Filipino families are no stranger to money troubles. The Philippines, after all, is still a developing country. Opportunities are not always easy to come by. All the same, achieving financial freedom in the Philippines is not impossible.
Sometimes, all it takes is a shift in perspective and the right decisions. Learning to properly manage money can help you achieve your dream of providing a better life for your family. It starts with making the right money decisions and cultivating healthy habits.
Take those baby steps
Taking control of one’s finances can be a daunting idea. It’s easy to feel like it’s too big of a goal to attain. While financial freedom is indeed a big goal, it is not impossible to achieve.
And it all starts with gaining a new perspective. That is, learn to take baby steps that will bring you there.
Breaking the big goal down to smaller steps will make it feel more attainable. This simple shift in perspective will motivate you to take the steps to make it happen. Changes that will improve your life in a major way often start with the right mindset.
Commit to living beneath your means
This is the most important financial decision you will ever make — commit to living beneath your means. Being financially free is rarely about the amount of money that comes in, it’s more about how much you are keeping for yourself.
Even lotto winners end up broke because of their inability to properly manage their money.
Learning the value of frugality will have the greatest impact on your journey toward wealth creation.
One of the key things you need to master here is the art of delayed gratification. This is something that many Filipinos fail at. It’s also the main cause why many remain stuck in an “Isang kahig, isang tuka” lifestyle. Filipinos have a propensity to live in the moment and indulge their whims, spending all their earnings in the process. Some even take loans just to throw a party or buy the latest iPhone model.
Avoid falling into the same trap by making delayed gratification a part of your daily mantra. Be willing to make sacrifices here and there, so you can set aside money that can grow over time. When you finally have enough assets earning money even while you sleep, then that’s when you reward yourself with the best phone in the market.
Pay yourself first
Many people commit to setting aside savings when they have some money left by the end of the month. This kind of approach rarely works. Even if it does, it’s often difficult to achieve. You will have to take stock of every peso you spend just so you’ll still have some left for your savings.
The easier and more effective approach is to set aside a specific portion of your earnings for savings as soon as your salary arrives. Pay yourself first!
Simply allocate a specific percentage of your income for savings, then follow this equation: Income – savings = expenses. After you’ve paid yourself, you can spend the rest of your earnings worry-free.
The ideal allocation for savings is 30% of your income, but you can start with 10%. The smaller amount will help you ease into the habit.
Put in the hard work
Beyond just living beneath your means and setting aside some of your income for savings, you should also work hard to increase the money that’s coming in. This is a crucial step to propelling your financial standing forward. A bigger income translates to bigger savings and more money set aside for investments.
This is important because your savings will be feeding into your assets. These assets will then bring in a stream of passive income that will be the backbone of your wealth creation.
So be willing to put in the extra hours that will land you that promotion or salary increase. You can also take a side job to increase your earnings. How about starting a small business to augment your income?
There are several options out there. The opportunity is bound to show up as soon as you’ve made the decision to increase your income.
Start investing now
You need a stream of passive income to become financially free. Your goal is to come to a point when you no longer have to trade your time for money. You and your family can pack up and go on an extended vacation, and still have enough income to cover your regular expenses.
The best way to make this happen is to accumulate assets by investing. And you have to start investing now! Because of compound interest, time is your most valuable asset when it comes to investing.
You should also gain as much knowledge about available investment options as you can. Some of the common investment vehicles are stocks, corporate bonds, government bonds, mutual funds, Unit Investment Trust Funds (UITF), and Variable Unit-Linked (VUL) Funds.
Diversify your investments
You should also learn to shield your assets from risks. One key rule here is to diversify. Spread out your assets in many different investment options. This way, even if one type of investment is affected by market conditions, you will still have a fallback. Sure, managing a diversified investment portfolio can be challenging. It will require expertise.
Luckily, there are investment vehicles that are inherently diversified, such as the mutual funds, UITFs, and VULs. These investment vehicles pool together different types of investments.
A mutual fund, for example, can be a combination of stocks, bonds, and commodities. It combines investment options with varying risk levels and from different sectors of the securities market. Even if one sector fails, there are other assets to fall back on.
Set specific goals
Another effective way to achieve financial freedom is by setting specific goals. Having a specific destination for your journey will make it more fruitful. Keeping your eye on the prize will also help you stay motivated.
Set specific goals for every asset accumulation effort. Have a specific plan for building a home, the education of your children, your travel dreams, and other such big goals.
You can make the journey easier by tapping available resources. There are, for instance, financial tools tied with specific goals. The Manulife GradMaker, for one, will help you fund your children’s college education. With just a few taps on your phone, you can sign up, transfer funds, and start investing in your children’s future.
Start making the right money decisions now. And remember to enjoy the journey!
Disclaimer: This is a guest blog post by Jason Garcia.