Question:I read your article about saving and investing. I’ve been working here in Doha, Qatar for 5 years now and I just started saving a few months ago because of so many obstacles that happened while supporting my family back home. My salary is not that much but I am trying my best to adopt the 60-20-10-10 rule: 60 expenses, 20 savings, 10 retirement, 10 for God. I also got this from one of the many articles on saving and investing I read on the internet.
I have this fear that I am already 30 years old, single and until now I don’t have financial stability and enough savings for my future. I am supporting my mother, as I am an only child, and also my aunt’s kids and the expenses at home. I am sending my savings to BPI Pnoy in the Philippines but I guess savings is not enough. Please help me have more investments like Mutual Funds and others. Any advice on saving and financial stability would be greatly appreciated. – Arthur Bautista via email
Answer:Hi Arthur. I’m glad that you’ve already started reading up on how to improve your financial condition. Each time we reach a milestone age, we tend to assess our life and that’s the reason why you fear about your financial stability. Use this fear as your catalyst to really commit to your financial goals.
Here are some of the things that you can ponder upon. Hopefully, you will take the necessary action on each of the items in order to reach your goals.
1. Your current source of income. Even if you say that your salary is not much, I suppose it’s something more than your income back home. Imagine if you (and all the OFWs) saved and invested all that premium in salaries received instead of buying pasalubong? In your case, multiply your salary premium by five years, how much would that be by now? Now the next question to ask yourself is about the upward mobility in your job. In the last five years how has your career been? Have you been promoted? Has your salary been increased? Assess your career development. What was your job back in the Philippines? Had you stayed on, what would your function and salary be by now? It’s important to assess your current employment together with the other opportunities in your host country vis-à-vis your opportunities back home. The worst thing that can happen to you is to have a dead end job and realize this only when you’re in your 50s and nearing retirement age. You are still young at 30 and career prospects should weigh in heavily in your decision making to meet your goals. Your career is your source of cashflow and you should take care of it. Continue to invest in yourself so that your earning capacity is enhanced.
2. Examine your expenses. You said that you keep your expenses at 60% of your income. Setting a percentage is good as it serves as your limit. Check out which expenses are needs and which ones are wants so you know where you can cut back on if you want to accelerate your saving. I guess by now you already do your budgeting and recording of monthly expenses. I suggest you also do an annual version. You see there are a lot of expenses that may not be incurred on a monthly basis but still need to be funded. Another thing I wish to point out is your support to your aunt’s kids. I’m fine with you supporting your mother, especially if she is not capable of working anymore and was not able to prepare for her retirement, but please revisit the reason why you’re supporting other people’s children. Does this support have a deadline? Does this support have terms and conditions on the recipients such as maintaining a certain grade point average, doing sideline at a certain age to augment allowance and other school expenses? I am not against generosity to relatives prevalent among OFWs. However, the fear you now feel might be a warning that misplaced generosity may be the culprit in your inability to save and invest for your future.
3. Emergency Fund. Complete your emergency fund equivalent to around six months of your expenses. You know that the simpler you live, the lower your monthly expenses, the lower the amount you need to set aside for this fund. Some would say keep your Emergency Fund in your savings/current account, but I suggest you still place this money in fixed income instruments like time deposit and money market placement. This will not only earn you some interest but will also help you avoid the temptation to use it in non-emergency situations. It’s your working capital (the amount you need for your monthly expenses) that you should keep in your savings or current account for easy access.
4. Protection/Insurance Fund. Your mother is your dependent so I suggest you buy term insurance for yourself and make your mother your beneficiary. This will give a form of protection for her in case of your untimely demise. I hope your employer provides you with a health insurance; otherwise, you may need to get one.
5. Dream Funds. If you’ve completed your Emergency Fund and your protection/insurance funds are in place, your 20% savings should be going to your dream funds. Set your dreams and put timetable so you know what investment funds to buy for them. As a matter of general rule, equity investments provide higher but non-guaranteed returns in the long run, while fixed income returns are lower but are guaranteed. So for dreams with shorter timetable like one or two years, you are better off investing in fixed income instruments like time deposit, money market placements, despite lower returns. For dreams with longer timetable such as over five years, invest in equity funds via UITF (Unit Investment Trust Funds) or Mutual Funds to maximize returns. For in between timetable, have a combination of the two either by Balanced Fund or your own mix of a fixed income and equity fund. Ask your current banks about this. Make use of their automatic saving/investing instruments so you don’t forget. Automatic arrangements help us practice Pay yourself first more consistently.
6. Retirement Fund. I hope you immediately implement your intention to set aside 10% of your income for your retirement. Increase this percentage as your income increases. At the age of 30 you have 30 years or so to save and invest for this. There are several retirement calculators available online to help you compute for this figure. My simple approach to the computation of this amount is this: Your annual expenses x the number of years before you go to heaven. And given the longer life spans that we have now, you may have anywhere from 20 – 40 years in retirement. As what a lot of people say, “Whatever you think you need for your retirement, chances are it’s more than that!” And that is why it’s a good idea to continue earning even beyond the age of 60. Equity investments are still your best bets for your retirement fund. Should you be interested in other asset classes such as real estate, business, etc., watch out for good opportunities like foreclosed assets which may provide you rent income in the future, or a small business that may provide you continued cashflow after you retire. However, take note that these options need higher capital outlay and more effort. Carefully compute all the costs involved so that the added work in investing in these asset classes will be worth it.
7. Your 10% to God. We call it tithing, but by any other name this practice opens you up to reciprocity. It gives you the mindset of abundance, which is very important in achieving your financial goals.
8. Have fun. To make something sustainable, you have to have fun. You are only 30 years old so I suggest you don’t take things too seriously that everything becomes a burden. In your journey to save and invest, try to make it a fun game. Challenge yourself, then reward yourself for mini-milestones achieved. It would be great to have an investing buddy to share this journey with. I guess that’s why there’s a proliferation of investment groups on Facebook. People want to add spice to their saving and investing. If you aren’t a member yet, check them out and see which one fits your personality. (See the groups mentioned below.)
I hope the above items will help you forge ahead in your financial journey. Write things down, update your records (monthly and annual expenses, Balance Sheet, goals) and monitor your progress.
Wishing you financial happiness,