When I appeared on a morning tv show to discuss the importance of financial stability in a family, I gave my contact details when asked by the host how the televiewers can get in touch with me.
On my way out of the studio and until that weekend I received a lot of questions via text. Some of the questions were written in Taglish text language that I had to really sit down to make sure I understood them correctly: “aq” is ako (I), “pde” is puede (can), “ned q p” is kailangan ko po (I need), “twsan” is thousand, “p2sk” is papasok (will enter), and so on. Text language is my waterloo and it was best explained by a parenting speaker who once said, “Whoever writes his or her text messages in complete sentences with proper punctuation marks reveals his or her age which is 40 years old and above!”
Here are some of the questions (as I understood them):
A wife of an OFW asked how she can budget the P16,000.00 that her husband sends because she does not know how to budget.
Another wife asked how she can budget their family income of P11,000.00 every 15th and 30th of the month. They have four children (grade 3, grade 1, incoming kinder and a baby). They are renting their home.
Still another question was regarding investing and if it’s okay to invest in the products being advertised by banks on tv. She also wants to know if she can start investing with P5,000.00.
Another lady from Rizal who’s a graphic designer shared her experience of being traumatized when she ended up with a labor dispute with her former employer regarding unpaid work. According to her, the case is now with the National Labor Rights Commission. She wants to go back on track financially and wants to have what she calls a “flourishing and ample amount” of savings.
Some questions even asked for advice on the topic for research paper. Still another one asked how to make sure that her one year old baby boy will grow up to be a smart man.
For this week’s column I will try to answer the finance related questions.
- Regardless of the amount of one’s income, whether it’s P16,000.00 (first question) or P22,000.00 (second question), or hundreds of thousands or even millions, the very first step in getting hold of your expenses is to write them down. There is a big enlightenment derived from listing down your expenses. If you see them right before your eyes arranged according to type of expense, it makes you more aware where your money goes. This also allows you to see more clearly where you can cut down if you need to.
- Come up with an Ideal Monthly Budget. This will be what you wish your expenses would amount to so that the important needs are met and the wants are eliminated or at least minimized.
- Make savings part of the budget as if it were an expense to make cash allocation for. Make it at least 10% and go higher as your earnings increase. In fact, this should be on top of your list so there’s an added psychological reinforcement of the Pay Yourself First. I want to share what my oldest son would tell his friends as an added incentive to always set aside savings: “If you set aside your savings as your first item in your budget and invest it, you can freely and happily spend the rest. No more guilty feeling because you know that you’ve already paid yourself first!” Very well said, I’m a proud mother once again.
- I’m sure a lot of us find ourselves in the situation where even the bare expenses cannot be met by our family income. But I tell you, everything is relative. We should never compare our expenses with those of our friends, neighbors, family members. To each his own. If the income is not enough, then you have to find ways to increase it. I know it’s easier said than done but nonetheless, it should be done. We can either come up with reasons why we can’t increase income and decrease expenses or do away with excuses and resolve to change things so we can start saving. There is no excuse for not saving now, no matter what now is. Before you know it, your now is already yesterday, so if you don’t do anything right now, you will end up with a very bleak tomorrow.
- Share your Ideal Monthly Budget with your spouse and the children if they can already understand. It’s a family effort and everyone should be in this together. Keep the faith and resolve to succeed in this family endeavor.
- Investments will come in once you have built your Emergency Fund. Emergency Fund is the amount of money you should keep in fixed income products that you can easily withdraw if emergencies happen. On the other hand, investments are your long-term money which are your retirement fund and your dream fund (e.g. fund for your dream house, vacation, your children’s college education, etc.). You put these in higher yielding investments like stocks, long-term bonds or even real estate if that’s something that you can handle and fund. I like to have six months to one year’s worth of expenses as your buffer or emergency fund. Sometimes it’s not that easy to find a job after losing your current one. However, to be able to start your long-term investments sooner, you may target three months worth of Emergency Fund at first, then start with your long-term investments as you continue to add up to your Emergency Fund. Your Emergency Fund need not sit and sleep in your savings account. You can invest in short-term fixed instruments such as time deposit, money market placements, etc. which still earn interest.
