Perhaps some of you have heard about the word ‘investment’. Especially today that we have more and more investment products offered. You also might have heard often: ‘let’s save some money for investment’, yet you don’t know how to start, when the right time is and how much you might need to spend on investment.

However, before investing, there are few things need to be done for the investment to reach its maximum.  As investment is intended for a long-term, you better not invest with an intention to maximize your cash when you still have plenty of other needs to pay. As when it happens you might need to liquidate your investment in a wrong time in order to cover those needs, and you might lose.

Verify the following situations to analyze your current financial health before investing:

1) Cash flow Management

Discipline yourself in making a monthly budget, in order to make your cashflow to be positive and efficient.  If the cash flow is still minus/deficit then look further which post hasn’t been done correctly and efficiently and make an action in order to fix it. Any expenses that can be categorized as ‘primary needs’ have to be prioritized before doing other expense that have less importance. By making monthly budget, you will know precisely how much you will have to spend every month and therefore becoming more discipline by only purchasing those on the budget.

2) Paying debt

What means by debt here is consumptive debt that usually come with high interest, such as credit card debt and ‘Kredit Tanpa Agunan’.  Pay with full amount those debt every month is the best way to avoid the high interest, as the minimum payment does not cover the high interest.

3) Building emergency fund

Emergency fund is needed in the case of emergency: sickness, job termination, accident, death, natural disaster, etc.  A family with children has to prepare at least 6 times their expenses. A family with 3 children has to prepare at least 9 to 12 times their expenses.

For a single mother, the emergency fund that is need to be prepared is bigger, minimum about 9 x expenses for 1 child, and 12 x her expenses for 2 children.

Do not invest before the emergency fund is 1/3 from the amount that needs to be prepared.  Emergency fund has to be liquid, such as cash and deposit.  In certain cases it can also be placed in  money market mutual funds and also by purchasing Gold (Logam Mulia).  This fund needs to be quickly accessible, so that it can be liquidate in case of emergency.  Therefore, property and stocks is not recommended.

4) Having protection

If you have a family, it is a must to have a protection in case of something that does not allow you to support your family members anymore. However, many of us do not know how much is the value needed. The amount of Insurance coverage is the amount we need until the dependent children can have their financial independence. If currently your child is 5 years old, and will be financially independent at around 23 years old, then you have to have a protection that supports your child’s 18 years of life. Insurance is a protection, not an investment; therefore it is best to separate between insurance product and investment product. Investment is to be done separately with insurance; it has lower cost and bigger return.

5) Understanding Investment

After completing the above mentioned 4 steps, you can start investing.  As the cost of living is increasing every year including the cost of education for the children, therefore saving is not enough to cover the high inflation. Investment will be a mediation to fulfill your financial needs in the future. Choose investment products by considering the following points:

Set your financial goal.
Set a time frame when the fund is needed, if in 3 time frames which is a short term of 1-2 years, medium term of 3 – 5 years, and a long term of more than 5 years.
Know your risk profile; are you a conservative, moderate, or aggressive.  Ask some advice from an expert if you don’t fully understand about investment.

The composition of the investment, liquid and non liquid has to be balanced.  Liquid investment means that it can be liquidate in a matter of days such as stock, bonds, or mutual funds.  Gold can also be considered as a liquid investment as it can be easily sold to the market. An example of a non liquid investment is a property as it takes time for it to be sold.

6) Making a financial planning 

Making a financial planning is a good thing for a family.  By being aware of our future needs in the early state, we will have more time to prepare them. Therefore, from now we have to create our financial target, start planning education levels and directions that we want our children to be, and calculate the cost. Holidays with the children need their own budget.  The bigger the children, the bigger the budget will be. You might also need a bigger space to live. The marriage of your children can also be included in the planning.

By the time of your retirement, how comfortable will it be if you are still be able to live the lifestyle you’ve had when you were still earning monthly income/salary, and  when your retirement is not your children’s burden. These are the targets you need to think of from now, for you to have the guidance when taking financial steps to make your family secured and have comfortable life. Every step you’re taking now can affect the life of the people you love the most: your family, for a brighter and comfortable future.

How is your financial health?  Do you think you are ready to invest now?  

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