Consumer debt or bad debt is a loan someone makes to buy things that are depreciating in value and will not give the person any profit from the said purchase. Basic examples are taking out loans to buy a motorcycle, car, cellular phone, home appliance, and gadget for the sole purpose of collection and entertainment. Having too much consumer debt will prohibit you from having enough money for your investments or your ability to purchase more assets.
2. Have Enough Emergency Fund
A fully funded emergency fund is equivalent to 6-9 months of living expenses. It should be in the form of cash or ATM machines. Emergency funds will serve as your buffer fund in case you lose your main source of income.
3. Calamity
A calamity fund is similar in concept to an emergency fund. It is a fund intended for something eventful that might happen such as a storm, earthquake, accident etc. Setting aside a calamity fund will also ensure that you’ll be able to keep track of your financial goals even in case of calamities.
4. Life Insurance
Life insurance is something you buy as protection. It can serve as also serve as a temporary income replacement in case something happens to the family’s breadwinner. Life insurance is only necessary when you have dependents, if you are your family’s breadwinner, you took out loans that could be transferable to living heirs. Lots of life insurance products are swarming the market nowadays such as term, VUL, etc. When selecting the perfect insurance, check out the package, terms, and conditions that best suit your needs and budget.
Personally, I took on the advice to buy insurance that cost me 5% or less of my monthly income. I decided to terminate my VUL after I realized I could not afford the high-premium rates. I chose BTID or the “Buy Term and Invest the Difference” instead, wherein I reinvest the premium difference from my term and old VUL insurance.
5. Health Insurance
Health is a major expense we don’t want to have but will eventually need especially when we’re approaching our senior years. That is why, health insurance is a must for everyone. It will safeguard your wallet in case of any health emergencies.
In the Philippines, Philhealth is the basic insurance one must have. If you opted for a bigger coverage, you can get health insurance policies which covers critical illnesses such as cancer, hypertension and etc.
6. More than Enough Savings
Aside from the fund mention above, stability also means you have enough money stash away for investment or business or any project you want to have.
Majority of employees, even after years of working hard, manage to save near zero because of financial illiteracy. Many want to become business owners at the very young age but lacks savings and opted to start business with debt. It is never good to start any business from debt because most business are shaky at the first five years of operation, without any saving to back up, you might end up to tons of debt instead of having your first profit.
7. Retirement Contribution
Retirement is not about age. You can retire even when you’re in your twenties. Retirement is entirely dependent on the lifestyle you want to live. When starting with your retirement fund it is important to project your retirement age, your future monthly expenses and estimated number of years until you die. Multiply all of that and you’ll get your retirement fund goal.
If you’ll solely depend on your active income earning or your salary, it will surely take years and years to be able to complete that retirement fund. The best way to address this is having a multiple income stream.
But if you want to remain in employment, make sure to contribute to the highest SSS premium or enrol in your company’s retirement program, wherein they matches a certain percentage of your contribution until maturity and reinvest it. If this opportunity is available and you’re not interested, then you’re actually wasting the opportunity to access free money.
8. Property Owner
Be it a house and lot or rental property that give you additional income streams or preventing you from spending rent. Owning means you’re no longer paying mortgage for the said property.
9. Multiple Streams of Income
Multiple income streams will help you achieve your financial goals and retirement fund faster. Multiple income streams may come from real estate, rental properties, business venture, paper assets and etc.
10. Takes Responsibility
Here in the Philippines, it's quite normal to see a twenty five or thirty year old something adult still living with their parents. It's been in the tradition that an adult child will never depart their parents unless they're working far or having a family. Being financially stable means, as an adult, even if you're still living with parents, you are contributing to the house running expenses. And if you're married, you are already living in a separate house and not asking for monthly allowance from any living parents.
