Business - No savings at 30?

(This is part of Take Charge of Your Money, a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Q: I just turned 30 years old and realized I have been working for almost a decade and have little to show for it. I'm ashamed to say that I don't have much savings. Although I work, there doesn't seem to be enough left to set aside. What should I do?

A: Working is one of life's simple joys. With it, we can put to use our talents and learn more about the industry we are in and its impact in the economy. By working, we can meet new friends and contribute to society. Plus we get to earn from working which can help provide for our families' needs.

Because we cannot predict the future and cannot be assured of a job forever, it is important to save money. This will tide us over should we lose our jobs, or get sick, or the time comes when we need to retire from active work.

At 30, you should start saving for your future now, and more so since you weren't able to start earlier. Ideally, saving should have been a habit begun while still a child. This would then become a well-ingrained habit throughout life. But do not worry, it's not yet too late. The important thing is you have realized how important it is to save, and commit to do so beginning today.

You actually raised an interesting question: How can you save when there doesn't seem to be enough left for savings? This is a dilemma most people face. How can you save when all your take-home money is used up by the end of the month (and may even be living on credit until the next pay day)?

The answer is quite simple. Instead of waiting until there is money left after paying your bills and other expenses, do it the other way: Save first before spending a single peso from your take-home pay. This is what financial experts mean when they say “Pay yourself first.” It means treating savings as a bill which you have to prioritize over any other bill or expense. By doing this, you will be able to stash away money for your savings which would otherwise have been spent on something you think you need but actually can live without.

You may think it's easy to say but hard to do. The truth is, saving can be done by anyone. Here are five easy steps on how to build up your savings easily:

1. As soon as you receive your salary, take out a certain percentage, start with 5%, and put this in an envelope you will mark “Savings.” Live on what is left of your salary.
2. Do not touch your savings if funds are running low a few days before your next payday. Instead, adjust your spending so that your funds will be enough until payday.
3. Open a separate savings account in the bank and deposit the funds you have set aside in your “Savings” envelope.
4. Deposit to your savings account every payday to ensure that the money earmarked for your savings will not be spent.
5. Once you have built up your savings a little bit, transfer some of it to a time deposit so it can earn a higher rate of interest. Later on, you can also move some of your funds to a mutual fund or unit investment trust fund so it can possibly earn even more interest. These investments have a risk attached to them, so discuss first with the bank or financial advisor if these are right for you.

One other important thing to do is to make a budget or spending plan. Write your projected income and expenses and see where you can cut down on spending. For instance, look at how you spend for your lunch every day. If you regularly buy food, think of bringing baon lunch to work. The excess funds freed (maybe about P500 a month) may then be added to your savings.

What can you use your savings for? It can be money for your retirement. You might think that at 30, retirement is so far away. However, saving for it now can make your money grow faster for you even if you put in only a small amount of money regularly. It is due to compound interest, which lets your money earn interest on top of money that has already earned interest.

Your savings can also be your emergency fund. This should be equal to three to six months' (even more) worth of expenses, which should be helpful when sudden unforeseen events occur: a job loss, an illness, etcetera.

Savings is doable. Start today and keep at it for a long long time.

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts.)

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