My way to financial protection

How many people are afraid of financial consequences of losing a job, of getting sick or to face any other financial crisis? And how many decisions and bad compromises, e.g. staying in a job which is unsatisfying, underpaid or including too much overtime work, etc., are made based on this fear ? This article will describe how I gained a position of strength to face whatever might come.

When I started to think about creating the financial background for my new life, I was fortunate enough to read a book from Bodo Schaefer (see Reading and Reference List) which helped me to organize my finances and to invest my savings skilfully to set the foundation for my intended lifestyle change. Objective was not to become rich, but to eliminate financial worries so that I could and can focus on my life and what I want to do with my life. The concept is a very simple and easy to understand and implement and I’d like to share the basics in the following.

Imagine you will lose your job or you get seriously sick. How many months will it take to recover or to find a new interesting, fulfilling job? Being financially protected means, that you have enough money to do your necessary payments until you have a sufficient income again. How much easier life could be if you’d have a financial buffer to survive a period without sufficient income! Hence the first objective of saving for a better life is to create this financial buffer, to achieve financial protection.

In order to calculate how much I need per month as financial buffer, I wrote down my monthly expenses, e.g. for rent, insurances, phone/internet, grocery, logistics/car, basic entertainment, etc. I limited it to the absolutely necessary and kept the things ‘nice to have’, e.g. cloth, holidays, etc., out for better times. Remember, my aim was to be protected for that period without income, not to live in indulgence. Then I multiplied the sum with the length of the desired period of protection. The resulting figure was considered as the absolute minimum for my financial protection.

You can do the same. I think, everybody owes this to himself, his health, his inner peace, and the people depending on him. Nobody knows what can happen in future, and Murphy’s Law: ‘Many things that can go wrong, will go wrong’, is well known. But everybody can take actions to be prepared. Then there is no need to except bad compromises due to a financial crisis. Financial protection is a position of strength.

After I had calculated the needed amount, I had a target. Then, how long does it take till financial protection is achieved and how to save the needed money?

Well, the first depends how much money can be put aside every month. The little the longer it will take, and maybe motivation will decrease if you need 10 or more years. Better to save more, even it’s a bit harder, and after two or three years the target is achieved!

To increase the money being saved is it better to earn more or to spend less? Best is a combination of both, but of course it depends on your situation.

For saving enough money by reducing my expenses, I used to use a method called ‘budgeting’. I wrote down in detail what I earned and what I spent and could see how much money I can put aside. If this was not enough being saved, the second step started: reducing expenses. I wrote down the maximum amount I was allowing me to spend per month and then looked where I can cut expenses. Once I knew the limit, I could figure out how to achieve it. And that often was easier than I thought in the beginning.

If you are not used or skilled in budgeting, and, if you haven’t done this well till today, that may be the reason for it, no reason to worry. There is no need to become a specialist in something rather peripheral. Ask someone for help or you just focus on the following areas where savings are relatively easy: car, phone, taxes, and clothing.

The beginning of working towards financial protection might be difficult since often old routines need to be changed. But after a while things will get easier, especially when you think about the overall reason.

Since I had put the needed amount aside I felt protected. Now I had time to recover or a position of strength to negotiate with my current or a potential new employer if needed. In my current life it helps to negotiate with clients of my own business or to arrange my yoga classes and lifestyle workshops. Being financially protected takes away a lot of negative thoughts and worries and let me focus more on creating and enjoying my life.

The way I have invested the saved amount is determined by its function. It must be safe and available on short term. Yes, low risk means low interest rates, but primary target is to be protected. I have invested the amount in very conservative vehicles with low risks such as call money and short-term deposit accounts. And, very important, I will never touch this money except in a finncial crisis!

Are you financially protected? I hope you have taken good care of yourself since you deserve it.
Please feel free to leave a comment or to contact me, also in case you wish further information about this topic.

Have a great day without worries!
Volker

Finances for realizing a dream

A common response to my blog is that people would like to do a change in their life’s as well but feel limited by financial conditions. In a series of 3 or 4 posts I’d like to address this topic as basis for more thoughts or further discussion.

Growing up in a family with rather simply background – my father an accountant but long time unemployed, my mom a medical assistant and single mom with 2 kids after my parent’s divorce – can be a helpful experience. Not that I was missing anything necessary, my parents took excellent care of me. But since the financial situation was not overwhelming, I had the chance to learn to be content and happy with less. And I could learn to stay detached from extensive desires, since many things were just not affordable.

Beside that, I soon developed a talent and interest in math and finances. I played with games including calculations and benefited in school by being faster in doing calculations in my head then others with pocket calculator. Even today I love and use math, for example to create Excel spread sheets and graphs, and to analyse information and trends.

My mother taught me to spend only the money which I have – most countries nowadays have a slightly different concept, with all the known troubles following. Since student times I used to write down my expenses in a spread sheet and to analyze what I’m spending my money for, what I could afford and where I might be able to save some money if needed. I have continued to do it whenever I entered a new life situation, e.g. after I moved to Malaysia.

The experience to forego and stay content when seeing what other people could afford, might have been difficult, but turned out to be a blessing. My whole life I could control my desire to spend money unnecessarily, even when it was available, and save it for worse times or my dreams. For example, when all my study mates bought a BMW from their first salaries, I bought a foldable bicycle and a discount card for trips with the German railway and choose an alternative logistic concept. I enjoyed what I did and in this case it also fitted better to my conviction regarding living in harmony with nature and protecting the environment.

Also as expat in Shanghai I could enjoy my life AND control my expenses. I used my housing budget to only 50% and could pay my daily expenses with the other half. The entire salary went to my savings. And as said I still enjoyed my life – maybe since I learned early how to enjoy life without spending a fortune. I didn’t have an iPhone or another fancy phone, didn’t do excessive shopping of branded cloth, etc., till I had organized my finances. But I was traveling, had good food, enjoyed parties, did hobbies, and had some time for activities with friends as far as time was available at that time of my life. The key issue for deciding to live a different lifestyle was not the amount of money available to spend, as you could read in another post.

Since I moved to Asia, Yoga and studies of Asian philosophies helped me to maintain an attitude of contentment for simple things in times even when more was possible. Also the concept of karma or giving preferred to receiving grew stronger in my life.

And all this has paid off!

Lucky or successful with my investments, supported by a good financial advisor and by well invested time in understanding a bit more of the financial market, I could realize the financial foundation for my current life. Not within a week or month but by having an idea, a concept and the discipline to execute it over a number of years. While others often feel ‘forced’ to work for paying off their loans for a house or study, I could ‘retire’ and start a life with perceived financial freedom.

More about my concepts and philosophy of savings, easy to adapt for everyone, you can read in My way to financial protection and more posts in the category “Finances” to come.

Do you feel limited by finances to live the life you would like to?
As always feel free to leave a comment below or send me an email for questions.

Have a wonderful day 🙂
Volker