Many individuals are getting confused whether to get insurance first or investment where their money can have a sustainable return.
Let’s take a look at the picture below:
This is a financial planning pyramid which contains 3 levels that can be a guide in building our financial wealth. It’s important for us to follow a certain path so we can build a strong base, not to be confused and to avoid financial loss along the way.
This pyramid might also be the answer to your question on what to get first between insurance and investment.
Protection (Build Solid)
This level is all about protecting what you currently have. That includes your life, your health, your income, your family and any other aspects of your life that you want to protect. We manage the risk of losing money in this level so getting insurance (life, health, total disability, etc.) and saving for an emergency fund is highly recommended here.
Clearing out debts is also one way of building a strong and solid base for your financial planning pyramid will be unshakeable and firm.
Accumulation (Grow Your Money)
This level is where you find ways, other than the bank, to grow your hard-earned money and let it work for you. There are many investment vehicles that can definitely suit each of your goals. It is for you to research and study well before putting your money in an investment so as to avoid scams and to put you back again into debt.
Always remember, if someone offers you an investment that’s too good to be true, trust your guts.
Distribution (Leaving a Legacy)
This is where we make sure that all accumulated assets we have are well protected and were assured that it stays with us and our family. Proper estate planning is very important here so as to avoid legal charges if estate taxes will not be paid by heirs. Life insurance proceeds are one way of paying estate taxes.
Leaving a legacy might result in two things: either good or bad. Good in a sense that you have taken care of everything and made sure that your family would not suffer financial hardship when God calls you home today. And bad in a sense that your family might not continue the comfortable living you’ve let them experienced when you were still alive because of so much debt or estate taxes to pay.
I had friends who are very interested and eager to start investing their money without a solid financial foundation. As a result, they just opened an account, invested initial amount and until now, was not able to set aside money for investment again because of emergencies in their family like getting sick and losing a job.
This is a downside when you jumped ahead to the second level of the financial pyramid. Your finances will be very shakable and uncertain. It is best to develop a habit of saving first with an emergency fund and insurance, so investment will follow.
What if you can afford to have insurance and investment at the same time?
No worries, you might want to check what a VUL plan is and here are my 8 Reasons Why VUL Plan Is an Ideal Start-Up to Financial Security.
Christine Caranyagan is a Certified Investment Solicitor (CIS), Associate Wealth Planner (AWP), Estate Planner (AEPP), and Agency Leader of the Philippines (AALP). She’s a 2019-2020 Macaulay Club Awardee, and a 5x Medallion Qualifier as a Licensed Financial Advisor.
Her mission is to help fellow Filipino people achieve lifetime financial security & healthier lives.
If you want to learn more about financial planning, you can contact her thru her personal contact number 0935 7368 619, or send her a message here.