Whether we like it or not, emergencies happen, and often when we least expect them. But while we can’t always predict or prevent crises, we can definitely prepare for them in advance.
A tire that bursts, a home appliance that malfunctions, or a minor injury that needs immediate treatment may hurt but not deplete your purse. However, there are dire situations that can literally empty one’s pocket, such as a serious health issue, loss of employment, or a failed business venture. In these instances, an emergency fund will be most useful.
Randell Tiongson, a registered financial planner, wrote in his book No Nonsense Personal Finance that building an emergency fund is ideally done simultaneously with improving your cash flow (finding ways to earn more and spend less) and getting out of debt as much as your resources permit.
He adds that to build a proper emergency fund, it is essential to know just how much you actually spend in a month. Consider all your expenses, check your bills, and record your spending to get a good estimate.
The rule of thumb for creating an emergency allocation, he says, is to put aside an amount between three and six months’ worth of your monthly expenses.
“Three months is good, four months is better, five months will be great, and six months is excellent,” says Tiongson.
He adds that the most common reason to build an emergency fund is to cover a potential sudden loss of income. “I have given countless seminars to employees who went through retrenchment, and the common occurrence among them is that despite their stellar performance, they still lost their jobs,” adds Tiongson.
He also reminds people to exercise wisdom when determining what a real emergency is. “A 42-inch flat LED TV, a laptop, or designer bags and shoes that are on sale is definitely not an emergency—no matter how you justify it!” he emphasizes.
Here, Tiongson enumerates three good reasons to set up an emergency fund:
- To prepare. It is wishful thinking to say that you won’t be badly affected by crises in the future. As you get older, you’ll come across unplanned substantial expenses and bills that you will have to settle.
- To have peace of mind. Having an emergency fund will minimize your stress and worries when something untoward does happen.
- To reduce risks. With an established emergency fund, backed by life, non-life, health, and other insurance plans, you may be able to avert indebtedness or even total financial ruin in case of a major setback.
The good news is, as you plan ahead for adverse events that may happen in the future, you develop the skill for making sound decisions that will have a long-term benefit on your life. – Ruth Manimtim-Floresca
By Ruth Manimtim-Floresca
I am not much of a coffee drinker. And I don’t particularly like spending a lot on signature drinks. Lately though, I’ve been finding myself hanging out with online media friends at various coffee shops after we’ve attended events.
It’s nice when we get to use the gift certificates we’re given during press cons or by clients but, most of the time, we do have to shell out for the stuff we order. Good thing the stores offer non-coffee drinks so I can still buy other kinds of beverages. However, practical person that I am, I still try to limit my spending and just let the others get the regular coffee and pastry fixes they always can’t seem to be without.
Analyzing the situation, I realized that I’m there mainly for the company. I enjoy being with my friends because we always have a great time exchanging stories. We seem not to run out of topics to talk about and I find my mind stimulated by all the interactions which, at times, even give me ideas about new stuff to write about.
True friends are hard to find these days. So I’m taking these pockets of opportunity to bond with them when I do have time to hang out even for just an hour or two once in a while. After all, I don’t know how much longer our schedules would jive and if we’ll still be having coffee together a few weeks or months from now.
I like how we continuously meet individuals whom we could be great friends with in time. It’s amazing how our hearts have the capability to let more people in who will eventually touch our lives in the most meaningful of ways.
So I don’t mind spending for my not-so-cheap, non-coffee drinks every now and then. Ultimately, the friendships, the stories, the laughter, and the good times are worth far more than that.
Photo by Christiana Rivers on Unsplash
By Romelda C. Ascutia
One of my most hair-raising experiences in recent years is when I made a significant financial investment. I had a little savings in the bank that was not being maximized, and I feared it would be frittered away with unnecessary withdrawals here and there. So I decided to put it in something that would have a bigger ROI in the long term.
I am not a newbie in the real estate investment scene. I bought a piece of residential land in Cavite back in the ’80s. A 276-square-meter corner lot in Bacoor, it was supposed to be the site of an apartment building when I had saved enough capital. Alas, with the high cost of construction, the land remains idle, a place my family visits and marvels at for 10 minutes during our annual pilgrimage to the municipality to pay the real estate tax.
In the ’90s, I made a second investment, a two-storey townhouse unit in Caloocan City where my family presently resides. The contract prices of both the land and the house are exceedingly cheap actually, though back then, it didn’t seem that way. With today’s inflation and the high cost of housing, I realize with hindsight that they are wise investments indeed.
Since I was making a real estate investment every decade, I decided in 2009 to invest in property once more—a condominium unit in Mandaluyong City. Unlike my earlier purchases, however, the contract price of the unit was very steep. I withdrew my savings and plunked the down payment. Because I signed on during the open house, I learned that I was entitled to a discount of more than a hundred grand. Elated, I recklessly told the agent to throw in a parking slot as well. What was a couple of hundred grand more anyway? Uh-oh.
Fast-forward to the present: A condo unit is a bleeding wound from a hemophiliac. You pay a monthly amortization that is probably equal to the salary of a couple of junior employees, plus monthly dues that are already the amortization of my present home. And don’t forget the penalty. This year I forgot to pay my huge annual equity and for that, I was dealt a double whammy, forced to pay penalties to both the developer and the bank that ran to several thousand pesos.
So as soon as the unit was turned over to me early this year, I immediately set out to find a tenant. I thought it was going to be easy, but it took several months before it was occupied, even with four brokers working for me. There is, I found out, a glut of condo investors competing to rent out their units, too.
Now the bleeding has been staunched to a trickle. This is because condo rental fees are based on prevailing market rates, and I still need to fork out part of the payment.
