How to save the right way versus the wrong way

We work hard to earn income. This income goes to two major streams: spending and saving. We are all experts in spending money and there is no need for us to learn more about spending. However, not all us are "masters" in saving money, a lot don't even save at all. For those who are already into saving, the question is, "Are you saving the right way or the wrong way?" Here is how:

Building a solid financial foundation
Building a solid financial foundation
Saving the right way means saving with the right reasons and purpose. We don't just save for the sake of saving but we need to learn how and why. Saving the right way means building a solid financial foundation.

A solid financial foundation means one must know his/her priorities. Just like building a house, one must build his financial house with the right foundation. No one builds a house starting from the roof, but from ground up. Here are the five layers in building a solid financial foundation.

Saving the right way means building a solid financial foundation
Saving the right way means building a solid financial foundation
1. Short term and Long term Healthcare
Before going into any type of investment, one must first invest in oneself. Healthcare is the most neglected savings of Filipinos. Most people only depend on government health benefit which offers only a small coverage and a lot depend on company short-term HMO. The challenge with company HMO, by the time we retire from work and sicknesses come in, we are no longer covered. That is why we also need to save and prepare for our long-term care expenses.

2. Life Insurance Protection
While we have not built enough wealth yet, what if something happens to us (esp. parents and breadwinners)? Who will take care of our family? This is where life insurance plays its role. Life insurance isn't for us, it is for our family. However, life insurance is never a fun topic, that is why a lot of Filipinos are allergic to it. A lot don't understand it, a lot don't want to buy it, and for those who buy, a lot don't even know their benefits. It is very important to know how to properly choose the right type of insurance that fits our needs.

3. Eliminate Debt
We should target zero debt. With the culture today, debt seems to be a norm. It shouldn't be that way. A number of wealthy people were asked what is the most important thing that made them wealthy, they answered, "staying out of debt." We must minimize and eliminate debt.

4. Create Emergency Funds
It is quite ironic that a lot of people's solution in cases of emergencies is "emergency loan." We shouldn't go into debt (another problem) to solve a problem. One must develop an emergency fund. Typically, an emergency fund should at least be 3 to 6 months worth of expenses and must be in a very liquid vehicle like banks.

5. Investments
Nobody wants to work for the rest of his/her existence. We need to invest therefore in vehicles that can give us steady income even in our retirement years. Solid investments like businesses, education and properties are traditional and proven ways to build wealth. While liquid investments like stocks, mutual funds, UITF's, bonds, VUL's are the modern and also proven ways to build wealth.

Saving the right way means building a solid financial foundation. If the foundation is weak, a small calamity in our financial life would mean disaster and would put our wealth building efforts to shame:

- A lot may have investments but don't have healthcare. One major sickness in the family could cause all properties to be sold in a lower value.
- Most parents have high debts but don't have insurances. If something would happen to them prematurely, instead of leaving behind a substantial monetary value, the kids inherit their parents' debts.
- and funny how people already prepare for mortuary programs (coffins) but don't have healthcare. Before getting inside the coffin and be buried, one must first have a stop-over in the hospital.

How does your financial house look like right now? Are you saving the right way or the wrong way?

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