The 2 Things You Need to Have a Healthy Financial Life





For those of you who have made the decision to start a life of saving and to have a healthy financial life, congratulations! To most Filipinos who presently save money though, saving money is only a means to get a house, a car, or the latest gadget in the market. In other words, Filipinos do know how to save but for the wrong reasons; they would only save for big purchases but never for the future.

This is what I want you to save for, the future. Specifically, I would wish for you to save up for retirement and emergencies. These two are the essentials for a healthy financial life.

But before you get too excited on saving for your retirement, I would really like for you to start first on saving for your emergency fund. Now what is an emergency fund? It is essentially what its name suggests, a rainy day fund. It may be used to cover expenses during an unexpected layoff or an unforeseen medical expense. And how much of an emergency fund do you need? If you listen to Suze Orman, she recommends you to have eight months worth of your monthly expense as emergency fund. This means that if you spend ten thousand pesos every month, you need to have eighty thousand pesos of an emergency fund. Filipino financial advisers however recommend just three to six months worth of monthly expense as an emergency fund. This is by the way, another reason why you should track your expenses daily every month.

I personally recommend for you to have just three months of an emergency fund although I actually have six months. Basically, three months is good, six months is better, eight months is best, and ten months is just plain paranoid.

If you are supporting someone, you should have a separate emergency fund for that person. The rule is the same, three months worth of your monthly dole out to that person. I have a friend who supports an entire barangay, I mean family, in Cebu and I know all too well how the monthly allowance she gives them never seems to be enough. There's always a debt that the mother has to pay or a roof that needs fixing.

And where do you store your emergency fund? I suggest stashing fifty percent of your emergency funds in a time deposit account that has a THIRTY day term. The rest should be kept in a regular savings account that can be withdrawn anytime. If you have an emergency fund that is bigger than ten thousand pesos, you may store fifty percent of your emergency fund in a money market UITF which will give you a better return than time deposits and keep the rest in a regular savings account. I recommend BPI's short term money market UITF, it does not fluctuate sharply and is constantly on the rise. It also doesn't have any holding period, meaning you can withdraw your money any time.

Once you are successful in saving for your emergency funds, it is now time to save for your retirement fund. A retirement fund will come in handy when you are already old and can no longer work. Remember that you can't simply retire on SSS or GSIS pension unless you are very healthy, own your house outright, and live a very simple lifestyle, but chances are you're not and you don't.

if you are in your 20s, you are very lucky. You'll have more than thirty years to prepare for retirement and will be able to take advantage of the magic of compounding. Even if you just save two thousand pesos every month, you will have more than six million pesos in thirty five years (if you manage to earn ten percent per annum). Of course you have to take inflation into account so you'll probably have to save more if you are to retire in style. The only investment instrument that could give you an average return of ten percent per annum over a long period of time is stocks so it makes perfect sense to invest your retirement fund in the stock market through a stock broker,  and UITFs or mutual funds (that invest in stocks).

Only after saving for an emergency fund and being able to save regularly for your retirement are you to start thinking about saving for purchases such as a car or a house.

For now, I leave you with a plead to postpone any plan to purchase a house, a car, or heaven forbid, the latest Samsung Smart phone, at least until after you successfully fund your emergency and retirement fund.

Good luck on your endeavor to lead a healthy financial life. I am with you every step of the way.

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