- Here’s a word on investments and to address the graphic designer’s goal of having a “flourishing and ample” savings. Successful saving and investing is a long-term process. If I may say, it’s a lifelong process. My husband, who loves to run, likes to use this metaphor, “Investment should be a marathon and not a sprint.” Sometimes we are blinded by this goal of quick and easy returns that we are duped into investing in scams. Always remember, “The higher the return, the higher the risk. The lower the risk, the lower the return.” And so if someone offers you high return with no risk and only for a short period of time (“Pare sigurado ito, malaki ang tubo, mabilis pa”), please run away as fast as you can! It doesn’t matter what your dear pare says and even if he himself has earned from it. I tell you 99.99% that’s a scam because it goes against the very principle of investment returns! The problem sometimes lies on our fatalistic mentality. We like to count on suerte (luck) to attain that dream financial abundance instead of hard work. I tell you the chances of winning the lottery or the big prize from Willy Revillame (is he still around?) is smaller than your chance of getting struck by lightning. But a lot of people insist on having luck on their side. In a TV show where they tackled the Aman scam, some of the victims admitted to knowing that there was something fishy about the deal but they thought they could take their money with earnings before the music stops. Again, they counted on fickle fate to be on their side. And now they’re crying fowl! So I guess both camps are to be blamed why these shameful scams still proliferate. Walang manloloko kung walang magpapaloko! (There won’t be scammers if there are no willing victims!)
- It is good to automate your saving and investing. Once you have committed to set aside an amount for saving and investing, make it regular and automatic. To answer the third question if she can start with an investment amount of P5,000.00, the answer is yes. In fact, with as low as P1,000.00 per month some banks offer you the opportunity to invest in Equity Fund whose regular minimum investment is P10,000.00; and Peso Money Market Fund whose regular minimum investment is P100,000.00. How is this possible? It’s through the process called pooling of investments. Check out the Easy Investment Plan (EIP) of BDO which offers this low minimum monthly contribution. As an added incentive to the readers, let me share with you this news I received from the bank on January 24, 2013: If you invested as low as P4,558 every payday via the EIP Equity Fund for the last five years, you are now a millionaire! What more, if you invested in their Equity Fund just three years ago, you would have doubled your money by now! Again this was never an assured return promised to the investors. It’s just impossible to commit to a return for investments like this. If you’re banking with another institution, inquire about their similar products. It’s most convenient if done with the bank which handles your payroll.
- Everyone should save and invest. And we should teach this to as many people who are willing to learn, especially those within our circle of influence. If you’re an employer you should influence your employees to do so. And I mean even if your only employees are your domestic workers (The Kasambahay Act states that this is how we should call them instead of household helpers). Our domestic workers are proud owners of Equity Funds. (I will probably discuss this in a separate article in the future).
10. Make your Financial Statements. Your monthly budget can be your Income Statement. Then prepare a Balance Sheet which is just “a picture,” a listing of your Assets (things of value that you own), Liabilities (your debts) and your Net Asset Value (Assets minus Liabilities). This way you can see the fruits of your labor. Seeing your assets grow will encourage all family members to help in contributing to reach your financial dreams.
Let me end up with the analogy I used during that tv appearance when the host asked me how important financial stability is in the family: Financial stability is like the gasoline to a car. Even as we all agree that love, respect and support are vital to a successful family, it’s not going run without money. No matter how beautiful the car is, the ride will not be smooth and pleasant if you always run out of gas. It’s very stressful for the driver to always see his gas tank blinking red in the middle of nowhere!
Here’s to a smooth life ride to all!
Wishing you financial happiness,