Money Tips from Practical Reesh
I can't say that I'm financially savvy. But I can say that I try NOT to be satisfied with my financial situation and continuously try to teach myself by listening to podcasts, reading books and doing research. The end goal is to have Financial Independence which means I want to get to a point when I don't have to rely on a day job to afford to live the lifestyle I want.
So here are some of the things I'm doing that worked for me.
1. Change your mindset about money. It's not dirty or bad or gross to want more of it.
Stop criminalizing money! Stop thinking that wanting more money makes you less moral. I felt relieved when I read "You are a Badass with Money" by Jen Sincero because she articulated the need to decriminalize money so well and made me let go of my guilt of wanting to make more money.
Yes, money can't buy happiness. And happiness is what everyone wants. But unless your intention is to chase a higher kind of "happiness" akin to nirvana (my hats off to you), you have to admit that having money will help you have the happiness you want sooner than later. It costs money to eat, to pay the bills, to get from point A to point B. Wouldn't it cost money to buy those ingredients and cooking tools for you to hone your culinary skills to achieve your dream to become a Master Chef which will make you ecstatic? Or simply to cook a mind-blowingly great meal for your loved ones. Wouldn't it be more challenging if you don't have the money to support your dreams and to fully experience your most authentic life?
Money is just a tool that will give you the freedom and options to do whatever you want and live the life you want instead of just being a victim of your own financial circumstance.
"My Poor Dad said 'I'd rather be happy than rich.' My Rich Dad said 'Why not be both?'" - Robert Kiyosaki
Jen Sincero said "Let's take back the word 'money' and decriminalize it, because until you do, you aren't going to be terribly motivated to let yourself make much."
So admit that you love money and want to make more of it to live life on your own terms!
2. Know your "why".
Why do you want to improve your financial situation? Why is it important for you to improve your financial situation?
Is it because you don't like the feeling and the stress of living paycheck to paycheck?
Is it because you want to afford to send your kids to the best schools?
Is it because you want to afford to do more good and help fund the charity causes close to your heart?
It can be all of the above and you also just want to afford to retire comfortably without needing to worry about your finances while living your best life.
Getting your financial situation in shape is going to be a workout. 🏋️♀️ It's not going to be easy-breezy eggs over easy. 🍳 Some days you will want to just give up on your quest. But on those days, you will have to remind yourself of your reasons "why" you started the quest in the first place. And hopefully, it’ll become your compass 🧭 to drive you towards your financial wellness.
3. Save money and money will save you.
I'm lucky to have been raised by frugal parents who taught me the discipline of saving money, delayed gratification and be debt-averse. They provided all the needs of my brothers and mine. I was denied a lot of my wants even if I beg, cry and make a scene in the bookshop for them to buy me the pretty perfumed stationeries and glittery stickers. I have to earn them by doing good in school. I remember how happy I was when my aunts gifted me with one or two Barbies for Christmas and Birthday. I can barely remember playing with one because my mom is a re-gifter. 😜 She must have rationalized that Barbie is not a need of mine so she might as well regift it to some other kid instead of needing to buy a gift to give her. When paper dress-up dolls were all the rage, I remember being bought one coz it's so much cheaper than a Barbie. It comes with one or two outfits. But when I asked to buy some more paper dresses 👗 for it, it was a no. So I ended up drawing dresses on paper and cutting them out to dress my paper doll. It sure developed my creativity by doing so. 👍
When I got my first paycheck, I gave them to my parents as a thank you for all that they've done for me. And every time I received my 13th-month bonus, I give a portion of it to them. They took the money and saved them. Then they gave them back to me when they found out that I’m planning to buy my first condo property when I was 24 to add to the downpayment. I was so grateful to them because it's a huge load off my shoulders. To the young #adulting me, that's a great example of the value of saving.
