Here Are The Six Types Of Savings Every Filipino Needs To Be Financially Healthy, According To Registered Financial Planner Jesi Bondoc
Everyone wants to save and become financially secure, but how many Filipinos really know how to do so, efficiently and effectively?
It's certainly takes more than having a rainy day penny jar or piggy bank on hand, according to registered financial planner, Jesi Bondoc.
While many Filipinos might think that setting aside a portion of their monthly, or even yearly income is sufficient to be able to call themselves financially comfortable, there is a finer art to developing—and maintaining—healthy saving habits.
Jesi, who has shared his expertise through his written work in Money Sense magazine and frequent appearances on ANC show On The Money, admits that the idea of financial planning intimidates many Filipinos, regardless of financial capacity, because of the misconceptions that surround it.
First, many of them think that a hefty savings account can only be achieved if one brings home a massive salary. Second, they're not only intimidated, but are also unwilling to calibrate their spending habits or make the necessary sacrifices needed to build one's savings. Third, Filipinos have yet to appreciate the benefits of delayed gratification; a majority of working Filipinos' financial mindsets are still motivated by short-term goals.
Luckily for us, Jesi shares the basic, yet enduring and most foolproof, rules of saving that every Filipino can adopt, step by step, to become financially secure.
Step #1: Learn that there are six types of savings to prepare for.
Contrary to popular belief, a "savings account" can actually be divided into six allocations that serve unique purposes. "Savings" isn't a single lump sum, and one's financial health can be measured by how well one maintains each category in the long term.
In order of importance, each of these categories are:
- Your necessity fund
- Your feel good fund
- Your investment fund
- Your premium expense fund
- Your education fund
- Your gift fund
Step #2: Your necessity fund
This is the most important one of all, but unfortunately, one that doesn't get a lot of consideration.
A necessity fund, judging by its name, covers all the things in life everyone needs to live. Food, home expenses like rent, utilities, as well as transportation expenses are all covered by this category. These are things Filipinos spend for on a daily basis, and therefore, consume most of one's income.
But because these are expenses on "needs," Filipinos fail to consider that even a necessity fund needs a limit. Just because one is spending on food and gas, basic things they need every day, does not mean they are free to spend 75% of their income on these items.
Step #3: Your feel good fund
The feel good fund, also known as an indulgence fund, is what Filipinos are free to spend anywhere, on anything. It's money spent on the "now," or on things and experiences good for instant, but fleeting, happiness and benefits.
Money spent on nights out, shopping, dates, concerts, salon visits, and all that other fun stuff all falls under this category.
Step #4: Your investment fund
An investment fund is money that will be spent for one's future self.
Savings here will be used on things that have long-term benefits, and usually cover retirement, a business, or other investments like real estate and paper assets like stocks, bonds, and insurance. (With a healthy investment fund, one is also able to diversify their portfolio, which is a plus!)
Unfortunately, this is the step where most Filipinos start to fall short; their knowledge of savings only goes as far as Step #2.
As emphasized by Jesi, the beauty of exploring an investment fund lies in the realization that savings can potentially be transformed to income generators. The problem is, presently, Filipinos equate savings, or investments, with stagnation. It's money that's just stored, and isn't actually serving a greater purpose.
Filipinos must learn that an investment fund, if taken care of, can actually make them more money in the long-term. That's why they're called investments; Filipinos simply need to explore and educate themselves on the investment opportunities that are most suitable for them.
Step #5: Your premium expense fund
If a feel good fund exists for small expenses that give joy in the moment, a premium expense fund must be taken care of separately to cover larger expenses. More often than not, a premium expense fund covers traveling expenses, gadget expenses, or even luxury expenses like purchasing a new car or watch.
This is especially important to take note of as more and more Filipinos are getting a taste of what their strengthened spending power can give them. A growing middle class that can afford to pay for more premium items and services is still concentrating on what their paychecks can let them can spend on, rather than explore the savings opportunities that better salaries can opens up.
With a premium expense fund, Filipinos are shielded against becoming "one day millionaires," or in simpler terms, protected from the dangers of spending all their money on one massive expense without having a fall back when the bill comes.
A common example of this is when Filipinos wish to travel abroad. Instead of gradually saving up for a trip, they're inclined to disposing of a month, or even two months' worth of paychecks. And when they return from the trip, they're back to zero, and unfortunately, might not even have enough to cover for the necessities mentioned in step #2.
Step #6: Your education fund
Yes, even after college graduation, an education fund must still exist in the lives of Filipinos. And, this education fund is for one's self, not for immediate or extended family that require educational assistance
In this day and age, Jesi explains that it's become imperative that Filipinos continually strive to improve their competency in different ways t. Some opt for enrolling in graduate school, while others are enriched through certificate courses, online courses, seminars, or even periodicals and books that help deepen their knowledge.
After all, a more educated Filipino professional is afforded better professional opportunities, whereas brighter professional opportunities means earning more, and earning more allows one to save more. It's certainly an ideal cycle to kick start, and one that can begin by starting an education fund.
Step #7: Your gift fund
Jokingly, Jesi re-named this fund the "BIR" fund, which comically stands for "Bureau of Inay and Itay" fund.
Filipinos will immediately understand that this category of savings is meant for money spent on family, be it in the form of seasonal monetary gifts, or financial assistance. In this case, the only thing to remember is to be firm. If only a certain amount goes to this allocation, stick to it, no matter how many pairs of puppy dog eyes try to convince you to do otherwise.
Step#8: The actual allocation of money
Now that the six saving allocations are clear, Jesi instructs that the next step to follow is to do the actual implementation of each allocation. (Skipping the first seven steps and failing to establish each allocation is what makes the idea of saving so difficult, he adds. It's definitely much more challenging if one attempts to save for all the things one wishes to spend for without delineating what needs are, and what wants are).
Now, when it comes to allocating, the rule of thumb is to dedicate 40% for the necessity fund, and 60% to the other funds.
It is now up to each individual to allocate the remaining 60% to each kind of savings depending on their lifestyle. For instance, one person may not have a gift fund and wish to combine it with their educational fund. That's perfectly acceptable, as long as each category is maintained separately, consistently.
Step #9: Three months
Three months—that's how long it takes to build a habit.
Hence, if one can consistently maintain their savings allocations in three consecutive months, it gets easier and easier, and adjustments made to one's lifestyle become second nature by that time.
Most importantly, the temptation to dip into one's savings funds and use money meant for other purposes must be fought, with all of one's might and willpower! Giving in defeats the purpose of all the sacrifices made in the last three months, and the very purpose of having six different savings allocations.
To make it easier, allocate the moment a paycheck is received. That way, money is already placed where it's meant to be, and a better forecast of how much one can and should spend is crystal clear, right from the get go.