The power of preparation
It is too late to make weapons when one is endangered; and to dig a well when one is thirsty
‘DIGGING a well before you’re thirsty.”
This proverb is often quoted by the Chinese in anticipation for a foreseeable problem. A high-raking official during the Zhou Dynasty was thought to have said this when he advised a duke, who was facing a civil war in his county,
“It is too late to make weapons when one is endangered; and to dig a well when one is thirsty.”
Figuratively, the proverb teaches us to prepare for problems long before they occur. If we decide to start digging our well when we are already thirsty, then we could die of dehydration before water even starts to spring out. If we start finding solutions for our problems only when they appear, then it may well be too late already.
Prudent financial planning thought us to have the foresight to prepare for these. In retirement planning, for instance, a good rule of thumb is to prepare 20 to 25 years earlier. So if you’re planning to retire at 60, the latest you should be preparing for it is at 40. But there is no harm in starting out at 35 or even 30. The best thing about starting out early is that you have time on your side. Time, after all, is the greatest leverage we have. The power of compounding interest becomes even more effective the longer the duration is. The earlier you begin, the lesser amount you need to save. In turn, the surplus could be appropriated for other important matters.
However, if you decide to postpone saving for it for a couple of years, the amount needed to reach the same fund you set out for doubles. Stall for a couple of more years, and it can easily triple. Delaying the inevitable loses you the leverage. Then you will be left with two undesirable options: 1) decrease the retirement amount needed, and 2) look for a higher yielding investment. Both are not advisable. The first option means curbing your lifestyle to a level that may not comfortable for you. The second option may mean taking on risk you cannot afford. After all, there is truth to the saying, “the higher the return, the higher the risk.”
Wouldn’t it be easier to start early?
Retirement, just like getting thirsty, is not a problem. The problem is not finding a source of drink; or in this instance, it’s is not having enough to go through that. Statistics does not bode well. Out of a 100 people aged 60 and up, only 2 percent are financially free. Forty-five percent are dependent on relatives, 30 percent on charity. The remaining 23 percent are not dependent on either one because they are still working!
Most people know the inevitability that they need to stop working at some point, but only a few dare plan for it. Those who do reap the rewards; those who don’t cry crocodile tears. To which group would you like to belong?
The same principle also applies in taking out a life insurance policy. I have always emphasized on the importance of getting life insurance when you don’t have a need for it yet, because when there is a need for getting insured, you may not be in the best condition to be given one or to afford one.
Not so long ago, a colleague was sharing with me how her friend and client regretted letting his policy lapse. He only paid one quarter. He remained out of touch despite my colleague’s effort in convincing him to reinstate his policy. It wasn’t a sales talk. She knew he had a need; but he doesn’t. Unfortunately, when he discovered the illness, there was nothing they could do anymore. In his last few days, he regretted that decision.
When you’re contracted with a critical illness, you most likely won’t be approved one no matter how much you wish to be insured. We are all aware of the reality of getting sick. That is why I have pushed for this form of insurance consistently. These illnesses do not manifest with the older people only. Times have changed. Lifestyles have deteriorated. More and more young people are getting afflicted with stroke, heart disease and cancer, which should only appear 20 or 30 years later.
The illness is a problem and you should prepare for it. Right now, it is not a question of “if.” When it does happen, and you are not prepared, the medical cost can be overwhelming. Will you wait when you are thirsty before you start digging the well?
Digging the well is hard work. And not many would break a back for it. But those who do ended up in a better financial condition than the rest.
Kenrick Chua is a Registered Financial Planner of RFP Philippines. He is a Financial Adviser and holds the qualification Certified Investment Consultant. He is also regular host of Chinoy TV.
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