REIT-TIREMENT - REITs Investing & Personal Finance

REITs investment & personal finance


Friday, January 04, 2019

What to Consider before Start Investing?

One would not go skydiving without training and a parachute. Similarly in the wealth building process, one should not jump straight into "investment" without reviewing their current financial situation and planning beforehand.

Oops, there are peoples skydiving without parachute? OK, bad analogy, but you get my point.
Before you start your investment journey, it is important to understand and prepare for the following:

1) Cash Flow
You would have to track your monthly income & expenses and record it down. With this, you are able to know where your money is going. A positive net cash flow is the key to wealth building. If your net cash flow is negative, then you would need to cut down on your expenses. There are lots of free apps for this purpose, or you could DIY yourself with spreadsheet.
Sample created by Excel
2) Net Worth
Similar to the above, only this time round is to check on your assets & liabilities. If your net worth is positive, congratulation. If it is negative, you would have to find ways to reduce your liabilities. How to reduce liabilities? Save and reduces expenses to pay off debts.

Sample created by Excel
3) Emergency Fund
Save up emergency fund for min. 3 months' worth of your expense. Some would advise saving up 6 - 12 months expenses, it all depends on individual preferences and circumstances. Do not invest all your money, as the market can be volatile and you may be required to cash out at lost during an emergency.
My children's doggy kitty piggy banks
4) Insurance
Purchase an insurance plan to protect assets and your loved one, especially when you have a dependent. There are various types of insurance: health, accident, term life, whole life, critical illness, mortgage, home and others.

Health insurance is a must as the cost of medical is expensive and it could easily wipe up the nest egg that you built for years. If you have a dependent, then it is important for you to have term life or whole life insurance which payout upon your death or permanent disabilities. The same goes for mortgage insurance if you have a dependent and outstanding housing loan to service.

It would be good to have a list of insurance policies that you and your family have and keep them all in one place. Some insurance agents would do an insurance summary free for you, all you have to do is ask them. If you are paying the premium yearly through GIRO, then it is even more important to have the list with the payment date. You do not want to miss out on any payment and lost your coverage, do you?
Sample of what my insurance agent has done
5) Debt
After saving enough emergency funds and having sufficient insurance for protection, the next step would be clearing off high interest debt. Some high interest debt examples are credit card debt, personal loan, renovation loan, with credit card interest rate ranked the highest.

Logically speaking, you should start paying down the highest interest debt to maximize the reduction in interest expenses. However, this may not always be the case; for example, the car loan interest is computed based on the initial loan amount, paying down a car loan won't help to reduce any interest expenses. Do not solely look at the advertised interest rate, ask for effective interest rate (EIR) before getting any loan.
6) Goal
Set a S.M.A.R.T. goal and plan for how you want to achieve it.
Your goal should be concise on what you want and could accomplish with your available resources in a certain time frame. It should be measurable so that you could track your progress. Be honest to yourself, do not set an easy goal for the sake of goal setting. I will cover the basics of dividend investment planning in the next post.

Investment is not a grow-rich-quick scheme and every investment come with risk, that is why it is very important to set your financial foundation solid before you start investing. I hope the above information is useful to you, feel free to leave a comment or contact me.

2 comments:

  1. Shld take out residential property and CPF (unless you are near 55 and have excess to withdraw). Else it give a false illusion. I only consider things that are liquid and converted to cash within a month.

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    1. Yes you can do that. If you take out residential property, how about debt on this property? Will you take out ?

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