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    Money is important for our day-to-day survival and also for our future needs. However, more often than not, and unintentionally, we end up falling into money traps that put our financial well-being at risk. Here are examples of such traps, plus advice on how to resolve them.

    Money mistake #1: You have not yet set aside money for your retirement.
    Ideally, you need to consult a financial planned to find out the right formula to estimate how much money you should set aside. But you can really do this yourself with the help of your trusted mobile phone calculator and, yes, an Excel sheet. Scared of to do anything that has the word "sheet" in it? Then follow this advice of money management Rose Pres Fausto: already set aside 20 percent of the monthly household inccome before any expenses.   

    Alvin Tabañag, registered financial planner and founder and chief trainer of Pinoy Smart Savers Learning Center, a financial and literacy program, said, 
    “The formula to use will depend on an individual’s specific situation, [meaning his] lifestyle and health condition. For example, let’s suppose you plan to retire at age 60 with a P5 million retirement fund. If you start saving at age 50, you would have to set aside more than P28,000 a month to meet this amount. If you start 10 years earlier or at age 40, you need to set aside only about P9,000 a month. If you start much earlier, say at age 30, then you need to save only P3,700 monthly for your retirement.

    Clearly, delaying the act of saving has a hefty price. Tabañag adds 
    “The best time to start saving for retirement is the moment you land your first job. This way, you have more time to accumulate savings for your retirement fund, with the added bonus of being able to retire early. 

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    Money mistake #2: You do not have an emergency fund.
    If you don't have one yet, time to open an account for this sole purpose now. There are no ifs and buts. Your emergency fund should be separate from your day-to-day expenses. Chiqui Escareal-Go, president and chief service strategist for training and consultancy company Mansmith and Fielders, Inc., certified executive coach, and mom of four, suggests, “There should be a separate fund for emergencies that must not be too accessible (think time deposits and insurance). This form of forced savings puts discipline in budgeting. 

    Tabañag also adds that your emergency fund is not your retirement fund. “The former is for large, unexpected financial expenses [incurred when], for example, a family member is hospitalized or your house gets damaged by a typhoon. A retirement fund is neither a financial emergency nor an unexpected expense. It is something that is expected. 

    “If you want to avoid dipping into funds meant for your financial goals such as your own house, your child’s education, and your retirement, then you need to have an adequate emergency fund. In fact, even before you start saving for your financial goals, you need to establish an emergency fund first, equivalent to three to six times your monthly expenses. You should also prioritize getting life and health insurance so you will have adequate funds to cover your own and your family’s financial needs in case the unexpected happens.

    “If you have limited financial resources, this is the recommended prioritization:
    1. Emergency fund
    2. Life insurance
    3. Health insurance
    4. Financial goals (house, children’s education, retirement, etc.)

    “Of course, it is okay to dip into one’s retirement fund when you have no other option in a financial emergency. There’s no question that treating a sick child or repairing a damaged home is more important than one’s retirement, which can still be many years away.”


    Money mistake #3: You co-signed a good friend’s loan—and that person defaults.
    TABAÑAG: “You have no choice but to pay off the loan, because that is the law. If you fail to do so, expect to be harassed and [shamed] by debt collectors.

    “Never co-sign a loan unless you are willing, ready, and capable of assuming payment of the loan in case the borrower defaults. If someone asks you to co-sign a loan, simply say that it is your personal rule [never] to co-sign a loan. It is not about lack of trust in your friend, but more about avoiding unnecessary financial problems. Would you really want to risk your family’s own financial stability just so you won’t feel dyahe to your friend?” 

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    Money mistake #4: You’ve overspent to keep up appearances.
    ESCAREAL-GO: “Planning and living within one’s means are the two most basic tips [when it comes to managing your finances]. Working hard for a better life to include travels and other luxuries is always an option. I believe that as long as we work hard, we can reward ourselves well, and nothing compares with enjoying the fruits of one’s labor.”

    TABAÑAG: “This is one of the fastest ways to financial ruin. Do not allow your material possessions or your appearance to define you as a person. Pretending to be rich when you’re not is going to cost you a lot of money. You will find it hard to keep up appearances when you are already drowning in debt. Ask yourself, ‘Which is more important: my appearance and how people perceive me or my family’s long-term financial security?’” 


    Money mistake #5:  You bought something you don’t need because it was offered at a bargain (e.g., a huge discount, or at buy-now-pay-later terms).
    TABAÑAG: “Every time you are tempted to avail of a bargain, ask yourself, ‘What’s the worst that could happen if I don’t buy it?’ If the only answer you can come up with is ‘sayang kasi,’ then don’t buy it. I also suggest that you let some time pass before you decide on buying something expensive. Giving yourself time to think over a planned purchase will help you avoid impulse buying, which is one of the major reasons why people fall into serious financial trouble.”

    This article first appeared in the January-February 2015 issue of Smart Parenting magazine. Minor edits have been made by Smart Parenting editors. 

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