"Don't save what is left after spending. Spend what is left after saving." - Warren Buffet
So, it starts with setting up a budget based on your income. First of all, set aside the money for savings. Then whatever is left, that's what you can spend on your needs and wants. If you think the leftover money after deducting the savings is not enough for your needs and wants, then try reassessing what your needs and wants are and reprioritize. You may have to give up some of your wants to make sure you have your needs covered first. And try to get smart and find ways to cut the costs down on your needs too. If you have the will, you will find a way. And the common way is by living below your means. Yes, easier said than done. Like I said, financial wellness is a workout. Heck, it’s gonna be an ultra-marathon! 🏃♀️
Once you have your monthly budget set, you can use a mobile app to help you keep track of your expenses and see how good you're keeping to your budget. I use a free app called Pocket Expense on iOS that uses an "envelope" system where you allocate an amount to each of your expenses on a monthly or annual basis. Then you log your daily expenses which will be deducted from an envelope based on its category. There are a lot of other free apps that do something similar. So just find one that suits you. The important thing is to track your progress and your adherence to your budget. Otherwise, you'd be like a ship without a compass. It's gonna be much harder to get to your destination.
Another thing that helps is by automating your budget. Once your paycheck comes into your bank account, you can set it up to automatically divert specific amounts to other accounts or sub-accounts according to your budget. Think of the other accounts or sub-accounts as envelopes. This keeps balances and savings progress more visible compared to when you keep everything in just 1 account.
I use Security Bank as my payroll account and also have several other accounts and sub-account setup. When my paycheck comes in at the end of the month, I have set it up to automatically divert some amount to the following accounts/envelopes the day after payroll.
So what are you saving for? How much should you be saving monthly?
I won't tell you the percentage of your income that you need to save. Because we all have different incomes and expenses, so to each his own. But for me, it helps to have some defined goals so I know what I'm aiming for. And it helps if the goals are in bite-size pieces so they're not overwhelming. I find Dave Ramsey's 7 Baby Steps to Financial Freedom to be very helpful. The rule of thumb is, the sooner you can get through the first 3 of 7 Dave Ramsey's Baby Steps, the better. I have converted it to the Filipino version.
Baby Step 1 : Save an initial P10,000 in an emergency fund. 🚨
This amount is for emergency use only. It is to be used to pay for things you don't budget for like medical costs. Or it can be used to handle some stressful events due to unplanned expenses to make it easier for you to stay focused on sticking to your budget and/or getting out of debt.
If you had to withdraw from the emergency fund to pay off some unavoidable and unplanned expenses, the priority is to repay it back to have P10,000 again for future emergencies.
Baby Step 2 : Pay off all debts using the debt snowball.
This is applicable to those who have consumer debts like credit card debts, car loans, medical bills, etc.
Pay off the one with the smallest amount of debt first as fast as you can while paying the minimum on the other bigger ones. Once the smallest debt has been paid off in full, do the same on the next smallest, so on and so forth until all debts are paid except for the mortgage if you have one.
Note that you don't have to cut up your credit card to do this. See Tip #5 (Credit Card ain't that bad) below.
Baby Step 3 : Build up your emergency fund to be equal to 3-6 months of expenses.
After paying off all your consumer debts except for your mortgage (if you have one), then it's time to build up your emergency fund to be equal to 3-6 months of your monthly expenses.
The intention is to have a 3-6 months worth of cash for when your income flow is interrupted like when you lost a job and need time to find another one. At least you have the emergency fund to cover 3-6 months of your expenses in the meantime. That also means you don't have to go back into debt by using your credit card to buy food, pay the bills, etc. and pay interest because you can't pay them in full.
Though you can't use the emergency fund as investment since you need it to be liquid and must be easily accessible to you in case of emergency, there are still ways to make it grow. See Tip #4 (Not all bank accounts are created equal) below.
Baby Step 4 : Save and invest about 15% of your income for your retirement.
Now that you have the safety net cash to cover 3-6 months of your expenses, time to save for your retirement. For Filipinos and Asians in general, this comes last. Because we tend to prioritize other things to save up for like buying a house to live in and kid's college fund.
