POOR HOUSE. No matter how abundant you think your financial life is at the moment, poverty can still creep up on you. If the warning signs are present in your life right now, it's time to take action and make some drastic changes. Photo courtesy of MoneySense.
Are you heading for the poor house? By Ruth Floresca MoneySense First Posted 10:28:00 04/07/2008
In the dictionary, poverty is defined as the condition of being poor and lacking in money or possessions. On the other hand, bankruptcy is described as the state of being unable to pay one’s debts and being mandated by court order to divide his/her properties among the creditors. These may sound extreme but they can be where those who miserably fail to plan for their financial future might eventually end up. The question is, are you one of them?
Red signals
According to US statistics, over two million bankruptcies were filed there in 2006. That is a big number and a considerable problem. In the Philippines, with inflation going up faster than salaries are raised, more and more people are also finding themselves having a hard time making ends meet. As an individual, how would you know if you’re heading towards poverty/bankruptcy? Here are warning signs:
1. Uncontrolled spending and/or use of credit cards 2. Having loans you are having difficulty to pay 3. Not making and using a budget 4. Living a lifestyle you can’t afford 5. Lack of savings
No matter how abundant you think your financial life is at the moment, poverty can still creep up on you. If the warning signs are present in your life right now, it’s time to take action and make some drastic changes. Take control of your money instead of letting it control you!
Measures to take
We asked certified public accountant Danny Lucero to provide steps to avoid being buried in a debt hole. Lucero, who has recently retired from his work in a non-government organization, is now running several small businesses aside from serving as a pastor in their local church.
1. Plan – “In the absence of any plans, you are not going anywhere,” states Danny. “So make financial plans for your future, abide by them and learn to set your priorities right.” For instance, when choosing which to acquire first, such as buying a house, getting educational plans for the kids, availing of health insurance, and purchasing a car, make the vehicle a last priority. “Unless it will make you money,” he counters.
2. Eliminate debts quickly – Pay off loans as much and as soon as possible. “Be faithful in paying. The earlier you extinguish your liabilities, the better,” counsels Danny. “Even if you have a 10-year loan, if you can pay it off within seven years, do it.” He clarifies that borrowing money, per se, is not bad if it’s meant for an investment that will generate income. “But taking out a loan for unnecessary purchases? That is unwise.”
3. Set aside savings and invest them while still employed – According to Danny, a large percentage of our population is composed of employees. “The problem is, a lot people who retire still wind up without a house of their own and insufficient money for daily expenses. Unfortunately, they are weaker and more prone to sickness by then.”
“Don’t wait until you’re nearing retirement age to save money or expect that your retirement benefits will be enough to tide you over,” he explains.
“Employment can only do so much because needs will eventually be higher than your income. So while you’re still earning and are young and able, consider putting up a small business, not when you’re already retired and old,” emphasizes Danny, “because you cannot gamble with your retirement money.” He says that starting small is advisable because when you finally learn the ropes, it’s the time you can consider expanding and borrowing money for that, even.
“Learn to invest your money where it can actively earn,” advises Danny. “Don’t just put them in bank savings accounts where the earnings are too small.” Find investment vehicles with higher returns but make sure you study them and understand all the mechanics first before letting go of your hard-earned bucks.
4. Simplify! – Assess how you live and start setting a certain lifestyle that fits your income. “Stay within your budget,” reminds Lucero. “This doesn’t mean you must not enjoy the fruits of your labor but keep the extravagance to a minimum.” For instance, instead of going out to eat at fancy restaurants once a week, make it once a month or even less often.
As early as now, protect your future, so that in time, your future will take care of you.
(This article is from MoneySense, the country’s first and only personal finance magazine. Visit www.moneysense.com.ph for more.)
Copyright 2008 MoneySense. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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