Four Ways to Build your Family’s Financial Foundation

The families of today live in a world that has to cope with financial crisis. Anything can happen in the blink of an eye, and even nations with stable economies can be devastated by sudden acts of nature, like Japan.  Thus, it is always best to be prepared in all aspects, including our finances. What families need now more than ever is to be “equipped” with the proper knowledge to face all the crises that may come their way, especially those of the financial kind.

The financial solutions that our grandparents and parents tried to instil in us i.e. study hard, get into a good school, get a good job, etc, are no longer applicable today. Today, even those in “good” professions like doctors, lawyers, nurses, pilots, architects, and the like are struggling financially. Times have changed, and families can no longer depend on the same financial solutions as before.

Recently, my husband and I have been able to become more financially literate through a series of enlightening seminars where we learned a lot about how to manage our finances, how to ensure proper protection for our family, and how to make our money work for us through the right investment and savings vehicles.

Here are four ways that can help build your family’s financial foundation:

1. Increase Your Cash Flow
Cash flow, according to the Fourth Edition of the American Heritage Dictionary of the English Language, is defined as follows: "the pattern of income and expenditures, as of a company or person, and the resulting availability of cash".

Thus, it is possible to have a big income but little or no cash flow, if your expenditures exceed your income.

This is where most Filipinos (and everyone else too, I suppose) go wrong when it comes to finances. We live in a world where the culture of spending rather than saving is predominant. “I want, I buy” is an attitude that is common among many.

What families can do is to see how their monthly cash flow works and find ways to increase it. Increased cash flow means increased cash that can be saved and invested.

Husbands and wives should look into their family’s monthly income. If your income is just enough to pay the bills, which is the case in most families, try to look for additional sources of income, like taking sideline jobs during your free time, or perhaps even setting up a home-based business. The extra income you earn from these can become seed money for your family’s savings and investments fund.

 

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Another way to increase cash flow is to reduce your household’s monthly expenses. Living simply, no matter how big our monthly salaries may be, is a wonderful way of life that we can adopt. When we live below our means, we can use our excess in a lot of ways: save it, invest it, or maybe even donate part of it.

However, this will mean that your family needs to make some lifestyle changes. As a couple you may want to talk about the specific changes you need to make in your day-to-day expenses, and maybe even cook up ways you can make extra money together. Once you have set specific guidelines, discuss them with other members of the family, especially your kids if they are old enough to understand.

On a personal note, I’d like to share some of the things that my husband and I have done to increase our family’s monthly cash flow:

•    Started taking on sideline jobs such as freelance writing, giving talks on specific topics, and event coordination. However, we always make sure that these do not conflict with our regular jobs and responsibilities.

•    Started an online business on the side. Even if our extra income from this is not so big and not fixed, we have been able to make some money nonetheless. As our way of “giving back,” we chose to allocate 10% of all our profits to be donated to an institution that caters to pregnant women in crisis and abandoned babies.

•    Reduced monthly expenses by:

• More consciously being aware of our “needs” and “wants” when shopping.
• Taking a bath using a dipper or “tabo” and a bucket instead of using the shower. This also helps conserve water.
• Unplugging all appliances when not in use, and making sure that lights are switched off when not needed.

 

2. Manage Your Debt

Many of us fall into what is often referred to as “the debt trap.” We work and work to earn money but end up spending it even before we receive it. Many financial planners advise against using the credit card for unnecessary means. In fact, even Warren Buffet, the world’s third richest man, advises people to stay away from credit cards.

How about you? Ask yourself: “Do I usually end up buying things that I don’t need even if I don’t have the money to pay for them?” In general, credit cards can be useful but many times they become our excuse to spend money even before we have it.

If you have credit card debts to pay, prioritize paying off your higher interest debts first. Also, it would be good to pay more than the minimum required payment monthly until your debt is fully paid. This way you can avoid unnecessary charges or penalties. Try limiting your credit card usage to one main card only, and use them only for emergencies.

Speak to your creditors and make arrangements as to how you intend to pay off your debts. Start slowly but surely and you will find yourself paying off everything you owe in no time.

Managing your debt will also require greater discipline and sacrifice from all members of the family, but perseverance will get you there and you will be thankful for it in the end.

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3. Build An Emergency Fund

What is an emergency fund? Well, just as its name suggests, it is a special fund or sum of money set aside for emergencies. What kind of emergency, you may ask? These would include situations where one has to cope with unexpected incidents and changes, such as an illness, natural disasters, job loss, unplanned repairs for your home or car, and so on.

It is recommended that income earners set aside three to six months’ worth of their income for their family’s emergency fund. No matter what your income is per month, you must try your best to set aside a certain amount to build up your emergency fund.

Try using this “wealth formula” which my husband and I have been striving to abide by.  So far, it’s working for us!

Income - Tithes* - Expenses = Savings
*Tithes are defined as 10% of your monthly income allocated for a worthy cause i.e. your church or a charitable organization.

It is recommended that those who receive monthly salaries set aside 20% of it every month. Financial planners call this “rewarding yourself first” – not by splurging on fine dining or costly family dates, but by saving it. If you prefer, you can then divide this 20% among the following: paying off your debt, setting up your emergency fund, and investing in insurance and health care.


4. Educate Yourself

Last but definitely not the least, you should invest your time (and if necessary, money) to get a good financial education. My husband and I were truly blessed to attend financial literacy seminars FOR FREE, and I really hope that other families will be able to do the same.

Being ignorant can cost us a fortune and equipping ourselves with the proper knowledge, especially when it comes to handling our hard-earned money, will definitely pay off in the end.


Renowned Filipino lay preacher Bo Sanchez says that “The ultimate purpose of wealth is to love others”, for money is necessary to provide for one’s family and help others.  Indeed, money is not the root of all evil, it is greed or the excessive love of money that is not good.  Live in moderation  and begin to build your family’s financial foundation today.


Resources:
www.img-wealthacademy.com
www.facebook.com/PurePassionistas
http://cfcinternationalmissions.com
www.bosanchez.ph