THERE are tens of millions of people who are in fabulous shape — economically speaking. That's great news. Sadly, there are also billions of others across our deeply interconnected — yet tragically divided — planet who aren't in decent financial shape.
For all in that vast, teeming majority who live lives of quiet economic desperation and weakening fiscal (or budgetary) conditions, here are five specific financial fitness factors to help them grow stronger:
1.Money earned from labour;
2.Money spent on lifestyle;
3.Money that flows toward debt repayments;
4.Money set aside for future shocks, emergencies, and disasters; and
5.Money that we proactively save and invest to, hopefully, grow, and to generate cash flow, which is spun out by the passive income generators in our portfolio.
1. MONEY EARNED FROM LABOUR
This is a basic tenet of life: We must work, and ideally work hard, to move ahead.
While there are always those who get along fine without working, the economic resources they consume must be paid for by others who — either knowingly or unwittingly — labour for the non-toilers in their families, communities, or countries.
What we need to always remember is that work not only allows us to earn a living, it just as importantly helps us build a life. As American author Sam Ewing observed:
"Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all."
The best people in every country are the most productive contributors. And the worst are the parasitic leeches who merely consume what others produce; here I am not lambasting the unfortunates who cannot work but rather the able-bodied and able-minded who choose not to work.
Moving on, also be aware that we should all increasingly work smart. As my favourite 18th century American Founding Father, Benjamin Franklin, observed: "An investment in knowledge pays the best interest."
That is true for financial fitness factor one (FFF1): Money earned from labour. Also, as we shall see, it is true for FFF5: money flowing as the passive income yield from well-structured savings and investment portfolios.
2. MONEY SPENT ON LIFESTYLE
The money we earn actively during our working years before retirement will be put to many uses. A major chunk of it will go toward paying for the life we want today. That sum we spend on our present quality of life might be high, medium, or low, relative to what we actively earn.
Setting our lifestyle too high now will leave us with too little left over to accomplish other more important goals. These include paying down debt (accrued through over-expenditure in the past) and building wealth (to pay for tomorrow's expenses when our prime working years are behind us).
Conversely, pitching our lifestyle too low is cruel and unusual self-punishment. Opting for the middle path of moderation we tread by following the true north of the most important life principle of financial super-success — delayed gratification — is far wiser.
Its antithesis is immediate gratification, which often leads to indebtedness.
3. MONEY THAT FLOWS TOWARD DEBT REPAYMENTS
Our global economy hinges on credit, specifically on credit expansion. And when credit is used, it causes liabilities, or debts, to materialise and then shackle us to our creditors' whims and fancies — those we owe money to.
Debts usually keep people poor. So, make it a point to clear all outstanding debts as soon as possible. And as each old debt is cleared, take the previous regular repayment on it, then apply it to the smallest of the remaining debts to accelerate its clearance.
Celebrate as each old liability is retired; and do not take on new debts if your goal is a life of peaceful solvency.
4. MONEY SET ASIDE FOR FUTURE SHOCKS, EMERGENCIES, AND DISASTERS
After meeting all regular payments on our portfolio of debt, and perhaps also some extra repayments aimed at paying off our liabilities early, flow excess cash flow toward building up a special first line of financial defence called a cash cushion, reserve account, or EBF — Emergency Buffer Fund.
Depending on personal circumstances, build up an EBF of between three and 12 months' expenses. Storm-cellar that precious safety cash in a dedicated bank savings account, a series of fixed deposit accounts, or a pure money market fund.
5. MONEY EARNED FROM PORTFOLIO
After our EBF is partly funded, begin saving and investing for future capital gains and passive income.
Pay careful heed to increasing the:
1.Interest earned from cash savings;
2.Dividends earned from Employees Provident Fund (EPF) and stocks;
3.Distributions earned from a broadly diversified portfolio of savings and investment funds; and
4.Rental earned directly from brick-and-mortar investment real estate or earned indirectly from real estate investment trusts (REITs) or REIT funds.
CONCLUSION
These five financial fitness factors, FFF1 to FFF5, are powerful elements to manage our uniquely customised climbs from financial weakness or mediocrity to Samson-like economic strength.
Therefore, my closing question is simple: Will you follow the steps?
© 2024 Rajen Devadason
Rajen Devadason, CFP, is a securities commission-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; connect with him on LinkedIn at www.linkedin.com/in/rajendevadason, or via [email protected]. You can also follow him on X @Rajen Devadason and on YouTube (Rajen Devadason).