You should do this at the same time when you're saving for your kid's college fund and/or buying a house. If 15% is too much, then allocate at least 10% of your income for your retirement fund.
When it comes to investing, time is a very important factor. It'll cost you lesser or you can put in lesser but get the same amount in the end as opposed to when you start much later. The sooner you invest, the higher the returns thanks to the magic of "compounding interest". This means you're making your money work for you by making you more money.
Let's say you put in P10,000 into an investment that will earn you 10% or P1,000 per year.
There are a lot of investment vehicles to choose from. Do some research on the following to see which one makes sense to you most. Check the fees that they charge you upon entry, during and exit. DO NOT get into an investment that you do not understand. If you can't explain it to someone else, then you don't understand enough of it yet.
The following are the ones I have spent time to research and understand the risks of and think they're okay for someone who has low risk-tolerance like me.
There was CAP education fund before but it is now defunct.
I don't have kids, so I'm skipping this baby step. It's my life hack. 😜 Therefore I haven't spent much time to dive deep into the other education funds in the market today. Here's a link to an article that has a list of them.
But I think it's just similar to mutual funds. You can just get a low-risk mutual fund and invest in it for years until your kids are going to college to cash it out. It would have earned because of fund growth and compounding interest.
Baby Step #6 : Pay off your home mortgage early.
Once you got rid of the mortgage payment from your monthly budget, you'll suddenly have a substantial amount to invest in other things.
How would you know if you're ready or can afford to purchase a property?
Baby Step #7 : Bonus round. Build wealth and give.
Always keep the saving and investing mindset. Keep the ball rolling. Once an investment has been paid in full, find another investment opportunity to grow more money trees. 💵🌳
At this point, you already have your investment gears going to secure all the basics for your financial future. All investments and growth beyond this point are considered as a bonus.
Since you are blessed with financial peace of mind, it's time to share your blessings. So you can allocate a part of your money towards giving to charities or funding causes that mean a lot to you. Make your money do good deeds.
4. Not all bank account are created equal.
It's common knowledge that the regular savings account earns a very low, ignorable interest rate at 0.01% - 0.1% per annum.
So where do you keep your 3-6 months emergency fund? There has got to be a way to put it to work and earn a better interest rate.
There are other types of savings accounts that have interest that increments as the savings amount increases. It’s encouraging you to save more and more and not do any withdrawal by letting you earn higher interest. Since this is your intent for the emergency fund, then this kind of savings account is perfect! 👌 Do some research to find out what each bank offers and how much interest rate they're giving for this kind of arrangement. For starters, refer to this article that lists 10 high-interest savings account.
ING recently launched digital mobile banking offering 4% per annum interest rate during a promo period. Otherwise, their regular interest is 2.5% per annum.
5. Credit Cards ain't all bad.
Its common belief that to keep your finances healthy, avoid getting or keeping a credit card. 💳 That's only true for those who don't have the discipline to keep to their pre-defined monthly budget. Those who get tempted to buy things they know they don't need if they have easy access to a credit card.
There are several benefits in keeping a credit card especially if it's one of those that comes with free benefits and reward points earning.
You can pay for your budgeted expenses using the credit card and earn reward points for them. You can then claim a free item or a free plane ticket once you've earned enough reward points. And some cards have other perks like free airport lounge access, cash rebate, etc. Plus the benefit and security of not needing to carry wads of cash in your wallet every time you run errands. Oh and a lot of credit cards partner up with online shops and airlines to offer special discounts.
Yes, there are annual credit card fees that you'll have to pay. But a lot of them waive the annual fee on the first year. For the succeeding years, you can call the credit card company and ask them to waive it. And they do waive it if you ask nicely. For some, they allow you to use your rewards points to pay for the annual fee instead.
So why not have them? There's more to gain than there is to lose!
Just make sure you only use it to pay for your budgeted expenses and that you pay off the full amount on your monthly credit card bill. This way, you're not paying any interest.
