Sunday, August 18, 2013

What is Emergency Fund and why it matters

It may seem to be uncommon to lot of Filipinos but we should start building emergency fund as early as we can. Emergency fund is your savings account set up to cover unexpected life emergencies.

For example, na-ospital ka, you need urgent money and you cannot sign. What would you do now? In the absence of money, it is possible that you would either borrow money for your families, relatives and friends or get more debt.

Why it is important?

It is important because we cannot tell what tomorrow brings. Portion of our money should be saved to pay for unexpected events or emergencies. Emergencies may include sudden loss of a job, medical emergency, natural calamity and accidents due to unexpected events. Without emergency fund unexpected events will be new financial burdens because taking on debt becomes the only way to pay for.

How much money should be saved for emergency fund?

Most of the financial planner’s advice, we need to save at least three to six months of our salary or living expenses. If currently you don’t have an emergency fund or medyo nahihirapan kang magsimula, start small and gradually increase it over time. Any emergency fund is also better than no emergency fund at all.

For example, kumikita ka ng 10,000 pesos per month magtabi ka ng atleast 30,000 pesos for your emergency fund (Php 10,000 x 3months). To reach this amount, it is recommended to save at least 10% of your net income hanggang maabot mo yung emergency fund. In case na mahospital ka and you need urgent money you can have near cash and you will have peace in mind to minimize the stress.

It may be sounds difficult to save for emergency fund but in the long run sacrifices pays off. Always remember that even a couple of piso a day can make a big difference over time. Practice delayed gratification. In the end, emergency fund will give you peace of mind.

Live simple, prioritize saving over spending and don’t leave nothing to your income. Sabi nga sa The Rich Man in Babylon, “A part of what you earn is yours to keep”.

Wednesday, August 14, 2013

How To Start Saving

8 in 10 Pinoy households do not have deposit accounts according to the first  Consumer Finance Survey (CFS) conducted by the Bangko Sentral ng Pilipinas.

Commonly, most of us Pinoys when asked why you don't have any savings will  answer "Sakto lang kasi ang sweldo ko" but overtime, when we received bonuses, 13th month pay and salary increase when asked the same question, again, we still say, "I don't have extra money, sakto lang ang pera ko".

We don't practice saving money because we think of the saying "Isang kahig, isang tuka". We act like one day millionaire. We don't often think about long term because we always think about short term.
We are comforted in the saying "Bahala Na". We don't have insurance because we are already insured sa taas.

Because we are well known as ma-diskarte we can always find ways and solution for our money problems. Luckily, we are very friendly and have lots of relatives na maaasahan in times of kagipitan. But are you sure you just want to stick with that routine?

You are on your mid-20's to 30's now, do you save? Are you sure you don't have any plans to save for your future? When you reach age of 40, 50 and 60. Do you still want the idea of "Isang kahig, isang tuka?". Buti sana kung at that time malalakas pa din tayo have a full-time job in the office, competent and good looking. :)

There are tons of ways to get a jump-start on saving. What ways work for you? Have you ever done anything drastic or silly to trick yourself into saving? Here's the list of top 5 advice I used to to start saving.

1. "A part of all you earn is yours to keep."
After receiving your salary, remember this line from The Richest Man in Babylon book.  Savings should be your priority. Every little bit counts. Most financial planners will ask you to save atleast 10% of your income but I advice to use the 70-20-10 rule.

70 Percent for Expenses
Living expenses should consume 70 percent of your budget. This includes housing, food, utilities and transportation.

20 Percent for Savings
Twenty percent should split in three ways, with the first 10 percent going towards retirement. 5 percent for emergency fund (which ideally covers your living expenses for three to six months) and the other 5 percent going towards a specific savings goal (like buying a house, investments).

10 Percent for Tithes
When we're generous to Him and to others, God blesses us. Giving serves as a constant reminder that God is our provider. God blesses the people who pay tithes, give food and share His blessings. When we pay tithing we show gratitude for all that God has given us and return to Him a portion of what we have received.

2. A budget doesn't limit you it gives you freedom.
Always write down your budget and check your cashflow. Create a written zero base budget, you should be aware where your money goes and trim unneeded expenses. Previously, I always use my notebooks and scratch paper to write down my weekly budget but now I started an excel sheet to track down my expenses. If you have smartphone/iPhone you can use it to help you stick to your budget. Once you've managed to write down your budget you can have more freedom to spend.

3. Pay your Debt first (except for mortgage)
Stop creating new debt think first before you buy. Put your credit cards away until you have completely paid off the outstanding balances. Make a complete list of all of your debts and prioritize them in order of importance. Mortgage payments and vehicle payments are typically at the top of most lists.

4. Make thy gold multiply
The above statement is from the Richest Man In Babylon again. This simply explained that once you started saving invest that money so that it will make more money for you. Visualize the kind of investment business you want to start. You can start a business in small capital, work from home or invest your money. Know your passion and strengths.  It is important to follow your passions first and the money will follow.

5. Practice delayed gratification
We might hear the word, great things come to those who wait. Spend now or save now? For example, you want to go for vacation in Singapore or outside the country. Estimated budget is about fifty thousand pesos and at this stage you only have ten thousand pesos in cash, so what do you do? Start saving! Delaying gratification can be hard-work but it will lead you to where you want to go.

Pay yourself first is a very popular saving strategy. Plan, save and start now. Keep in mind to set goals and help yourself to make savings a habit.

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