Personal Finance and Savings
I would like to share my thoughts on something very important and integral most especially to young professionals and not so young professionals like me (aguy!accepted na jud nga tigulang na heheheh). How many of us actually cared about saving or starting a business while still in college? For some either they have great influence from their parents or close relatives but other than that entrepreneurship or personal finance has never been inculcated in any of our curriculum or school subjects in the Philippines. Well, this may be a generalized statement because I have no clue as to what the curriculum now in high school is but if it were up to me, I would incorporate personal finance as a subject in high school or a minor in college because it is very important most especially when we begin to earn money not only as a salaried employee but also if we want to start our own business that we know how to handle our finances wisely.
When I started working at the age of 22 which is by the way the start of the high spending power, it was never in my mind to save money. I was also a one day millionaire during paydays and I would experience “drought” fifteen days after I would get my salary. I simply wasn’t taught by my parents or even in school how to handle money. Worst case was I also rode in the credit card fever. I owned four credit cards which led me to be perpetually in debt and gave me a false sense of wealth not really caring about compounded interests or charges etc etc. I even took loans because it sounded cool getting this much money and I would reason out that I can afford to be deducted with the monthly payments that’s when hell really got loose.
At the age of 24, I started the practice of making short term and long term goals. One of them is to learn how to be money savvy and to equip myself with the skills in personal finance and entrepreneurship. But I didn’t have the time to enroll myself in personal finance or accounting classes so I bought books instead in personal finance, business, simple accounting and simple excel so I will learn how to manage my finances which will help me in achieving my goal to own my business in the near future. From this book, I was shocked to learn how the interests were computed. For example, if you were to borrow money from a loan shark or otherwise commonly known as 5-6, if I borrow five pesos I pay back six pesos after a month. The one peso difference which is 20% of the five pesos is the interest. The equivalent nominal interest rate per year is 240% (20% x 12 months). However, if on add-on-rate, the effective interest rate, since the principal is being repaid on a monthly basis while the interest is still based on the original amount is 320%! Everyone do you still follow me?
So what do we mean by add on rates? Add on rate means that interest charges are always computed based on the original principal amount of the loan, meaning the original loan amount you applied for and no matter how much principal amount you have already paid back they will still compute it based on the principal amount, it sucks right? But who really cared in computing the interests especially in emergency cases?
So how about credit cards? Most credit cards charge a monthly interest rate of 3% on unpaid balances still unthinkable even for business persons or company owners, how much more for individuals? For those who are not informed the abuse of credit card gives you a false sense of wealth because you don’t immediately feel the drain from your money resources and the surprise comes when your monthly statement arrives.
The thing is, I was an emotional buyer before. I never planned or utilized budgeting. My idea of budgeting was what to buy weekly from the grocery or wet market and how to allocate your earnings. But there is more to budgeting than just allocating. The idea of budgeting should be that you are able to save money and utilize opportunity costs (this is what I couldn’t forget in my macroeconomics subject in college). Meaning, if you want to buy a book you should forego other expenses in order to allocate the funds intended for that other expense in buying your book. Forget the book, re-channel it to savings instead. How often do you get salary increases? Every year? How many percent? Not much right? But expenses are growing most especially if you have a family or unexpectedly someone gets sick. Can your income cope up with the growing expenses? Answer? No. So what do we do? We resort to taking loans, applying credit cards, micro finances etc etc.
When most of us started working, we never anticipate those things right? Why because it was never in our culture to set goals or to visualize this kind of scenarios. But it does happen and bamm! We get derailed. Sleepless nights, sometimes even friendships and relationships gets into jeopardy because when it comes to money admittedly you can’t trust anyone and no one will trust you.
Even blood relations ignore each other. Marnisa, enough of the ranting! So what can we do?
Well for starters the culture of saving should be cultivated. When? Even at a very young age. It should become a habit. Think of it in this way, it's like instead of buying new shoes or clothes because you deserve it after all your hard work why not pay yourself through a savings account approximately ten percent of what you earn if you can afford it. Or try putting those five peso coins in a plastic bottle of coke everyday from your pockets. It is what Mr. Francis Kong, a great motivational speaker and coach in the Philippines would say, delayed gratification. Sacrifice first then reap the fruits of your labor after. In that way when you are able to save some money you are able to build a contingency fund. But here’s the fun part. You should be able to let your money work for you. How? Well if you don’t have entrepreneurial skills, you can learn. Two, you can invest in time deposits or treasury bonds. Three, inquire in the Department of Trade and Industry about courses in soap making, chocolate making, candle making. If you ever come across the TV show of Ka Gerry Geronimo which is Ating Alamin he teaches poulty raising, tilapia raising and so on and so forth. He even has his own cd’s which you can buy in National Bookstore for several business options that you want to learn. Before, I used to buy Cosmopolitan Magazines or Metro but I shifted to Entrepreneur so I am constantly updated about the business climate in the Philippines.
If you can be passionate about something, be passionate in saving and investing. We need to remind ourselves no one can look out for us but ourselves alone. So we should be focusing our energies in learning how to improve the quality of our life and our family.
To end this blog, I would like to share a very interesting thought I came across while I was learning about entrepreneurship. But this was the lighter take on entrepreneurship.
What are assets and liabilities?
To illustrate here’s an example. If you buy an iPhone or whatever new model mobile phone it is, is it an asset or a liability?
It’s a liability in the sense that there is no income derived from it and that we should also factor in depreciation. Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors.
Assets, on the other hand helps you derive an income.
So friends, learn to be money savvy. Every time you go shopping or planning to spend on a high ticket item, always ask yourself is it an asset or a liability?