Credit cards, like money, is a tool. If you're smart about it, it can help more than hurt. 👍
Good luck to us all with our adulting and our quest for good financial health. 🥰
So here are some of the things I'm doing that worked for me.
1. Change your mindset about money. It's not dirty or bad or gross to want more of it.
Stop criminalizing money! Stop thinking that wanting more money makes you less moral. I felt relieved when I read "You are a Badass with Money" by Jen Sincero because she articulated the need to decriminalize money so well and made me let go of my guilt of wanting to make more money.
Yes, money can't buy happiness. And happiness is what everyone wants. But unless your intention is to chase a higher kind of "happiness" akin to nirvana (my hats off to you), you have to admit that having money will help you have the happiness you want sooner than later. It costs money to eat, to pay the bills, to get from point A to point B. Wouldn't it cost money to buy those ingredients and cooking tools for you to hone your culinary skills to achieve your dream to become a Master Chef which will make you ecstatic? Or simply to cook a mind-blowingly great meal for your loved ones. Wouldn't it be more challenging if you don't have the money to support your dreams and to fully experience your most authentic life?
Money is just a tool that will give you the freedom and options to do whatever you want and live the life you want instead of just being a victim of your own financial circumstance.
"My Poor Dad said 'I'd rather be happy than rich.' My Rich Dad said 'Why not be both?'" - Robert Kiyosaki
Jen Sincero said "Let's take back the word 'money' and decriminalize it, because until you do, you aren't going to be terribly motivated to let yourself make much."
So admit that you love money and want to make more of it to live life on your own terms!
2. Know your "why".
Why do you want to improve your financial situation? Why is it important for you to improve your financial situation?
Is it because you don't like the feeling and the stress of living paycheck to paycheck?
Is it because you want to afford to send your kids to the best schools?
Is it because you want to afford to do more good and help fund the charity causes close to your heart?
It can be all of the above and you also just want to afford to retire comfortably without needing to worry about your finances while living your best life.
Getting your financial situation in shape is going to be a workout. 🏋️♀️ It's not going to be easy-breezy eggs over easy. 🍳 Some days you will want to just give up on your quest. But on those days, you will have to remind yourself of your reasons "why" you started the quest in the first place. And hopefully, it’ll become your compass 🧭 to drive you towards your financial wellness.
3. Save money and money will save you.
I'm lucky to have been raised by frugal parents who taught me the discipline of saving money, delayed gratification and be debt-averse. They provided all the needs of my brothers and mine. I was denied a lot of my wants even if I beg, cry and make a scene in the bookshop for them to buy me the pretty perfumed stationeries and glittery stickers. I have to earn them by doing good in school. I remember how happy I was when my aunts gifted me with one or two Barbies for Christmas and Birthday. I can barely remember playing with one because my mom is a re-gifter. 😜 She must have rationalized that Barbie is not a need of mine so she might as well regift it to some other kid instead of needing to buy a gift to give her. When paper dress-up dolls were all the rage, I remember being bought one coz it's so much cheaper than a Barbie. It comes with one or two outfits. But when I asked to buy some more paper dresses 👗 for it, it was a no. So I ended up drawing dresses on paper and cutting them out to dress my paper doll. It sure developed my creativity by doing so. 👍
When I got my first paycheck, I gave them to my parents as a thank you for all that they've done for me. And every time I received my 13th-month bonus, I give a portion of it to them. They took the money and saved them. Then they gave them back to me when they found out that I’m planning to buy my first condo property when I was 24 to add to the downpayment. I was so grateful to them because it's a huge load off my shoulders. To the young #adulting me, that's a great example of the value of saving.
