Being money smart is not an easy journey. It will take you a lot of time and self-discipline to become one. Many Filipinos go through life without saving nor investing, and just live paycheck to paycheck. Sometimes, even worse. Some will even take a loan just to survive until their next salary or income. Learning to handle your money at an early age will certainly put you to an advantage.
Sometimes we feel that we are still young and invincible even at 30, but the scary truth is that you are halfway to retirement, which is something you should prepare for. If you are still not doing these 6 financial lessons, it is time you do.
1. Stick to a Budget
Most of those who are in their 20s have been laughing about budgeting or had been using a budgeting app like Expense Manager and have read an article or two about the importance of creating a budget. However, very few individuals really stick to the budget that they planned or does not even plan a budget at all. Once you turn 30, you should learn to start allocating where every peso you earn goes.
The overall point of budgeting is to know where your money goes. Although it is fine to spend money on entertainment and fun trips, just make sure that it still fit into your budget or it has a certain allocation in it so that it wont detract you from your saving goals. Knowing your spending habits will help you discover where you can cut expenses and how you can save more money in your retirement fund or similar investments.
The best way to setting up and sticking to a budget is by documenting all your spending. If you are making your balance sheet, this is already something that you do. But if you do not, it is just writing down where and how much you spend. You can either use an app or use the traditional pen and paper to cross-check everything. Overtime, you will be more conscious with your hard-earned money.
2. Stop Spending Your Whole Salary or Income
According to the book “The Millionaire Next Door” written by Thomas J. Stanley, many self-made millionaires spend their money modestly. In fact, majority of these self-made millionaires drove used cars and lived in average-priced housing. He also found out that those who wore expensive clothing and drove expensive cars were in huge debts. To make the best out of your money, you had to ensure that your lifestyle can keep up with your paycheck. Do not go overboard.
You can start by saving 10% of your salary and spending the remaining 90%. You should deduct first this saving before you start budgeting your income to your expenses. You can use automatic debiting and put it into your retirement savings account to ensure that you will not miss it. If your money is in cash, you should deposit it to your savings account, retirement fund, or any similar account that will prevent you from spending it. Gradually increase the amount you save while decreasing the amount you spend. Ideally, learn to live 60-80% of your income while saving and investing the remaining 20-40%.
3. Get Committed with Your Financial Goals
Think about your financial goals. Write them down and put it out. From your big goals, create smaller ones in timelines. By planning how to reach your goals, you will get to know what are the things or actions that you should do and recognize unnecessary ones. Adding photos will even help you get motivated.
4. Figure Out Your Debt Situation
In the Philippines, may individuals become unworried about their debts once they hit their 30s. Maybe because nobody gets imprisoned because of unsettled debts. The truth is that you do not need to live your whole life paying off debt. Assess how much debt you have and settle it by creating a budget that helps you avoid gaining more of it. (See: 5 Proven Ways to Escape the Debt Trap)
It is important not to get overwhelmed when you see that you have decreasing debt or else, you will be back in it. The key is to control yourself especially your credit card usage to a minimum. You may also want to consider cancelling cards you may not necessarily need.
5. Establish a Strong Emergency Fund
Having an emergency fund will save you from a lot of financial burdens that are unplanned or out of the budget. If you do not have an emergency fund, you are more likely to use your savings that are meant for your other goals, or rely on credit cards to help you pay for unplanned car repairs and health expenses. It is better to be prepared than get into another pile of debt. It is important to have this fund to avoid begging someone else for money, such as the government or your relatives. Manage your money no matter how small it is and see your money grow.
Some financial advisors recommend having the equivalent of 3 months living expenses in the fund, while other recommend six months. How much you can save, however, will still depend on your financial situation.
6. Save for Retirement
As I mentioned, when you reach your 30s, you are half-way to your retirement. While this may seem like long way ahead, it is important to know that in saving, time is your best friend. The longer you save, the higher the interest it earns. Many people in the world either enter their 30s without having a single peso contributed to their retirement, or they are just making the minimum contributions.
If you have your SSS/GSIS as retirement fund, it is advisable to have a separate retirement fund. Saving in a separate retirement fund is proven much more useful in your old age because it gives higher amount of pension than the government’s offer. If you want that million-peso nest egg, you must put in savings now. Make sure that you still take advantage of your company’s matching contribution because it is still free money for your money you still can use in the future.
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