A musical approach to family finance
QUESTION: It feels like our family is trapped in what financial planners call the payday to payday treadmill. No sooner do we earn our pay than we incur the same amount of expenses. As a result, our financial future seems blurry at best. Can you help?—posed in the “ask a friend, ask Efren” service of www.personalfinance.ph
Answer: Do you feel that you are practicing peso-null finance? Are you and your spouse arguing about money to the point that you have reached the height of pessimism?
Fear not! Even if you have reached the height of pessimism, all you need to do is take the “h” from height, the “o” from of and the “pe” from pessimism and you will see that even at this point, there is always HOPE.
And let’s get a little help from the songs popularized by The Carpenters.
The simple truth is that you probably go on hurting each other without ever knowing why because you do not know where you stand financially. A simple tool that was brandished during a recent trial is a good starting point, that of the statement of assets, liabilities and net worth or SAL-N. In training programs we conduct, people immediately feel the liberating power of the SAL-N as they get to realize that they are not as hopeless as they seem to be. With a properly constructed SAL-N, rainy days and Mondays will never get you down.
As soon as you establish your starting point with your SAL-N, the question to ask is, “Where do I go from here?”
Sometimes, not often enough, we reflect upon the good things in life such as our goals. Well from hereon, make it a habit to reflect on your goals more often. The typical goals in life are those that pertain to major life events like getting married, raising children, building a home, and funding retirement. Don’t just keep mental pictures of these goals. Have actual pictures of them that you would use as your wallpaper on your cell phone, tablet, PC or that you would even in magnetic picture frames hanging on your refrigerator door.
One thing is clear though. Money is NEVER the goal. So don’t focus on money itself. Otherwise, you will just be a victim of greed. Behavioral scientists have shown that people who are pre-occupied with money indeed become self-centered.
With both your starting point and your goals, you will now need to bridge the divide through budgeting. It’s going to take some time this time to prepare a detailed budget. There are two ways to do it. One is to start from your income and deduct the ideal expenses. Sometimes though, this approach leads to unrealistic assumptions on expenses.
The better way is to start from your current actual expenses. Look back to long ago and not so far away to see how your household has been living. Divide the expenses into two major groups, discretionary or variable and non-discretionary or fixed. Then you can work backwards to see what your household income should be to meet your expenses and pay the attendant taxes. In our training programs, there is always a kind of hush when participants see for the first time what they actually need to earn.
If your actual household income is above what you need to make to cover your expenses and taxes, then the excess should be found in your SAL-N, preferably in assets that are also making money for you (e.g. investments in financial securities or a business). If not, then you will always have to be working in high gear just to maintain your current lifestyle.
If your actual household income is below what you need to make, then you better stop this masquerade and start to cut back on first your discretionary expenses. If that is not enough, then start to question what you believe as nondiscretionary expenses as a good portion may not be needed after all.
So prepare your SAL-N, set your goals and bridge the gap through budgeting to be on top of the world looking down on creation.
If you want to learn more about effective family finance, please visit www.personalfinance.ph. There are free resources there for you to benefit from. You may also download the country’s first free personal finance mobile app called Ya!man™ from Google Play or the Apple apps store. Finally, you may attend the EnRich™ personal finance for couples training on Oct. 26 in Quezon City, Nov. 9 in Davao City and March 1, 2014 in Baguio City. Details for EnRich™ may be found in the website.
(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about the RFP program, attend a FREE orientation on Oct. 24, 7 p.m. at the PSE Center. E-mail [email protected] or text <name><e-mail><RFP> at 0917-3464126 to register.)