"Don't save what is left after spending. Spend what is left after saving." - Warren Buffet
So, it starts with setting up a budget based on your income. First of all, set aside the money for savings. Then whatever is left, that's what you can spend on your needs and wants. If you think the leftover money after deducting the savings is not enough for your needs and wants, then try reassessing what your needs and wants are and reprioritize. You may have to give up some of your wants to make sure you have your needs covered first. And try to get smart and find ways to cut the costs down on your needs too. If you have the will, you will find a way. And the common way is by living below your means. Yes, easier said than done. Like I said, financial wellness is a workout. Heck, it’s gonna be an ultra-marathon! 🏃♀️
Once you have your monthly budget set, you can use a mobile app to help you keep track of your expenses and see how good you're keeping to your budget. I use a free app called Pocket Expense on iOS that uses an "envelope" system where you allocate an amount to each of your expenses on a monthly or annual basis. Then you log your daily expenses which will be deducted from an envelope based on its category. There are a lot of other free apps that do something similar. So just find one that suits you. The important thing is to track your progress and your adherence to your budget. Otherwise, you'd be like a ship without a compass. It's gonna be much harder to get to your destination.
Another thing that helps is by automating your budget. Once your paycheck comes into your bank account, you can set it up to automatically divert specific amounts to other accounts or sub-accounts according to your budget. Think of the other accounts or sub-accounts as envelopes. This keeps balances and savings progress more visible compared to when you keep everything in just 1 account.
I use Security Bank as my payroll account and also have several other accounts and sub-account setup. When my paycheck comes in at the end of the month, I have set it up to automatically divert some amount to the following accounts/envelopes the day after payroll.
- Paycheck/Expense Account - This is where I keep all my budgeted monthly expenses. Food, electricity bills, water bills, mortgage payments, etc.
- Emergency Fund - This is where I transfer the money to build up my 3-6 months emergency fund.
- Investment Fund - This is where I transfer the money to pay for my investments like stocks, insurance with VUL, etc.
- Travel Fund - This is to save up to fund my passion for traveling. This is one of my wants. This can be your Fun Fund where you save up to fund whatever makes you happy. 😊
So what are you saving for? How much should you be saving monthly?
I won't tell you the percentage of your income that you need to save. Because we all have different incomes and expenses, so to each his own. But for me, it helps to have some defined goals so I know what I'm aiming for. And it helps if the goals are in bite-size pieces so they're not overwhelming. I find Dave Ramsey's 7 Baby Steps to Financial Freedom to be very helpful. The rule of thumb is, the sooner you can get through the first 3 of 7 Dave Ramsey's Baby Steps, the better. I have converted it to the Filipino version.
Baby Step 1 : Save an initial P10,000 in an emergency fund. 🚨
This amount is for emergency use only. It is to be used to pay for things you don't budget for like medical costs. Or it can be used to handle some stressful events due to unplanned expenses to make it easier for you to stay focused on sticking to your budget and/or getting out of debt.
If you had to withdraw from the emergency fund to pay off some unavoidable and unplanned expenses, the priority is to repay it back to have P10,000 again for future emergencies.
Baby Step 2 : Pay off all debts using the debt snowball.
This is applicable to those who have consumer debts like credit card debts, car loans, medical bills, etc.
Pay off the one with the smallest amount of debt first as fast as you can while paying the minimum on the other bigger ones. Once the smallest debt has been paid off in full, do the same on the next smallest, so on and so forth until all debts are paid except for the mortgage if you have one.
Baby Step 3 : Build up your emergency fund to be equal to 3-6 months of expenses.
After paying off all your consumer debts except for your mortgage (if you have one), then it's time to build up your emergency fund to be equal to 3-6 months of your monthly expenses.
The intention is to have a 3-6 months worth of cash for when your income flow is interrupted like when you lost a job and need time to find another one. At least you have the emergency fund to cover 3-6 months of your expenses in the meantime. That also means you don't have to go back into debt by using your credit card to buy food, pay the bills, etc. and pay interest because you can't pay them in full.
Though you can't use the emergency fund as investment since you need it to be liquid and must be easily accessible to you in case of emergency, there are still ways to make it grow. See Tip #4 (Not all bank accounts are created equal) below.
