Sunday, December 20, 2015

#2 Protect What You Cannot Afford to Lose

This is the #2 posting of a 10 part series about the Road to Financial Freedom. In the last posting, we discussed that the greatest mistake in one's journey towards financial freedom is the lack of planning. In this post, we will see that protection or insurance also plays an important part in our road to financial freedom.

Why insurance? Because life can throw unexpected events at us that might cause a huge dent in our bank accounts. Imagine the medical cost of staying in the intesive care unit for 1 month. Or just imagine having to pay the costs for cancer treatment. As much as we will like to think that our bank accounts would have sufficient money to pay for these unexpected events, it is unlikely so as these bills can sometimes run up to 5 digits or 6 digits!

So the most important thing one can do is to set aside a small portion of their income (hopefully much less than 20%) to buy some insurance that will give protection for death, disability, critical illness, personal accident and hospitalisation bills. This will ensure that should anything unexpected occur in the future, the huge costs will not affect whatever good work you have done so far in your road to financial freedom. Essentially, we insure ourselves for risks or costs that we cannot afford to lose.

So yes, savings and investment are the "sexy" things that people like to talk about when it comes to financial planning and the road to financial independence or freedom. But before we start saving and invest, it might be worthwhile to relook at our protection portfolio and ensure that we are adequately covered before we make the next step to achieving our financial goals.

Moneytalk also has an article on why we should buy insurance. Click here to view it

The Road to Financial Freedom (Read the rest of the postings here)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

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