Ask any Filipino what their ultimate financial goal is, and you’re likely be met with this response: “to save money.” This is usually followed by a string of reasons why one wants to accomplish this. These may include—among many others—being able to provide for one’s family, to save for one’s retirement, to have the needed funds for a business venture, or even to be able to go on a dream vacation.
As noble the reasons as one might have when it comes to saving money, for a lot of Filipinos, saving is still easier said than done. For instance, it might seem like the money you’re earning is too little in comparison to the rising cost of living and the current rates of inflation in the Philippines. Conversely, you might find yourself bogged down because of the seemingly endless number of things that you have to pay for each month, so even though you’re earning a substantial income, you’re still ending up with very little savings after each payday.
Whichever the case, working toward your goal of setting aside some of your income is very important. Moreover, it’s equally critical to ask yourself what exactly you plan to do with the money you end up saving. To that end, we present you with a few recommendations on how you can leverage the money you are saving to help with your medium- and long-term financial goals.
Build an Emergency Fund
In brief, an emergency fund is a sum of money that you set aside in order to cover your living expenses following a significant financial setback. Primarily, you build it for that “just in case” scenario where you lose your job or your business fails. This fund can used to temporarily replace your lost income, even as you try to get your bearings back and decide what to do next. Ideally, you should look into building an emergency fund that totals at least 6 months’ worth of living expenses. If you can save more, that’s even better.
On top of serving as income replacement, an emergency fund is also useful for other unforeseen scenarios that will require you to shell out a significant amount of cash. For example if you fall gravely ill or your home suffers damage because of a natural disaster, an emergency fund will be useful in covering some of the expenses for your medical treatment or for the repair of your home.
Since the idea of having an emergency fund is for you to have easy access to a spare reserve of money, it’s important to keep it liquid. We recommend keeping the chunk of it initially in a savings account like Robinsons Bank Simplé Savings Account. Later on, you can consider transferring some of that money to a higher-yield financial instrument like short-term bonds or fixed-income securities, which have higher rates of return compared to ordinary bank savings accounts. This way, your money remains fairly liquid while having the potential to earn more interest while it remains parked.
Settle High-Interest Debts Quickly
High-interest debts are liabilities that can become a money drain if you’re not too careful. When you have a number of high-interest debt obligations like credit card debts, it would be wise to pay them off before you even think of putting some of your money into investments. This is because you’ll be hard-pressed to find investment instruments whose rates of return can match the high interest rates of such debts. Before you know it, your unsettled debts—which may have mounted and compounded over time—will already have cannibalized the earnings you make out of your investments.
If you have any existing debt obligations from informal creditors—whether it’s a friend, a relative, or a neighborhood loan shark—it’s important that you settle these quickly as well. You certainly wouldn’t want to ruin your relationships with the people you care about just because you refuse to pay the money you owe them. Conversely, when it comes to illegal moneylenders, you definitely wouldn’t want to become a perpetual cash cow for their loan sharking schemes. As such, it’s of utmost importance that you sever ties with such people as quickly as possible.
Save for Possible Future Health Issues and Premature Death
Once you have created an emergency fund and paid off all your existing debts, you can now set aside money for other important matters. This includes saving money for potential medical issues in the future and the possibility of premature death.
Since you can never tell when you might get ill or event meet your end, it’s important to prepare yourself—and your family—financially for whatever the future might bring. This is why it’s important to put part of your money in insurance policies like a life insurance and a health insurance, which provide a guarantee of compensation in case of death and illness, respectively.
In the event of you passing away prematurely, a life insurance policy will pay out a death benefit to your beneficiaries. This type of insurance policy is ideal if you have a spouse and children, not only because they’ll get a lump sum of money that will replace your income but also because part of the benefits they will receive can be used to cover your funeral expenses and any medical debts you may have incurred.
On the other hand, a health insurance policy covers medical-related costs and expenses. These can include income replacement due to illness or accident, inpatient and outpatient medical services, surgical procedures, laboratory tests and medical screenings, and even medications.
Set Aside Money for Your Retirement
Gone are the days when retirement was all about sitting in a tumba-tumba as one slowly withered away into old age. These days, working-age individuals see retirement as that time in the future when they could finally relax and do the things they’ve always wanted to do, whether it’s traveling abroad several times a year, playing golf on weekends, or going on daily brunches with their long-time friends.
You certainly deserve to be able to live life to the fullest, and this is why you should make a conscious effort toward saving and investing some of your income today. This way, you’ll have money to use when you finally retire.
Here in the Philippines, the easiest way to save money for retirement is, of course, by making consistent contributions to either the Social Security System (SSS) or the Government Service Insurance System (GSIS), depending on whether you work in the private or the public sector. Filipinos also have the option of setting up a Personal Equity Retirement Account (PERA), which is a retirement investment plan similar to the United States’ 401(k) and Individual Retirement Account (IRA). The availability of PERA came as a result of Republic Act No. 9505, which the government signed into law to promote capital market development and savings mobilization in the Philippines.
With a PERA account, you’ll be able to invest your money in a range of financial instruments, from stocks and government securities to mutual funds and unit investment trust funds (UITFs). This gives you a level of control that other government investment plans typically can’t offer. Moreover, setting up a PERA account is quite straightforward. You have the option of opening one in a bank, an insurance company, or another financial institution that has been accredited by the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission, and the Securities and Exchange Commission.
Grow Your Wealth through Investments
On top of channeling part of your savings into actual retirement plans, you also have the option of investing them in other instruments that could potentially afford you higher returns for the amounts you invest. For example, you can look into investing in individual stocks through a reputable stock broker, or you could park your cash in a mutual fund or UITF that invests in a variety of instruments, including equities, government and corporate bonds, and fixed-income securities.
While you are young, single, and healthy is usually the right time to invest mostly in high-risk but higher-yielding investment instruments like stocks or shares of equities. This is because your investment horizon will be quite long, and you’re likely going to be able to endure market downswings through the years while keeping your money invested over the long term.
When you are a little older, you can then reap the gains of your high-risk investment choices before reinvesting your money into more conservative instruments. For example, you can diversify your portfolio by investing in bonds, money-market securities, and other such instruments that tend to be more prudent options for a more mature individual with a lower tolerance for risk. You can even invest in other forms of capital like real estate, which will allow you to make even more money, sometimes even without lifting a finger.
Saving money can be challenging, but with the right strategies, it’s a goal that virtually anyone, no matter their status in life, can achieve. Make sure that you are well-informed regarding the right ways to make your money work for you, and make a commitment to set aside some of that income you make on regular and consistent basis.