big return because it is likely a scam.

5. Wealth transfer. A wise man knows he has to leave his unspent money or assets to the next generation. Failing to do that will only ensure that his children will quarrel over his estate once he dies. Nobody is immune when it comes to issue about money. Even I myself encountered unwise wealth transfer from my late dad. But I did not come to the point of suing my sibling over money. What I got was a real-life lesson that i will not repeat when it is my time to go, I have planned well and even advised my wife on what to do. Whatever we have left will be shared equally by our children. One of the best ways to do it is via insurance.

6. Seek wise counsel. If in doubt, it is best to get advice from experts in managing finances. Always make it a point to review the portfolio annually because there will always be changes in life events.

Just like operating gadgets, by following the simple instructions on handling money, one can be certain that he will not go wrong in his financial journey.

Edmund Lao is registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 84th RFP program this August 2020.

To inquire, e-mail or text <name><e-mail> <RFP> at 0917-9689774.

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