Investing101: The Basics of Financial Freedom

I love to travel. I love to go shopping. I love to dine and taste different kinds of food. I want to experience what life has to offer. But with my measly income, how can I experience all of this? I'm not even a fan of credit cards and I obviously don't want to be buried in debts just to cater to these wants.

Besides, I'm not getting any younger. I'm already in my late 20s. Five years from now I have plans of settling down (in God's will). I also want to own a house, send my children to good schools and live a comfortable life without thinking much about financial problems. I don't want to work 24/7 a day and live in complete poverty. I want to enjoy my life..financially free to be exact.

But the big question is.. HOW?

When I was in school, everyone would tell me that I need to study hard. Why? So I can finish school and get a good job afterwards. No one encouraged me to try and pursue having my own business. The old mentality of Filipino families is that when you have good education, you are guaranteed to get a good job, you can work abroad and earn good dollars. Funny thing is, not everyone who works abroad earn good dollars. Not everyone has the same rags-to-riches story after working abroad.

So how can I be financially free? From reading tons of articles, I found these easy steps that I'm currently following...and hopefully will continue to do so. *crossesfingers*

STEP 1 is important. KNOW ONESELF. Knowing one's goals in life is important. On my part I would have this little notebook to write down all the things that I want to accomplish and that includes being financially free in the near future. Somehow seeing my goal written down motivates me and obviously this gives a positive sense of inspiration to achieve that objective. My target goal: earn Php XX millions after 5 years. Too big? I don't care.

STEP 2 is obvious. CLEARING ALL DEBTS. Thankfully though I don't have any credit cards, loans or personal debt from anyone. I'm not saying that Credit cards are bad, since they're handy especially if you need instant cash, but based from my Mom's experience -- the interest rate will eat you up. (As of this writing the rate is around ~3% a month of your total accumulated expenses) For example you have Php 30,000 debt on you credit card and you have to pay Php~900 (interest rate) + other charges monthly. Imagine what you can buy with Php 900.

STEP 3 is simple. LEARN HOW TO BUDGET. This is clearly organizing your thoughts on what you want. Check the video for more info credited to Pesos and Sense. :)

STEP 4 needs discipline and connected with the previous step. ALLOCATE A FIXED AMOUNT FROM MONTHLY SALARY FOR SAVINGS. This will not only teach you discipline to save from your monthly income, but it will also teach you the strategy called Compounding Interest. This simple matter of saving up can give you many options for your future needs where you can build your own funds. One important fund that people must have is called an Emergency Fund (3x worth your salary if you're single, 6x if you're married) which is supposedly good as cash that you can rely on when something unlikely happens like losing your job, etc. Dream Fund is something that most people want but never really thought of saving much for. This of course includes money saved for leisure activities and even for shopping for expensive items that's on your I-want-to-have-list. Another important fund which many people doesn't consider much is Retirement Fund, which most Filipinos rely on their future SSS pension. I'm not saying you need to rely on it 101% but there's a good chance that due to inflation rates, your pension 20-30-40 years from now won't be considered that much. Overall, there's like different other funds to enumerate but it still depends on you on where you'd want your savings to be used in the near future. For a good visual example, check the video again.

STEP 5 is a must. GET INSURED. When people hear insurances, they'll think of pre-need companies (for education etc) that went wrong. But insurances, primarily life insurance is fixed, stable and has been in the country for a century. Specifically a life insurance, is a service that would ensure that whatever happens to yo, your beneficiaries would be taken care of. You can of course get a health insurance, which can help you get covered when you and your family members are sick. Thankfully though here in Kuwait I have a health insurance that is compulsory when the visa is renewed. But the question is - what if I'm in the Philippines and *knockonwood* I would need an HMO to cover my expenses and I don't have one? That's a good question right? For more info, check this LINK.   

STEP 6 needs focus. KNOW WHERE TO INVEST. Thankfully there are a lot of financial instruments available for people to invest. There's the stocks, mutual funds, UITFs, treasury bills, bonds, etc. Since I'm a fan of Pesos and Sense videos, check this out.

These steps can be personalized according to your needs, but bottom line is.. when it comes to financial freedom it's all about having focus, discipline and knowing what you really want. :)