Building blocks for lifelong financial security
IN the face of unforeseen financial storms, establishing robust safety nets remains paramount. Building an emergency fund, equivalent to three to six months of expenses, shields you against sudden job loss or medical emergencies. Additionally, safeguarding your family’s financial stability through health and life insurance offers indispensable protection.
Despite age or marital status, investing in insurance coverage ensures peace of mind and shields loved ones from undue financial strain. With prudent allocation from your income, fortify your financial resilience and mitigate risks posed by life’s uncertainties.
Allow me to share with you Five Financial Moves to get a head start in your financial future: Create a spending/budget plan. Effectively managing your cash flow, the money that goes in and out of your pocket is the first step toward achieving a healthy and balanced financial life. A “Spending Plan” is a great tool in helping you keep track of your expenses. Start by writing down all your monthly necessity expenses like your food, rent, utility bills, etc. These are the items that are essential for your sustenance — shopping not included! It is recommended that your necessity expenses do not go beyond 60 percent of your monthly income to provide space for your other expenses. Whatever is left from your income after deducting your necessity expense is your “free portion,” the amount that you can allocate either for savings, “wants” or both.
Implementing a spending plan is like getting into a new exercise routine. The first few attempts will seem difficult to follow through but once you get started, your system will naturally get used to it and eventually be a regular part of you.
Build your financial safety nets. Financial disasters such as job loss, hospitalization or any event where you suddenly need a sizable amount of money can happen to anyone, regardless of age and social status. That’s the reason why you’d like to dedicate a portion of your income toward saving for your emergency fund. Being prepared for such eventuality provides you with an indispensable hedge in your financial life. It is recommended that you establish between three and six months’ worth of your expenses as your emergency fund. From the “free portion” in your cash flow, carve out an amount that you can save regularly until you reach your desired emergency fund size. The second financial safety net you’d like to establish is your health and life insurance.
Being young and single doesn’t mean that you do not need any kind of financial protection like life insurance. Life insurance is a great financial tool to ensure that we do not cause any unnecessary financial burden to our family in case of untimely demise. If no one in your family is dependent on your income, get an insurance equivalent to the expenses that your family will immediately spend after death such as funeral cost, etc. Getting a life insurance of P500,000 is a good number to start with.
Resist debt. You are born in the information and “instant” age. Instant information, instant coffee, instant noodles and instant access to credit are plentiful. While it is true that buying using credit cards offers convenience and freebies, it also encourages spending something that you haven’t earned yet and might lead to a vicious cycle where you work, receive paycheck and pay credit card dues. It is a cycle that will financially and emotionally drain you and wish you wouldn’t have participated with. The key is to stick with cash payments. If your current cash balance cannot afford it, it means you have to delay it momentarily. Do not be trapped with the “YOLO” mentality. It is untrue that you only live once; in fact, statistics show you’ll be living an average of 68.5 years, that’s around 25,000 days. Now, that’s a lot of days living miserably if you fall trap to instant gratification.
Invest in education. Improving your competencies through continuous education is what will separate you with the majority of your peers. Successful people whether in the corporate world or in business have one thing in common — they do not stop learning. Invest in your most important asset — yourself. Remember that knowledge is one commodity that is not subject to inflation. Continue to develop your skills and competencies for they will be your springboard to success inside a fierce and competitive marketplace.
Grow your money wisely. One of the advantages that you have over me, your boss and your parents is time. Your age makes you a better beneficiary of investment. You have more years to grow your money and make yourself rich. Did you know that if you save at least P100 a day and invest it monthly to an investment vehicle that yields 10-percent interest every year, you’ll be accumulating roughly P1 million in 15 years? Not bad for a daily saving that cost as much as your latte from your favorite coffee shop. Learn about stock investing, mutual fund and UITF (unit investment trust fund). These are great investment instruments to use as you begin your investment journey.
Jesi Bondoc is a registered financial planner of RFP Philippines. To learn more about financial planning, attend the 106th RFP program this March 2024. Please email info@rfp.ph or visit rfp.ph for details.