Never Go Directly to Investments without Following these Steps!


In order for us to achieve financial freedom, it is important to understand that there are specific steps which we believe needed to be followed.

The 7-Step Ladder to Financial Freedom actually forms the guideline on which Investhusiasts core events revolve around. To stabilize our financial foundation, each step has to be strengthened before proceeding to the next. Sad to stay, most of us Filipinos would take the shortcut to “Investments” without making sure that the first few steps of the ladder are well established. Like in any construction, building a solid foundation is critical. Otherwise, everything will just collapse.

1. Financial Awareness

This is the pre-requisite before you start building. You have to know your ground on which you are going to begin your journey towards financial freedom.  This means that you should completely assess your current financial standing, your assets, and liabilities. In addition, you should at least have access to knowledge and resources which will assist you along the way. This is where Investhusiasts can aid you. Aside from the resources, belonging to a community of like-minded individuals helps you to stay focused.

2. Increase Cash Flow

Before even increasing the cash flow, make sure that you have a stable income. This could mean a stable job which can provide for yourself and your family’s necessities. When we talk about increasing cash flow, the first thing that would usually come into mind is getting an extra job. However, we usually overlook the idea that reducing expenses actually results to extra cash. That is why having a detailed monthly budget comes in handy. This will allow you to see where your money is going, and therefore be able to take control of your finances.

3. Eliminate Debts

There are two types of debt: good debt; and bad debt. Bad debt is used for a purchase that does not provide any financial return. An example is a purchase on consumables. A good debt is used on purchases which gives higher returns than what you are paying for like a loan made for a rental property with current rental income higher than the mortgage.

Some proponents of debt elimination would argue that any debt is a bad debt. However, some financial mentors, especially those involve in the property market, would also recommend good debts (e.g. leveraging) as long as your monthly debt settlements should be lower than the income gained through your loans. Nevertheless, it is important that your total debt payments should not exceed to 20% of your monthly income. Or more importantly, eliminate all debts if possible.

4. Set-up an Emergency Fund

Medical emergency is the most common answer when people are asked what the emergency fund is for. However, the most surprising and eye-opening question for emergency fund is this:

If you will lose your job tonight, with no separation pay, gratuity, or end of service benefits, with what you have right now, in your bank or savings, how long will you and/or your family be able to survive considering all your expenses and liabilities?

Surprisingly, a lot of people are taken aback by this question, realizing that they are not truly prepared. In fact, most people would answer that they can only survive a month or less, which is a bit scary.

So how much emergency fund do we need? The minimum should be at least three times of the monthly salary or expenses, whichever is higher. Why expenses? It is because sometimes our expenses are higher than our income.

You may ask,

How would I be able to save up three times of my salary when in fact, I’m even having a hard time saving a penny due to my responsibilities and expenses?”

That is why it is important to have what we call as income allocation. Every time you receive your salary, allocate immediately some funds for savings, including that of your emergency fund. As they say, pay yourself first. If you think three months as emergency fund is huge, think of the first month first. Make it your initial goal. Once you achieve your first month, it will provide you a sense of accomplishment and fulfillment which will encourage you to complete another month.

On average, emergency fund should be enough for six months, while the maximum is for one year.

5. Get Protected from Life’s Risks

Take a life insurance, whether it is a term insurance or a permanent life insurance. There are pros and cons between the two so be sure to ask your insurance agent / financial adviser about it so that you will know what is best for you.

You may have a medical insurance from your company but always remember, with that insurance, you are only medically insured while you are employed. Once you leave the company, or retire back to the Philippines, you are no longer protected.

Today’s life insurance not only includes death benefit but also living benefits. Living benefits include critical illness benefit. This means, once an individual is diagnosed with a life-threatening illness, his/her insurance will provide a compensation which will help for the treatment.  A term life or permanent life insurance will only cost a fraction of the total treatment cost, therefore it is a wise investment.

Fact of life, everybody dies. As we grow old, our health will start to deteriorate, our organs will start to fail. We don’t know when, but that will inevitably happen. And when that time comes, and if you don’t have a life/critical illness insurance, where will you get the money from for the treatment? If you don’t have one, then your life savings will be drained. And what’s worst, if you have saved some for your retirement, your children’s college education, or for that dream house, you might end up consuming all just for you or your loved ones treatment. Hence, it is very important that you should protect yourself and your family with a life insurance.

6. Investments

It is now time to let your money work for you. However, it is important that you should have already stabilized your financial foundation (steps 1 to 4), so that if in case your investment doesn’t work, you will have a better fall back. Also, the money that you should be investing should always be your disposable income. This means that whatever happens to your investment, whether it earns or not, your lifestyle and standard of living will not be affected.

There are several investment instruments that you might want to consider depending on your risk appetite. You can venture into stocks, mutual funds, franchising, real estate, or be involve in business partnerships and ventures. Whatever investment instrument you would like to get into, make sure that you have studied them carefully, especially their legality since a lot of people have been victims of scams lately. If you think it sounds too good to be true, then it is.

7. Estate Planning

Previously before the Tax Reform for Acceleration and Inclusion (TRAIN) was signed into law by Pres. Rodrigo Duterte, the tax of a net estate worth P10 Million is P1.215 Million and 20% of the excess over P10 Million. After the approval of TRAIN, the estate tax now is subject to a flat rate of 6% on the amount in excess of P5 Million. You have to know about estate taxes because the amount mentioned here should be paid by your lawful heirs and beneficiaries if they will inherit your properties.

Moreover, estate planning is not just about real estate but it is also about preparation of your Will & Testament, Succession Planning for your Business, setting up a Trust Fund, and more. There is what we call as a Golden Envelope, wherein all these documents, among others like insurance policies, investments certificates, etc., are kept, so that when the uneventful time comes, everything is already in place.

This 7-Step ladder discussion, hopefully, will provide you an idea on how to start your journey towards financial independence. Investhusiasts discusses this 7-Step ladder through Project Noah seminar. In addition, all throughout the year, Investhusiasts conducts events and seminars related to each financial step. This includes, Debt Management, Kids Finance, Real Estate Investments, Stock Market Trading, and many more. Please check the Events page for upcoming sessions.

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