(The Inquirer Business Section is starting today (Wednesday) a weekly column on personal finance to be written by senior members of the Registered Financial Planner Philippines, a professional organization of financial planners in the country. Readers may send questions to hong@rfp-philippines.com).
QUESTION: I used to work as an OFW for many years and came home last year after my contract expired. I have had sleepless nights lately worrying how I can sustain my household expenses without a stable source of income. Although I have set aside some savings, I am afraid I may eventually use up all of it and not have sufficient cash at a time when I need it most. I am 45 years old and I am willing to work again. What should I do?—Doy
RFP: Your financial anxiety is very common to many people who don’t have a personal financial plan. Many people, even those who are very successful in their field, share the same problem about their struggle to achieve financial security because they don’t know how to prioritize their expenses. It is good that you were able to set aside some savings for the rainy days, but you should also know how to make it productive. It is not yet too late for you to start planning your finances and goals in life while you still have the resources and capability to do it.
To begin planning your finances, you should ask yourself the following questions:
1. Where am I now financially? Analyze your cash flow. Look at your expenses and income. How much do you save every payday? Are you able to pay your credit card dues on time? Do you spend your money more on consumption or investment? The answers to these will help you assess your ability to do financial planning. It will also help if you can estimate your current net worth. You can do this by summing up your total assets, which can be your savings in the bank, house, car or any property, minus all your payables. Your networth will tell you where you stand financially and you can manage it from there on.
2. What is my financial goal?
Start by first identifying what you want. Do you have any idea what your living standard will look like when you retire? How much income do you need when you retire so you can afford to sustain your daily expenses and enjoy life? Do you plan to move to your dream house in a few years? Do you love to travel? These are some of the many questions that will guide you in determining how much savings you need to accumulate.
3. When will I achieve it?
When you have made up your list of goals, classify them as short-term or long-term. If you think you can carry out a goal within the year then that will be considered short-term. Any goal that is beyond one year should be considered long-term. Your short-term goals can be buying a new cell phone for yourself. It can also be achieving savings target of 20 percent of your monthly household expenses, or finding a new job that pays well. Your long-term goals can be investing in a retirement fund when your reach 60 years old or buying a vacation home.
4. What is my game plan?
Develop a plan to achieve your goal. For example, you want to cut down your monthly expenses by 20 percent, your action step would be to reduce the number of times you buy your café latte to once a week from daily. Put an action plan for every goal in your list and try to keep a record of how you implemented it so you can review it.
5. How do I implement my game plan?
Make a budget of your income and expenses and try to follow it consistently. A budget is similar to how you assess your cash flows earlier but, this time, it is not about how you spent but how you plan to spend. You may not be able to follow every peso in the budget but this will help you become conscious of your spending. You can make your budget flexible so you can adjust when you need to until you get it right.
6. How do you know if you were on the right track?
Monitor your progress regularly. You can review your plan once a year to see if you need to correct certain assumptions in your projection or you need to add new goals. You may also need to consult a Registered Financial Planner (RFP) to help you at some point for specific counseling about your financial situation.
(Henry Ong is a registered financial planner of RFP Philippines. He can be reached at hong@rfp-philippines.com.)