Your Financial Home
Think about the home you own, rent or planning to buy.
What makes you feel safe living in that home?
What makes you feel comfortable to keep all your dear ones under that roof?
What is the most important thing you look while buying a home?
Is it fair to say foundation is the most important thing for home? Then, the pillars roof .. etc. The home also needs continuous maintenance and upgrades. Similar to the physical home you live in, your personal finance also requires a strong foundation and continuous relook and rebalance. Let's call your personal finances as your financial home.
Today we will draw an analogy between your physical home and your financial home.
The text in blue is talking about your physical home and drawing analogy with triangle shaped financial home. Let's discuss each layer of the financial home.
Proper Protection Plan
Similar to foundation, pillars and roof are important to your physical home, proper protection plan is the foundation for our financial home.
The protection plan mainly contains 3 things
Income Generation : If something happens to you, what is the plan for monthly income generation to take care of the family.
Kid's Education : Are you doing monthly recurring saving for Kid's education? If something happens to you, how the Kid's education is funded.
Retirement Savings : Are you saving enough monthly for your retirement goals?
Debt Management
Other than the home mortgage, check whether you have any high interest debts. Have a plan to clear high interest debts.
Emergency Funds
Always have your 6 to 8 months of your family monthly expenditure as liquid cash. This is to handle any unexpected things that include the job loss.
Investment
Once the first 3 things are taken care, we can get into investments like stocks, bonds, real estate, bitcoin .. etc.
Concluding thoughts
Most of us keep lot of cash in the bank and try to invest as much as possible in the stock market. While the stock market investment is 100% subject to market risks, your liquid cash in bank is losing value to inflation. It's important to have proper protection plan and do the debt management first. These 2 steps give you a ticket to go aggressive on your investments.
That's a wrap this week. Happy Learning!