Baby Step 4 : Save and invest about 15% of your income for your retirement.
Now that you have the safety net cash to cover 3-6 months of your expenses, time to save for your retirement. For Filipinos and Asians in general, this comes last. Because we tend to prioritize other things to save up for like buying a house to live in and kid's college fund.
You should do this at the same time when you're saving for your kid's college fund and/or buying a house. If 15% is too much, then allocate at least 10% of your income for your retirement fund.
When it comes to investing, time is a very important factor. It'll cost you lesser or you can put in lesser but get the same amount in the end as opposed to when you start much later. The sooner you invest, the higher the returns thanks to the magic of "compounding interest". This means you're making your money work for you by making you more money.
Let's say you put in P10,000 into an investment that will earn you 10% or P1,000 per year.
- On the 1st year, your P10,000 will become P11,000 by the end of the year because it earned P1,000 in interest.
- On the 2nd year, since you reinvested the interest of P1,000 which means your investment total is P11,000, by the end of the year, you'll earn P1,100. That means you'll have a total of P12,100.
- Assuming you keep reinvesting your earned interest year after year and that the interest rate stays at 10% year after year. After 10 years, your initial P10,000 investment would become P25,937.42.
There are a lot of investment vehicles to choose from. Do some research on the following to see which one makes sense to you most. Check the fees that they charge you upon entry, during and exit. DO NOT get into an investment that you do not understand. If you can't explain it to someone else, then you don't understand enough of it yet.
The following are the ones I have spent time to research and understand the risks of and think they're okay for someone who has low risk-tolerance like me.
- Real Estate
- Most Filipinos and Chinese or maybe Asians as a whole are taught the importance of owning a home or any property as early as you can as preparation for retirement. It makes sense because when you retire, you can no longer rely on a monthly income to pay for rent. So ensuring that you have a place to live without the need to pay rent makes perfect sense.
- The value of your home is assumed to appreciate as the years go by if it's in a good location and well maintained.
- But having a fully paid real estate property that you live in is not enough because it's not earning you any income since you're not renting it out. So you have to find a way to turn it into an income property by leasing out a part of your home or have another fully-paid property that can be rented out where the monthly rent paid to you becomes your monthly income to pay for your monthly expenses upon retirement.
- Real Estate forms a huge chunk of my investment portfolio. I feel the most secure and comfortable with this kind of investment.
- Insurance with VUL - Variable Universal Life Insurance
- It's life insurance that doubles as an investment.
- Just like a normal life insurance, if something bad happens to you, your beneficiaries will get the insured amount.
- But VUL insurance also has an investment vehicle which earns profits from part of the money you put in every month.
- You can access your investment fund after a certain number of years if you need it or you can leave it untouched to let it keep earning and deduct the monthly insurance fees from it to keep the life insurance going without having to shell out any more money from your own pocket to pay for it.
- If you have other investments like properties, you just have to have the insured amount that is equal to the estate tax (6%) and other fees that your beneficiaries will have to pay to gain legal access to your estate (other investment properties).
- Index Funds
- Index Funds is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index.
- Think of the stock market as a race track. There's no way for non-technical traders to know which stocks or racehorse 🐎 to pick or bet on because there's no way to know which ones will win or gain. Unless you have a time machine or crystal ball 🔮 that allows you to peek into the future. But the PSEi (PH Stock Exchange Index) is like a collection of the 30 best-performing horses (listed companies) that are carefully selected to represent the general performance/benchmark of the PH stock market. So investing in index funds is like betting on the race track itself which never loses money. Or betting on the casino instead of the blackjack or the roulette table. Why? Because the house always wins. 💵
- This is said to be the safest route to take for us who don't understand the stock market enough to pick and choose the stocks to buy and just want to invest passively.
- This is what Warren Buffet advice novice or lazy investors to get.
