In Why do we need financial planing, we talked about the importance of financial planing. Next, we will talk about how wealth grows by financial planing.
Firstly, we need to minimize the damage by disasters or accidents, one effective way is insurance. Quite many persons might think buying insurance is not necessary. Their reason is that they pay money to insurance companies in vain if they do not have any accidents If one person has not had any accident in his life, then he would be the most lucky person in the world. In fact, the world is full of dangers.
Your assets are like a castle, insurance is like a moat that protects your assets. When disasters or accidents happen, insurance can protect your asset, the pre-condition is that you should buy insurance.
There are some tactics that help to save money when you plan to buy insurance.
- Had better to put all insurances (car insurance, home insurance, medical insurance, traveling insurance and kids insurance) into one insurance company, it is easy to get some discount.
- Traveling insurance should be yearly insurance, it should be valid no matter where you will travel. If you buy traveling insurance just for one trip, it is more likely you will pay more than yearly traveling insurance.
- Had better to buy kid insurance. If your kids break TV or precious belongings in your home or other person’s home, insurance company will be responsible for the damage. Please remember the problem that can be resolved with money is not a real problem. Sometimes, insurance can save the relationship among you and your friends because of damages by your kids.
After you dig the moat, your assets are still not safe. You need to be vigilant with thieves in your home. In this case, thieves are your loans or debts. Your loan transfers your money to banks in broad daylight. Therefore, you should have a paying off plan.
- If possible, do not apply loan. If you have to apply a loan, cut the loan to a smallest size.
- Pay the loan with the highest interest firstly. And at least, pay the minimum amount every month.
- Refinance your loan with banks. Every year, the central bank adjusts interest rate, so it is possible to negotiate loan interest with local banks.
Even after you pay off your loans, your assets are still not safe because of inflation. Inflation is like a mouse that crushes your money every day. One the average, the inflation is about 3% every year. It means that your assets shrink 3% every year. You need to learn investment to fight against inflation.
- Real estate
- Funds, we will talk about Dollar Average Cost (DAC) with a series of posts.
- Collecting stamps and coins
- Gold and silver
Every investment vehicle can have a profitable return if you are an expert. It means , firstly, you need to invest time to learn. As a rule of thumb, it will take 10000 hours to become an expert in one area. Immediate action!
When you reach here, you should pause. Before you make decision to invest, you should check your account. You should be sure that you have enough money to support you at least half a year. This is very important to you.
- You do not need to sell your investment when you need money.
- If you lose your job, you still have money to buy food.
- You do not need to apply a new loan.