There's always room for growth when it comes to financial literacy. Throughout the year, we've talked to a handful of financial experts and real-life parents to share their best advice on how to handle money, whether it be for maximizing growth, minimizing expenses, building a college fund, getting insurance, raising money-smart kids or acquiring home loans. We've gathered some of the best tips and tricks of the year and compiled them here:
1. Every family should have five bank accounts.
“If you don’t divide your savings into separate specific accounts, there is a bigger chance that you will spend funds that are allocated for another purpose,” says bank manager Eleanor So. “Having separate accounts will give you a clearer picture of how much you really have, how far along you are from your financial goal for a [particular] account, and if you are able to stay within budget.”
You should have a family checking account allocated for monthly bills and other major expenses (i.e. tuition fees), a family savings account for everyday expenses like groceries and the occasional dinner out, an emergency account for unexpected expenses like hospitalization and major home repairs, a retirement account and a “fun” account for things like travel or a new car. Read more about these five bank accounts here.
2. Factor in inflation when saving up for your child’s tuition fees.
“Ang inflation ng tuition is different from the nation’s inflation,” says Ofelia Tordesillas M.D., senior financial planner at MoneyDoctors Inc., which provides customized financial coaching to its clients. “Ang nation’s inflation, we’re looking at an average of 4 percent. Ang tuition costs, nagra-rise exponentially -- 10 percent or even more.”
If your child is still a tot, he still has a lot of years of schooling ahead of him, which means tuition fees that grow bigger and bigger every year. So plan ahead. Here’s a 5-step guide to help you build a fund that covers all the way to your child’s college education.
3. You can invest for your child’s college fund with just P50,000.
Investing can be intimidating. It’s filled with technical jargon and equations, but experts agree that investing is a better option for making money grow than stashing it in a savings account. When it comes to investing, however, the prepared get ahead. “Ignorance is very expensive. Invest when you’re properly educated. You can’t copy someone else’s strategy in becoming rich. You have to pattern it after your own goals,” says Fitz Villafuerte, a registered financial planner and blogger.
Learn the ropes before you commit your hard-earned money. For example, here’s a situation to look into: For parents with P50,000, Ramon Tejero, program director and head of Retail Equities E-Commerce for Maybank ATR Kim Eng Securities Inc., suggests that you “put your money in an equity fund.” The risk is higher, but the returns are also greater, making it a good option for those with young children who have 10 years before they start college. Get smart when it comes to investing by reading up. To get you started, here's a primer on stocks and mutual funds.
4. Have a clear financial plan with your partner.
Money management can be a source of stress for couples so a clearly defined system is necessary to avoid quarrels and disagreements about the family finances. Three real-life couples shared with us their arrangement, which we found insightful.
A former stay-at-home mom says her husband gave her a specific amount every month, which she used to spend on household expenses namely utilities, food, maid’s wages, and so on. A couple who both have full-time jobs said combining salaries and having just the mom handle the budgeting works best for them. Another two-income household found that only touching one parent’s salary and putting the other’s in a savings account suited them the most. See the details of these couples’ money strategies and more ideas on couple money management here.
5. Build a retirement fund.
One of the biggest financial mistakes you can make is failing to set aside money for retirement. Always look ahead. The earlier you start building your retirement fund, the better, says Alvin Tabañag, registered financial planner and founder and chief trainer of Pinoy Smart Savers Learning Center, a financial and literacy program.
“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,” advised Tabañag. See four more of the most common money mistakes Pinoys make here.
6. Talk to the kids about money.
Parents have the responsibility to shape their child to have a positive and healthy attitude towards money. This includes conversations on the value of hard work, the difference between needs and wants, and the importance of saving, says Rose Fres Fausto, money management coach and author of the children's book The Retelling Of The Richest Man In Babylon.
Apart from that, conversations should also touch upon the purpose of money, says Edric Mendoza, lead anchor of On the Money on ANC, keynote speaker, and president of TMA Homeschool Inc. “Ask your kids ‘What’s the purpose of money? What is it for? Is it to be able to make more money? Is it to make the most in this world or to buy things, or is it to be used so that we can be a blessing to others?’”
7. Money is not everything.
Be ambitious, hardworking and money-smart, but never lose sight of what you really value in life. Love and family are two prime examples of what should come before money, says dad-of-two Bo Sanchez, best-selling author (including the financial book My Maid Invests In The Stock Market... And Why You Should Too), preacher, magazine publisher and entrepreneur.
“As parents, [we] need to live a life that values people, relationships, family, and love more than anything else in the world. If your kids see that your reason for waking up in the morning is love, not material things, they’ll get it and follow [your lead]. In every decision you make, put people first before material things—always.”