Everyone is discussing that in this generation, "everything is rising, but wages are not rising", but life still needs to go on. We can't just watch our wages freeze. If it doesn't rise, everyone will find ways to increase other sources of income. This seems to have made "investment and financial management" a popular subject that everyone can easily remember. However, everyone often mentions the term investment and financial management, but they may not know its true meaning; or you understand the meaning of investment and financial management, but you don't know how to start implementing it. What should I do? Let me explain it to you!
Is financial management the same as investment? No, no!
Many people think that financial management and investment are the same thing. If I want to manage my finances, I must know how to invest, but I don't know how to invest. Does this mean I can't do financial management well? No! This concept is wrong! The idea of financial management is that as long as you have income from work, expenses and expenditures, you must learn to manage your finances well. Even if you only have pocket money, you can start financial management. Investment is only part of financial management. If you want to invest, your financial management foundation must be solid enough. Otherwise, if you fail to invest or invest too much money, the risk will be too high, which will affect your living conditions. So although everyone usually discusses the two together, financial management is not equal to investment. If you want to invest, you must first learn financial management!
When we usually mention financial management, we generally think of investment concepts such as buying stocks, buying funds, and rolling money. These are all correct, but they are only part of financial management, not all. In addition to investment behaviors that increase the value of assets, how to "protect assets and avoid a significant reduction in assets" is a very important financial management foundation.
How to say it? Imagine that each of us has a pocket. After working hard, we put money into our pocket. This money should not only be used to support daily expenses and improve the quality of life, but also be saved, so that assets can be accumulated slowly, so that we can support ourselves after retirement and unable to work. Further reading: Financial management issues vary greatly at different stages of life
Regardless of our goal of saving money and investing, we should want to fulfill our dreams or ideals, rather than using our hard-earned money to pay for medical expenses, right? Therefore, in the process of saving money, the most feared thing is that there is a hole in our pocket suddenly. Whether it is "income interruption" or "extra expenses", it may make our expected life come to nothing. Since we cannot control which will come first, "accident" or "tomorrow", whether we have made sufficient preparations in advance and patched the hole in time when "accident" breaks our pockets in order to protect our assets is a very important risk control concept. This is the function of "insurance".
Therefore, "appropriately" preparing for the prevention of pocket holes can avoid many expenses caused by accidents and prevent these extra expenses from affecting our financial goals. This is why "insurance" is the most basic part of the "financial pyramid", not "savings" or "investment". But this does not mean that you should buy a lot of insurance. How much money should you spend on insurance? After buying it, do you save all the remaining money?
If you want to allocate properly, you need to know the "Golden Triangle of Financial Management"
Some people may keep a large part of their money in bank deposits, or invest too much money, or even buy a lot of insurance and pay a lot of premiums. These are all situations of inappropriate income distribution. The "Golden Triangle of Financial Management", also known as the "541 Rule" or the "631 Rule", is to help you allocate income appropriately. Its principle is very simple, which is to divide the "annual income" of an individual or family into 3 parts for financial allocation:
l Daily expenses: 50% (60%)
Including food, clothing, housing, transportation, education, entertainment, taxes, labor and health insurance premiums, etc. for individuals, families, and children. The total of any living expenses and entertainment expenses should be controlled as much as possible within 50% to 60% of the annual income, so that there is room to plan other financial goals and gradually accumulate wealth, while not overly compressing the quality of life at this stage.
l Investment and financial management: 40% (30%)
Including common stocks, funds, bonds, fixed deposits, savings insurance, investment-type insurance policies, real estate, etc., all kinds of investment tools and financial insurance that are not mainly for protection should set aside 30% to 40% of annual income for short-term, medium-term and long-term proper planning.
l Risk management: 10%
For pure protection insurance, 10% of annual income is used for risk planning every year to protect the remaining 90% of assets, avoid income interruption or unexpected high expenses, causing economic shocks and excessive burdens, and also provide life protection for yourself and family members.
Of course, these financial management principles are not absolute, and they should be adjusted according to different situations of each person; however, for those who want to plan investment and financial management and insurance but have no idea, at least there is a basic reference direction.
If the proportion of insurance and living expenses is too high, and the proportion of investment and financial management is too compressed, the accumulation of personal assets will be too slow, not only will it be too late to achieve life goals, but it will also be too late to prepare for retirement life. In addition to reviewing your own unnecessary expenses, you should re-check your insurance policy to see if the premium burden has exceeded the load and start to make adjustments; if you find that everything is normal, but the proportion of daily expenses and insurance is still too high, it may be due to low income. At this time, you should control the proportion of expenses and find ways to increase the proportion of income and investment and financial management to have a chance to reverse the current situation.
On the contrary, if the proportion of risk management is too low or even completely absent, and the proportion of investment and financial management is pulled too high, when an accident occurs or the market fluctuates too much, it is very likely that the hard-earned assets will fall short. It is worth noting that the 10% risk management refers to insurance expenses with "protection" as the main purpose, such as accident insurance, medical insurance, cancer insurance, major disease insurance, term and whole life insurance, etc. "protection insurance"; and the "financial management insurance" such as savings insurance and investment insurance policies that we often hear about are not considered to be with protection as the main purpose, so they are not included in this 10%, and should be classified as 40% investment and financial management projects.
With this framework, it should help you think about how your income should be distributed, but you must remember to regularly review the distribution ratio to see if it needs to be readjusted. After all, the living conditions at different stages of life are different, and it is necessary to make adjustments according to the situation! As long as the concept is correct and the general principles remain unchanged, I believe everyone can make a fortune!
[content:title]
[content:content]
{/pboot:content}
