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What are the 5 pillars of money?

At a glance. Discussed are the 5 pillars of financial literacy: earn, save and invest, protect, spend and borrow.

ubs.com - Video: The 5 pillars of financial literacy | UBS Global

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Kylie Saigol, an analyst with UBS' Rising Generation Client Services team, sat down with UBS Trending host Wendy Mock. Saigol's team helps clients in their 20s and 30s and those just starting out their financial journeys. Click here to see the full episode, if the video doesn't automatically load.

Some highlights:

What are the 5 pillars of financial literacy?

Earn Save and invest Protect Spend Borrow

What should we understand about our earnings?

So you work a job, and you earn income, but you want to make sure you are making the most out of how your employer is compensating you. For example, many companies offer a match for some of your contributions to retirement in your 401k. For example, if my compensation is USD 100 and I put USD 6 into 401k, my employer would put another USD 6 into my 401k. So while that contribution is not going to help me pay my rent or bills today, I view it as a very important component of what I earn.

How can we save and invest?

Through basic budgeting techniques, you can determine how much money you should allocate to needs, wants and savings. The typical rule is 50% to needs, 30% to wants and the remaining 20% should go towards paying down debts and savings — although if you’re can save more than 20% that is fantastic! In addition to saving, investing money is an incredibly important tool for making your money grow. Investing in the stock market is one of the key ways to build wealth. In fact, 94% of the time, the S&P 500 has been positive over a 10-year period. * I use the dollar cost averaging method ** where I invest the same amount each month, and then I don’t worry so much about the fluctuations in the market. Speaking personally, I have picked investments that are appropriate for my age and that I know I won't need to touch for many years — that way, I can let my money grow.

How do you protect yourself and your wealth?

I rent an apartment, so I don’t have to worry about paying for repairs or damages to my residence, but I do like to have a savings cushion for emergencies — like if I break my phone and need to replace it, or even for an unexpected positive event — like a friend celebrating something and I want to fly there to surprise her for it. Having an emergency fund allows you to deal with unexpected expenses without having to take on debt. You can start by allocating a small amount of your income to your emergency fund but over time, ideally, you will have 3-6 months of living expenses for emergencies.

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You can start by taking your last 3 months bank statements, going through each expense and highlight the items that you consider “needs.” Sum and average the 3 months of spending and begin saving an extra pool for that amount.

Alright, now for the fun part, spending our hard-earned money. How do we spend wisely?

Spending money is an unavoidable part of life. Not only will you have recurring expenses such as food, electricity and housing but there will always be discretionary items in life as well. We've talked about saving for retirement, saving for emergencies but a key tenant of being financially fit is actually being able to spend your money without worrying about overspending. It can be hard for those of us in the rising generation to know what spending is essential. Especially in this crazy age of social media where we are influenced to live beyond our means. Scrolling through Instagram and TikTok sometimes makes me feel like I need the next best thing whether it’s a piece of clothing or to have some incredible experience … and if I don’t have these things, I may be unhappy. I know many of my friends and I struggle with this feeling of FOMO but also feeling like we are overspending. I am learning to, and encourage others to strike a balance between spending on things that bring you joy but always making sure that they are within your means. We refer back to the 50-30-20% rule, with 30% of your budget going to “wants” and staying disciplined within that. Remember, living within your means is a spending habit that will help minimize stress in your life.

What place should debt play in your financial plan?

In your 20s and 30s, we should mostly be trying to avoid or reduce debt. However, borrowing can sometimes help you to achieve what you want to in life. Whether you are buying a house, opening a business or going to school, taking on debt for an investment that will return more to your life or wellbeing can actually be a good thing. Credit scores affect your ability to get favorable rates on your debt and even affect other areas of your life unrelated to debt. When I was searching for my apartment, my credit score was part of my background check to get approved to rent — this is a requirement of many landlords these days and with the rental market being so hot and so many people applying to the same apartment, especially in big cities, it can be a make or break for getting approved.

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To start building your credit score so that you’re able to rent that apartment or take out a loan at a more favorable rate, take these 3 steps: Pay off at LEAST the minimum on your credit card and preferably, in full And pay it off on time! Don’t miss deadlines Check credit report every year to make sure it’s accurate and correct any mistakes. UBS offers a lot of resources to help you stay financially fit. Check out ubs.com/TheCode. The free site offers interactive educational modules to help you understand the fundamentals of money management, or reach out to a financial advisor. Click here to see the full episode if the video doesn't automatically load. The segment first aired on 26 April, 2022. *The past performance of an index is not a guarantee of future results **Dollar cost averaging involves systematic periodic investing in securities despite fluctuating market conditions. You should carefully consider your financial ability to invest through periods of low prices. There can be no assurance that dollar cost averaging will reduce your investment cost, result in a profit, or protect you against losses in a declining market.

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ubs.com - Video: The 5 pillars of financial literacy | UBS Global

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