Tuesday, August 18, 2009

Personal Finance: The 4 Do's You Should Have

Personal finance is all about preparing a better life for your retirement as well as having proper planning for the money you earn. Managing money properly is important no matter what job you are having - employees, employers, business owner, self-employed, freelance worker and so on. You need to have a proper plan to care for your money and the plan should be helping you to achieve a better financial position when you retire.

There are 4 important Do's you should follow to make your personal financial plan work inline with your life. I am sure that you surely do not want a personal financial plan that you do not like or a plan that force you into an extremely tight lifestyle.

So, there are the 4 Do's you should consider to build up your personal financial plan.

DO KEEP AT LEAST 10% OF YOUR INCOME FOR SAVING
It is important to keep a part of your income into your saving account. Normally, you should save 10% of your income as saving. If you are earning RM3000.00 per month, saving 10% of it will be RM300.00 per month. After one year, it would be a total of RM3600.00.

You can use the money for investment to make it grow even faster. Remember to compound your money. If you are not sure what is compounding and why compounding, then you can read my previous post "The Power of Compounding".

For me, it is no point to save money in fixed deposit account because the interest is way too low around 2% to 3% per annum. There are a lot more better investment vehicle out there, providing much better return per annum. Take for example, unit trust or mutual fund, some of the funds are giving around 9% to 10% per annum.Read "How Unit Trust Transform RM100,000 into RM1,375,173.00 after 10 years" for more details about unit trust.

DO HAVE EXTRA CASH AT HAND

You should not invest all your money without having cash at hand. With no cash at hand, you are in big risk. This is because you might not have money in case of emergency. Life is full of unexpected events, so you will need to have cash at hand to prepare for the sudden events in life.

Since you have 10% of your income go for your saving and investment. Then, you can have another 5% go into bank account for daily purposes. By having 5% of your income going into your bank account, you can prepare yourself for the worse. At least, you can withdraw your money from ATM when problems occur.

DO CONSIDER STOCK MARKET AS AN INVESTMENT
Stock market is a good investment vehicle. Personally, I haven invested RM7000.00 only into the stock market. Now, after half year, my return is around 14%. That is a great return right? I am expecting even higher return by the end of this year.

Stock market is a good long term investment vehicle. For most people, stock market is risky but if you know how, you do not have to be a risky investor in the stock market. You can read "How Stock Market Works?" to learn more about stock market.

Investing in stock market is just like driving a car. Driving a car is risky because you are risking your life to reach your destination. But, you do not have to be a risky driver. Buckle your sit belt, drive carefully and slowly.

Investing in stock market is one of the way to reach your financial goal. You can go slowly by earning yearly dividend from the company you invested in or you can do it the risky way by trading stock market.

Personally, I am investing to get the dividend every year. Dividend is providing a very good return if you get the good company that pays high dividend. Normally, it can range from 10% to 15% per year depending on the price of the stock you get and depend on the company payment.

Stock market is an investment vehicle, it can be viewed as your vehicle such as car, boat, aeroplane, jet, F1 or any other. You do not have to be a risky investor, you can do it safely to reach your financial goal.

DO HAVE AN INSURANCE PLAN
Insurance is another important investment vehicle to help you reach your financial goal. Insurance is important because it helps you when have trouble especially large medical bills.

As mentioned earlier, "Life is full of unexpected events". Who knows something bad happens such as illness, accident, unable to work and so on. With proper investment in insurance, you can protect yourself in case any bad situation happens to your life. Insurance will help you cover all the expenses and help you to get along with your life if you no longer able to work due to some reasons.

So, choose an insurance plan properly and carefully. Make sure the insurance plan meets your need. Normally, one insurance plan is required. You do not need to have too many insurance plans. Instead, channel your money for other investment purposes.

In short, personal financial planning covers all the aspects from cash and investment to insurance plan. So, do it properly and slowly. Follow your plan carefully and you will reach your financial goal in the time you set.

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