Five mistaken beliefs about money
Question: Are there any money beliefs that we should take note of as we start our life as husband and wife?
Answer: In the many years that I have been in the financial services industry, I have come across many such mistaken beliefs on managing personal finances. Here are some of the more common ones.
Buy one, take one is always a great deal
Our mind is hardwired to think that getting freebies is a great deal. In fact, we tend to act somewhat irrationally on the fear of missing out on such a deal. This belief is not necessarily wrong. In fact, at times it can lead to a lot of savings. It is when this belief is applied blindly to all situations that things begin to go haywire. Here is an example. I found a suitcase selling in a Quezon City mall for P2,800 on a buy one, take one promotion. A week earlier, I saw the exact same suitcase selling at a Taguig City mall for P1,400 each.
Don’t scrimp on spending for food
If you eat to live, the above rule should be fine. But if you live to eat, you will only lose money fast and accumulate lots of fat. Food, even essential ones, is good only up to a certain point. Even water when taken in excess amounts can be fatal to the human body. One way to avoid taking in too much is to eat slowly to allow your body to digest the food and your stomach time to tell your brain that it has had enough. Your eyes, nose and even tongue may only tell you that you want and not need more food.
If you can pay your balance in full, go ahead and charge purchases to your credit card
Credit card revolvers are people who do not pay their credit card balances in full and get slapped with high interest rates. Credit card “transactors” pay their balances in full. Still, because many merchants pass on the fee (i.e. merchant’s discount) they pay to credit card companies for credit card purchases at their store, cash is often still the cheaper way to transact. Moreover, credit cards are the anesthesia to spending pain as you do not feel any immediate loss of cash. As such, you will tend to spend more. Pay in cash as much as possible.
Please also note that with some establishments, especially the smaller ones, even paying with debit cards comes out to be more expensive. If the store cannot provide the required maintaining savings account balance with the bank that runs the credit card operations, that store will need to pay a fee to allow the use of credit cards in its establishments. And you know very well who ends up paying for that fee.
It is easy to earn the coverage that insurance policies promise
The moment you pay your first insurance premium, the amount that you want your family to get in case of your untimely death is already guaranteed. Can you say that with your first pay or the investment you hope to enter to boost your earnings? You will probably need a good number of years before you can save and earn (from investing) enough to match the death benefit that insurance policies guarantee. So do not fool yourself. Go buy life insurance. The younger you are in acquiring life insurance, the cheaper the premiums are.
To make it easier for you to buy life insurance, think of insurance this way. In investing, you take the risk in generating returns on your money. Nothing is guaranteed. With life insurance, it is the life insurance company that takes the risk that you will live a long and healthy life as they will need that period to grow your premium payments large enough to pay for the promised benefit payouts and generate profits for themselves. And if you are called from this life early, life insurance companies have strong capitalization and reinsurance practices to allow them to release your benefit payouts early. Life insurance even turns gambling on its head. The chances of winning in gambling are always stacked against the player. But everybody wins with life insurance because man’s mortal nature will always lead to the release of benefit payouts.
Instead of renting, just buy your forever home through a loan
Newlyweds are rushed to buy their forever homes instead of renting. They not only get to call the place they live in their own but also avoid throwing money away through rent payments. Financially, however, it will be more costly to service a loan because of the loan amortization that will be higher than the rent for the same home (even on a 30-year mortgage) and the hefty down payment.
While some may argue that the appreciation of the value of the property accrues to the owner and not to the renter, the appreciation of the value of a forever home should not matter because there will be no intention of selling the home anyway. And if an expensive home is viewed as inheritance for children, know that providing the best (formal and informal) education to children that parents can afford is the greatest inheritance that can be given. Anything else is icing on the cake. INQ
Send questions via Asked at “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram, and Facebook. Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. To consult with a YAMAN Coach™, email [email protected]. To learn more about personal financial planning, attend the 99th RFP Program this January 2023. To inquire, e-mail [email protected] or text at 09176248110
