Recently, I began to read the book "Managing Money is Managing Life", which is very rewarding. I will combine this book to make a series of reading notes for output. This book is very popular and easy to understand, especially suitable as an introductory book for family financial management. If you are interested in how individuals and families manage money and assets more reasonably, I strongly recommend you to read this book.
Each of us has some key "choice nodes" in our life, and different choices will lead to different life trends. Especially in the first 10 years after graduation from university, it is a period of great changes in life. Which city did you finally choose to stay in for development? Choose which line to enter? What job do you choose? Who do you form a family with? Did you buy a house and a car as soon as possible? Did you start family finance as soon as possible? Every choice will lead you to a different path.
This is especially true for our "family finance" problem. As the saying goes, "if you don't manage your finances, your finances will ignore you." Different family financial management methods will have different financial management curves. Be sure to choose the most reasonable way to make money and manage money, and lay a good economic foundation for yourself and your family.
For a family's financial development, it can be divided into three stages: financial security, financial security and financial freedom.
Financial security: that is, if you are suddenly fired from the company today, or if a family member is in urgent need of a medical fee, you can pay it immediately to help the family tide over this difficulty temporarily. Generally speaking, it is enough to prepare a reserve fund. For single young people, three to six months' salary is enough. For a family of many people, the monthly expenses will be more. Moreover, it takes a long time for people to find a job again after being unemployed in middle age, and it will not recover as quickly as young people, and it will take a long time to return to the workplace. Therefore, it is recommended to prepare a reserve fund for at least 6 months. These reserves can be placed in more liquid financial products. For example, money funds and short-term financial management of banks can guarantee certain interest income, and more importantly, they can ensure flexibility and can be used at any time. However, financial security can only deal with short-term financial problems. If you want to pursue a higher quality family life, you need to work towards financial security and financial freedom.
Financial security: refers to the financial situation is sufficient to meet all future financial expenditures and other life goals, and there will be no major financial crisis. There are several indicators that can be used to measure whether financial security has been achieved.
First, whether there is a stable and sufficient income, the income must be sustained and stable, and it must also match the living standard.
Second, whether an individual has the potential for development mainly refers to whether his work can be promoted and raised, and whether his entrepreneurial business can be profitable.
Third, whether there is sufficient cash reserve, that is, whether the reserve fund mentioned in financial security is sufficient.
Fourth, whether there is a suitable housing, each family's demand for housing is different, depending on their own psychological needs.
Fifth, whether you have purchased the right amount of personal health insurance. Especially for the pillar of family income. Be sure to buy medical insurance to prevent sudden death or inability to work due to illness, which will bring shocks to the family.
Sixth, whether the investment with stable income is the most important.
Seventh, whether to enjoy social security.
Eighth, whether there is an additional old-age security plan.
Financial freedom: When a family's monthly "passive income" exceeds the monthly expenditure of the whole family, the family has reached the stage of financial freedom. Financial freedom is the financial goal of every aspiring individual and family. The so-called "passive income" means that you can generate cash flow income stably and continuously without paying a lot of time and energy. For example, you need to go to work every day to get paid, which is not passive income. Because as long as you stop working, the corresponding income will be gone. But rent, copyright fees, investment dividends, etc. You don't need to spend a lot of time and energy to work, but you can automatically generate stable cash flow income with a little care. These are passive income. The most important thing of financial freedom is "financial regeneration ability", not the amount of funds accumulated in a short period of time, but the need to build an asset allocation model to bring passive income to families through different channels, without requiring family members to invest too much extra time and energy.
Understand three different financial stages of the family, and then two different personal financial situations.
The first curve is called the straw hat curve. This curve clearly reveals that we need to earn as much income as possible with short working hours to balance long-lived consumption. Through reasonable arrangement of liabilities and surplus funds, the balance of income and expenditure in each period of the whole life cycle can be adjusted, so as to improve the efficiency of the use of family wealth and meet the needs of personal lifelong consumption and family daily life to the greatest extent.
The time that each of us can work is actually very limited. It is only 35 years from the age of 25 to the age of 60, but with the improvement of medical level and life expectancy, our generation has a great probability of living to 100. Even if we retire at the age of 65, we still have more than 30 years of retirement. We need to take on the long family responsibilities of the whole life and family with a short career. It is really "making money for a while, spending money for a lifetime". The prominent part of this straw hat curve is also a "wealth reservoir" during our main work. At this stage, you need to improve your earning power as much as possible, and then accumulate family funds as much as possible. The water in this reservoir is used to pay for our daily living expenses, and we need to reserve some emergency reserves. At a certain stage, we still need to buy a house and a car, get married and have children, raise children and provide for the elderly, and prepare for our long retirement.
Only the more water in the reservoir, the lighter our living burden will be, so we need to do our best to improve our earning power in this short period of more than 30 years. And we must do a good job in medical security, because once the economic pillar of making money in the family has an accident, not only the water source of the wealth reservoir will be cut off, but also the family funds will be lost in large quantities, which will destroy the financial health of the whole family.
Through this straw hat curve, we can clearly see that every family's goal is to broaden the financial reservoir, control the expenditure reasonably and distribute the water in the reservoir reasonably to pay for the whole life cycle. Financial management pursues not only the maximization of material wealth, but also the maximization of the utility of the whole life cycle. We can use three methods to increase the water volume of the Fortune Reservoir.
First, open source. Expand the wealth reservoir as much as possible by increasing income channels.
Second, reduce expenses. Control expenditure reasonably and moderately, and don't waste excessive consumption.
Third, distribution. Distribute the funds in the wealth reservoir reasonably, and then pay the expenses of the whole family for a lifetime reasonably.
Third, distribution. Distribute the funds in the wealth reservoir reasonably, and then pay the expenses of the whole family for a lifetime reasonably.
The second curve is called hat curve, which is improved on the basis of the first straw hat curve. Starting from working to earn income, we need to find ways to create passive income channels as much as possible. In this way, even in the later period, when you can't take part in work and get active income with the growth of age, passive income can still generate cash flow and continuously supply water to the wealth reservoir. In this way, the straw hat curve will be upgraded to a hat curve, the wealth reservoir will become wide and long, and the financial pressure will not be so great.
Under the cap curve, there are two main factors to realize financial freedom, namely passive income and daily expenditure. In order to achieve financial freedom, we need to work hard in these two directions. First of all, we need to increase passive income and reduce daily expenses. It is easier to achieve financial freedom by combining the two.
To sum up, family financial management can be divided into three stages, namely "financial security", "financial security" and "financial freedom". There are two kinds of life financial curves, namely "straw hat curve" and "hat curve". We need to build our life financial curve into a "capped curve" by increasing "passive income" as much as possible, and work hard for the goal of "financial freedom" of the family.