This is what I learned 3 years ago when I first became an agent. The utmost principle of our financial perceiver.
Step 1: Protection.
First and foremost, whatever amount of income we have every month, MUST be contributed for protection. The protection could be for credit protection, income protection, or critical disease protection. Let's say you have RM100,000 credits to be paid, you must at least have the same amount of coverage in case of total permanent disability or death. Sounds scary? that's the law of nature. Muslims should take this seriously; hutang mesti dibayar walau macam mana sekali pun. We dont want to burden our family with our credits when we are no longer with them(died). So start now, calculate how much credits are you obliged to and jot them down in your diary. I will share with you later how are you going to calculate the amount of protection that you need. And then for the income protection...
I suggest you calculate your income for 5 years. Reasons: if you are the bread winner of your family, your family members who are dependent on you will have 5 years to survive without you there to feed them. Your wife could get a job if she is a housewife, and your children could be better off. Isn't it such a relief to know that they are well taken care of even if one day, you are no longer with them?
Example:
Credit card = RM3000
Education loan = RM40,000
5 years income = RM240,000 (let's say your monthly income is Rm4000)
Critical disease = RM50,000 (at least)
TOTAL = RM 333,000 death/total permanent disability protection
Step 2: Savings
Depend on how much you can save every month. 20%, 30%, or 40% from your monthly payoffs are good to be kept in Tabung Haji, fixed deposits and etc. You will really need this money in case of emergency.
Savings portion could also be used for travel, haji, children's education, and retirement. Im sure you know about this better, no need to elaborate more...
Step 3: Investments
Investments are the last thing to do, whenever you complete step 1 and step 2. If you have no extra money, never invest.
Reasons: Let's say you have RM30,000 in savings and you decide to invest it all, you are putting your hard earned money at risk! The best thing to do is maybe you could invest RM3000 for the beginning, and add the amount some more for another RM3000 after 6 months, depends on market situation. Consult your unit trust agents for this. You could also regularly invest in unit trust monthly, which they call it regular saving plan.
I hope we all get the clear picture now. The financial planning pyramid is the basic principle for us to practise. Let's share this with all people you care..
