Personal Finance for Filipinos with 6 Easy Steps to Follow
Welcome to Pesocademy’s Ultimate Guide to Basic Personal Finance.
This post was written to help people in the Philippines gain easy access to a personal finance guide they can relate to.
Let’s get started.
What exactly is personal finance?
At its very core, the word personal finance is already its own definition.
What do I mean by that?
Let’s look at the two words separately.
Personal – it’s about you.
It is everything in your life that involves money – earning money from your job or business, saving money on your bank accounts, investing your money in mutual funds, or even spending it on flagship cell phones from well-known brands such as Samsung and Apple.
It is personal because every person has their own individual needs and unique situations.
Sure, the general principles and rules of personal finance will stay the same but there will be slight differences according to a person’s financial capacity and life status. The easiest example would be someone who is single versus someone who already has a family of their own to support.
The journey towards financial freedom will be different for each person.
Finance – managing your money.
The second word deals with how you manage money in your day to day life.
I don’t want to bore you with all the details but the most important thing you need to know is this – spending less than you earn.
Spend Less. Earn More.
And that’s basically it.
It looks so simple BUT so many people find it so hard to apply in their lives.
Because they had no clear direction towards their path.
So, to make things easier and clearer, we have decided to share these 6 Steps that you can use to guide you in achieving financial freedom and independence.
Personal Finance Step 1: Determine Your Goals
The first step is to define and know what your goals are.
What do you really want?
Many people fail because they do not know what they want. Simply saying that you want to have a lot of money is not going to cut it.
Be specific about your goals. Write them down.
An example of this would be:
- Buy my own house before I get married.
- Pay off all my credit card debts in 2 years.
- Have a successful piggery business in our province.
- Get a promotion next month.
- Travel the whole world.
These goals are important because they give you a purpose on why you are saving your money, or creating a budget, or investing in the stock market. Without these, you might as well just end up saving and saving and saving into eternity.
Remember that you are learning about personal finance to gain freedom. Freedom to do what you want and to spend more time with your family and loved ones. Even freedom from taking another overtime shift to make ends meet.
Personal finance is more than just about money.
Short Term and Long Term Goals
Look at your list.
Do you want to achieve something in the next 1 to 2 years? These are short-term goals.
How about ten, twenty, and even fifty years from now – where do you see yourself? These are long-term goals.
A great way to set your goals is by using your short-term goals as a bridge to connect your long-term goals.
What do I mean by this?
If you want to earn 120,000 pesos per month and you only have a 20,000 pesos salary now. Then you can set your short-term goal to earning 25,000 pesos monthly income. After you have achieved 25,000 pesos then aim for 30,000 pesos. Repeat this process until you reach your long-term goal.
Or maybe your long-term goal is to buy a car then you should make a short-term goal to save up money for the downpayment.
In this manner, the almost impossible goal you used to have, is now little by little, becoming possible.
Personal Finance Step 2: Self Reflection
You already have your goals figured out from Step 1. These are things that you want to have in the future.
Now it’s time to take a closer look at your current status in life. What do you have now?
Do you have a job or a business?
How about a savings account?
Are you paying for a car loan or a housing loan?
How much does your electricity bill cost?
Okay, after thinking about your present financial status, you need to create another list divided into two parts.
Assets and Liabilities
Anything that generates money for you will go into the Asset corner and anything that is taking money away from you will go into the Liabilities list.
A simple example:
- Income from an Apartment for rent
- Salary from a job
- Profit from selling clothes online
- Electricity bill or Meralco bill
- Water bill
- DSL Internet
- Housing Loan
This list allows you to see the bigger picture of your finances. You need to track where your money goes and if it is going to the right place.
Personal Finance Step 3: Create a Budget
Now that you have all the details from Step 1 and Step 2, it is now time to put everything together and create your budget.
Let’s get to it.
Income – Savings = Expenses
Remember this equation, print it, take a screenshot, or even write it down – so that you can look back at it again in the future.
This would be the main foundation of your budget.
What this simply means is that you set aside a percent of your income for savings and then you spend whatever is left to pay for your expenses.
By doing this, you are giving your future and goals the top priority by paying yourself first before everything else.
It doesn’t matter if it is 50 pesos, 1000 pesos, or even 20000 pesos per month just as long as you put yourself first in the amount that would make the most sense for you or your situation.
Here is an example:
Paying Yourself First
Total Income = 20,000 pesos
Savings = 2,000 pesos
20,000 – 2,000 = 18,000 pesos
Total Budget for Expenses = 18,000 pesos
Now that you have that figured out, you work with whatever is left of your income to pay for everything else. Don’t touch your savings!
If you find that your income is not enough, try to spend less on what you don’t really need.
Cut back on buying Starbucks coffee, try to bring a packed lunch to the office, etc.
If that doesn’t work and your budget is still short, you may need to look for another source of income to increase your budget. These can be a part-time job or a small side business.
Personal Finance Step 4: Create an Emergency Fund
You never know what life may bring so it’s important to be prepared for any sudden accidents or expenses that may arise.
Protect Your Savings
Imagine this – you are so happy to see that your savings are steadily increasing, but all of a sudden you lose your job due to downsizing. What happens now?
Normally those savings that you were so happy to see growing will then be used until you can find another job.
All those months, years of saving, suddenly gone. All in an instant.
This is where the emergency fund comes in. Open a separate account for your emergency fund so that it will be safe. You will only use this for emergencies.
It’s Okay to Start Small
You don’t have to start with a big amount immediately. You can start small and build up your emergency fund along the way.
Take advantage of your current situation if there is no emergency or crisis that you should focus on.
A good estimate of an emergency fund will be something in between of 3 – 6 months living expenses so that you can have a sort of buffer until you can find another source of income and your hard earned savings won’t be touched.
Personal Finance Step 5: Get Insurance
If your family depends on you then getting an insurance is one of the most important investments you can make in life.
Just be careful in choosing a legitimate company. Make sure to do your own research first before you commit. You can ask feedback from their customers just to be sure.
Protect Yourself. Protect Your Loved Ones
Some Filipinos don’t put much importance in getting an insurance because they think it’s just another expense but that belief is wrong.
Don’t put your loved one’s future at risk. Insurance can help you in case of any illness, accidents, or even death.
It can help in securing the education of your children, down to medical expenses, funeral expenses and can replace the income that will be lost if and when you die.
Death – it’s a very scary topic to discuss but it’s something real that happens to most of us and being prepared helps.
Don’t let your family suffer. Don’t lose everything that you have gained and accomplish just because you failed to get insurance. Protect your loved ones. Get insured.
Personal Finance Step 6: Remember to Have Fun
Finally, you have come to the last step…
As with anything, remember that you are doing this to have the freedom to live the life you want.
If you are saving so hard that you are starving yourself then that’s no good. Don’t stress yourself to the point that you will get sick.
Cherish the small moments, invest in your health, and enjoy the journey to freedom!
If you have learned something from this article then please take a small amount of your time to share it with your friends and family.
Thank you so much!