A 2012 survey discovered that financial planning is not a priority or a practice among the majority of Filipinos. According to the Consumer Finance Survey of the Bangko Sentral ng Pilipinas, only two out of ten Filipino households have a bank deposit account. Meanwhile, 43.8% spend more than their income, and only 4.6% spend less than their income. While a YOLO mantra has its benefits, planning for your—and your family’s—financial future can get you far in life. Here’s a decade-by-decade guide to help you out.
In your 20s Create a conscious spending plan. You need to be consistent about how much money you are willing to spend and save. The recommended amount for savings? Twenty percent of your monthly income. Allocate your salary to specific categories: 50% percent for essential expenses, 30% for lifestyle expenses (the weekend gimmicks fall here), and 20% for long-term financial goals.
In your 30s Build an emergency fund. Your fund should be equivalent to three to six times your monthly expenses. An HMO, critical illness insurance, or hospital income benefit plans will help, too. Put your emergency money in an easy access savings or time deposit account. If you need to dip into it, make sure you replenish it as soon as possible. If you haven’t already, explore instruments like stocks, securities, and bonds. You can use your investment earnings as your start-up retirement fund.
In your 40s Grow your wealth. You need to ensure future income. Life insurance policies allow for “income continuation,” giving you and your loved ones more options to grow and develop in the years to come. To make room for a “lifetime” source of income, compute your life insurance policy following your annual expenses. If a household spending is at P50,000 per month, the breadwinner will require P15 million in a future income fund. If surviving dependents receive P15 million and invest it in an instrument that awards them 4%, they will be able to generate P600,000 interest income each year. This amount will be able to cover the established household spending at P50,000 per month.
In your 50s Ready your retirement fund. Those who have been financially proactive in their earlier years can most likely ease into this decade without much difficulty. To sleep more soundly, compute for your retirement fund using an annual inflation rate of 5%. Consider your standard of living today, and how much it will cost to maintain it until you reach 60. If you haven’t had the benefit of starting ahead, you need to set aside 25% of your gross salary now until you reach retirement age.
In your 60s Preserve your retirement fund. Moving into the golden years may mean slowing down and taking a breather—and this is how you should treat your funds, too: Spend slowly and surely. And to keep it growing, your money has to ride the wave of inflation or outperform it. To further grow your funds, put your money in investment instruments. Also, plan for your estate. In the event of death, the family will need to pay the government up to 20% of the estate’s value before it can be transferred to the heir’s names. Discuss this with a trusted family member early on to avoid claiming problems in the future.
Lastly, the key to building financial stability is first establishing awareness. Look at your situation honestly. Here are six questions to help. 1. Do you have an emergency fund set up? 2. Are you paying all your bills on time? 3. Are you working toward an eventual retirement plan? 4. Have you secured healthcare and life insurance? 5. Are you reliant on credit?6. Do your kids figure into your financial framework?
If you answered YES to at least 4, then congratulations! Along with applying the tips above, you’re headed in the right direction towards financial wellness.