- The easiest way to start investing in index funds is to buy shares of an equity index fund like First Metro Exchange Traded Fund (FMETF) on the PH Stock Exchange via COL Financials where you can sign up for an account online. FMETF is the only exchange-traded fund in the PH market today which is tracking the PSEi.
- This is where I dump my extra savings into after prioritizing a huge chunk to my real estate investments.
The following are the other kinds of investments that I have NOT taken yet but is interested in.
- Pag-IBIG and/or SSS P.E.S.O Fund - PESO stands for Personal Equity Savings Option.
- This is probably the simplest and affordable way to invest.
- I would put some of my money into this if I don't think the Index Fund and Real Property can make me more money in the end. Because ...
- It’s tax-free. Almost all earnings gets taxed. Capital Gains Tax and Real Estate Tax (paid yearly) for real estate. Stock Transaction Tax when you sell and Dividend Tax when you receive dividends from the shares you hold. So P.E.S.O. fund’s being tax-free is great!
- Minimum monthly investment starts from P500 for Modified Pag-IBIG 2 Savings Program and P1,000 for SSS PESO Fund.
- See sample computation below that I grabbed from http://www.myfinancemd.com.
- Banks like BDO and BPI also have P.E.S.O. funds that are also tax-free. But there’s a limit. You can only invest P100,000 per year. P200,000 for OFWs. Same limits apply for those of SSS and Pag-Ibig.
- Target Date Funds
- This is the best match for those saving for retirement because this is a long term investment like a decade and more.
- As explained on Investopedia, it's a fund that invests in other funds, intending to target growth to cash-out at a certain date (the year when you plan to retire).
- As we get older and nearing the date when we need the income supplement, it's better to take lesser risks on investment. The asset allocation of a target-date fund gradually grows more conservative as the target date nears.
- Unit Investment Trust Fund (UITF)
- Offered by banks. Buying into a UITF means that you own units of this fund that the bank's investment arm manages.
- You just have to enroll or opt into UITF at a bank where you have an account with. Then you can do a payment transfer into the UITF account on a monthly basis. Some banks even allow you to automate the monthly transfer from your savings account to your UITF account.
- Mutual Funds
- Similar to UITF but managed by an investment company instead of the bank's fund managers.
- Investopedia explains that a mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
- It gives small or individual investors access to diversified, professionally managed portfolios at a low price.
- It's divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
- Mutual funds charge annual fees (called expense ratios) and, in some cases, commissions, which can affect their overall returns. And it's because of these fees (entry/front-end fees, exit fees, etc.) that are quite high which are automatically deducted from your investment that I decided not to get into it yet again.
- But if I eventually decide to invest in mutual funds again, I'd rather do it via COL Financial because they don't charge front-end fees.
- And it's more convenient because all I have to do is transfer the fund online from my bank account to my COL Financial account and wait for my deposit to be confirmed. Once COL confirmed the fund deposit, I can log in to my COL account to order shares of the mutual fund account I chose by keying in the amount I want to invest and it will match it with the # of navps/shares. And that's it. All I have to do is watch it grow.
- You can put in your investment with a huge sum all at one go. Or you can do it on a monthly basis. Or as and when you want to. All done online.
Baby Step #5 : Save for your kid's college funds
As Asians, unlike the American and maybe some European parents, we know we have to pay for our kid's schooling until he finishes college or university degree. The option of our kids taking student loans does not exist in our consciousness or is abhorrent to us. We love our kids so much and we take on the role of being parents so seriously that we take on the responsibility to pay for their university degrees ourselves. If we're lucky 🤞, the kid is smart enough to get a partial or full scholarship.
There was CAP education fund before but it is now defunct.
I don't have kids, so I'm skipping this baby step. It's my life hack. 😜 Therefore I haven't spent much time to dive deep into the other education funds in the market today. Here's a link to an article that has a list of them.
But I think it's just similar to mutual funds. You can just get a low-risk mutual fund and invest in it for years until your kids are going to college to cash it out. It would have earned because of fund growth and compounding interest.