But it’s still the most exciting experience I’ve had lately. That rainy night a couple of months ago when the rental papers were being signed by the tenant, I felt like a balloon, floating above the scene from sheer relief.
My challenges as a condo owner are just starting, I know. But I’m beginning to enjoy it. Real estate to me is a good investment, if you have the financial staying power and you choose your location well (avoid flood-prone and earthquake fault line areas, for one). And when my wallet is screaming in pain, I comfort it with this mantra I repeat over and over again: Just six more years to go, just six more years to go, just six more years to go ….
By Ruth Manimtim-Floresca
For the past several years, I have researched on, interviewed a lot of financial experts for, and written many articles on various finance-related topics. Somewhere in between, I came to know more about how it is to really take a good look at my family’s finances and what I could do to better secure our financial future. I acknowledge that I still have a lot to learn but I have improved on what I knew and have also taken several first steps this past year.
An article I read recently mentioned that most people’s idea of financial maturity means either getting the first paying job or making the all-important decision to get married. These life events, however, will not, and do not, affect financial stability unless you have already acquired the mindset with regards to making, keeping, and spending money. As I told my 17-year-old son a few weeks ago, I wish his dad and I could have learned many of the things we’re teaching him now about personal finance management when we were still in our 20’s. If we did, perhaps a lot of things would be different today.
But, it’s never too late to learn and to keep on learning. Here are six things I discovered that could help us become the totally finance-savvy individuals we aspire to be one day.
- Work hard and make your own money. For college students and new graduates, avoid becoming too dependent on your parents. They are not ATM machines. For family members of an OFW, don’t just wait for remittances to keep you alive. Make use of your time, be productive, and help augment your family’s income instead so your loved one would not have to stay abroad far longer than necessary. Don’t take shortcuts to getting rich (e.g. pyramid schemes, gambling, et cetera) because a large percentage of people who have done that end up with a lot less money than when they started.
- Save, save, and save. Study the power of compound interest. Whether you have decided to set aside P100, P500, or P1,000 a month in a financial institution, as long as you religiously stick to this every 30 days and do not touch your savings, no matter what, that small amount of money you allowed to grow will provide you with rewards in the future. Open a new bank account where you can transfer a fixed amount of money once a month. If you are enrolled in an online banking facility, this can be made easier via automatic transfers from your regular savings account. If you are more adventurous, study how you can earn more from investing in vehicles like time deposits, the stock market, mutual funds, and unit investment trust funds (UITFs).
- Be your own financial planner. It is not bad to take advice from others but, ultimately, it will be you who will decide where to invest and how to handle your money. Don’t just take someone else’s word and leave it to him/her to manage your money for you. Be hands on! Do your own research before making any decisions. It took several years before my husband and I finally decided to get life insurance policies after an unfortunate experience with an educational insurance company.
- Avoid getting into debt without a valid reason. Don’t borrow money unless the loan proceeds will be used for something that would help you earn money. When our PC started malfunctioning last year more often than we could use it, I bought a laptop and asked my sister to charge it to her credit card. I paid her back monthly for six months. Meanwhile, I used the laptop to churn articles and find online activities that would provide me with more income.
- Don’t become discouraged from pressing on. My husband and I have made some bad investments in the early years of our marriage. However, those made us realize that though we may make wrong decisions about money, the important thing is to make efforts to correct and avoid repeating the same blunders again. We’ve also learned that all financial decisions will not come without risks but it is not right to avoid making them for fear of committing another mistake. What matters is keeping watch over what happens after making a decision and learning from them. I am of the opinion that financial maturity can be achieved if we are determined to bounce back after experiencing setbacks.
- Live a simple life. Choose to spend money on basic needs and on a few luxuries to reward yourself every now and then. In our home, a mobile phone usually gets replaced only when the old one conks out. My kids don’t have the latest game consoles. What they have are hand-me-downs from their more affluent cousins. If they badly want a new gadget, they have to patiently plan for it and buy the thingamajig with their own savings.
I wholeheartedly believe that material things can rarely give true happiness. Family and friends, however, could. Thus, my husband and I prefer to spend more on special outings where all six of us could bond and enjoy each other’s company away from home once in a while. We treasure these simple joys with a prayer that, when they are all grown up, our kids would remember those happy times with their parents and siblings more instead of memories of being showered with stuff that had only given them fleeting pleasure.
By Karen Galarpe
The security guard peeked into my little red checkered tote bag before allowing me entry into the bank early Wednesday morning last week. He must have been amused because he said, “Thank you, ma’m” in a cheerful tone.
Inside my bag, you see, was a Zip Loc plastic bag full of P5 and P10 coins. Total weight: maybe 5 pounds. Total count: over P1,000.
It was my mom’s gift to my son. For quite some time, my mom would drop P5 and P10 in two piggybanks. They became full recently, and so she gave them to my son. It was my son who decided to deposit all of the coins in his account at the bank, which was what he did too when he got some cash as gift last Christmas.
I can’t remember how old he was when I first opened a bank account for him. Definitely it was before he started grade school, though. And so over the years, whenever he would receive cash from godparents and family members, these would go straight to the bank.
When my two friends got married more than a decade ago, I was floored when I learned they bought a house using their own money as downpayment. They were just in their 20s then. It turns out both of them grew up with their parents saving for them in the bank all the money gifts they received since they were small. So in some 20 years, compound interest has made their savings grow so much that these were enough to help them start on their own two feet when they got married.
The habit of saving can be instilled in a child early. Aside from opening a bank account for him, let him see you and the people around you practice saving as well. Start today and keep at it until it becomes second nature to your child.