What is a financial pyramid?

What is a financial pyramid?

In this article, we will talk about the financial pyramid, what it is and why it helps in financial planning. The financial pyramid is a financial planning system divided into 5 parts according to the pattern of the pyramid, from the base to the top.

Cash Flow Management

The first part, Cash Flow Management, is the first step of the financial pyramid. It is a plan to spend and plan the debt to be very important because it is the base of the pyramid if this part is not created to be stable, it will result in the next step. Earning income in the proportion of 100%, divided 10% - 30% into savings and investments. The first required amount is an emergency fund that amounts to 3-6 times the normal monthly expenses. because we do not know what will happen in the future And the thing that must be considered is to determine not to have more than 35% - 45% of the debt because it will cause too much debt to the point that it leads to being unable to bear the burden.

Protection

Part 2 Protection is a risk prevention step that comes after financial planning.

Because in our normal daily life, we are always exposed to risks. What we should have is property insurance. because it will be like a shield that helps reduce the severity of the impact of what can happen Insurance is therefore something that should be kept.

Insurances that need to be emphasized include:

- life insurance

- health insurance

- Critical illness insurance

- accident insurance

- car insurance

Saving and Investment

Sections 3 and 4 Saving and Investment are savings and investments.

Of course, we will only have to allocate enough money, not saving and investing as well. The savings and investment goals can be divided as follows.

short term goals

period of not more than 3 years

Recommended savings and investments include bank deposits. Invest in money market funds or short-term bonds.