Baby Step #6 : Pay off your home mortgage early.
Buying a home or rental property is serious adulting stuff. And it needs a serious chunk of money which most of us couldn’t afford to pay in cash. Therefore, we turn to the banks to get a home loan to pay for it. And that results in a major chunk of our monthly budget going to the payment of the mortgage. A big portion of the monthly payment (around 50%) goes to the payment of the hefty interest cost instead of paying down the principal loan amount. And we have to pay for it for the next 5, 10 or 15 years.
The sooner we pay off the mortgage, the less we pay in interest. Once the full payment is made, the interest cost is gone.
Once you got rid of the mortgage payment from your monthly budget, you'll suddenly have a substantial amount to invest in other things.
How would you know if you're ready or can afford to purchase a property?
- If you can't afford to pay at least 20% downpayment, then you have to be more aggressive with your monthly budget to be able to save enough for it sooner. Remember that the higher the amount that you borrow from the bank 🏦, the higher the interest you'll be paying. So the intent is to borrow as little money from the bank to pay less interest.
- The monthly mortgage should not be more than 25% of your monthly income. The bank will not approve your home loan application if 28% of your income cannot cover the monthly mortgage payment. I prefer to use 25% as the measure to be on the safer side and make sure I can afford it. Non-payment of mortgage will result in eventual forfeiture of the property by the bank. So better be safe than sorry. 😐
Baby Step #7 : Bonus round. Build wealth and give.
Always keep the saving and investing mindset. Keep the ball rolling. Once an investment has been paid in full, find another investment opportunity to grow more money trees. 💵🌳
At this point, you already have your investment gears going to secure all the basics for your financial future. All investments and growth beyond this point are considered as a bonus.
Since you are blessed with financial peace of mind, it's time to share your blessings. So you can allocate a part of your money towards giving to charities or funding causes that mean a lot to you. Make your money do good deeds.
It's common knowledge that the regular savings account earns a very low, ignorable interest rate at 0.01% - 0.1% per annum.
So where do you keep your 3-6 months emergency fund? There has got to be a way to put it to work and earn a better interest rate.
There are other types of savings accounts that have interest that increments as the savings amount increases. It’s encouraging you to save more and more and not do any withdrawal by letting you earn higher interest. Since this is your intent for the emergency fund, then this kind of savings account is perfect! 👌 Do some research to find out what each bank offers and how much interest rate they're giving for this kind of arrangement. For starters, refer to this article that lists 10 high-interest savings account.
ING recently launched digital mobile banking offering 4% per annum interest rate during a promo period. Otherwise, their regular interest is 2.5% per annum.
5. Credit Cards ain't all bad.
Its common belief that to keep your finances healthy, avoid getting or keeping a credit card. 💳 That's only true for those who don't have the discipline to keep to their pre-defined monthly budget. Those who get tempted to buy things they know they don't need if they have easy access to a credit card.
There are several benefits in keeping a credit card especially if it's one of those that comes with free benefits and reward points earning.
You can pay for your budgeted expenses using the credit card and earn reward points for them. You can then claim a free item or a free plane ticket once you've earned enough reward points. And some cards have other perks like free airport lounge access, cash rebate, etc. Plus the benefit and security of not needing to carry wads of cash in your wallet every time you run errands. Oh and a lot of credit cards partner up with online shops and airlines to offer special discounts.
Yes, there are annual credit card fees that you'll have to pay. But a lot of them waive the annual fee on the first year. For the succeeding years, you can call the credit card company and ask them to waive it. And they do waive it if you ask nicely. For some, they allow you to use your rewards points to pay for the annual fee instead.
So why not have them? There's more to gain than there is to lose!
Just make sure you only use it to pay for your budgeted expenses and that you pay off the full amount on your monthly credit card bill. This way, you're not paying any interest.
Credit cards, like money, is a tool. If you're smart about it, it can help more than hurt. 👍
Good luck to us all with our adulting and our quest for good financial health. 🥰
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