|
In a
time when money is hard to come by, you should be a lot
smarter in managing your finances.
Previously, I’ve written about expense busters that can
save you thousands of pesos every month. These included
avoiding all forms of gambling, excessive drinking,
smoking, drug abuse, designer labels, expensive hobbies
and extra-marital affairs. The savings you get from
shunning these things can build up to millions over the
long term.
Below
are additional common money mistakes that many people
commit and cost them loads of money. . . sometimes,
without them realizing it.
1.
Having a deck of credit cards:
If you are one of those whose wallets are overstuffed
with credit cards of every color you are setting
yourself up for a lifetime of debt.
The
aggressive marketing of card issuers and the relative
ease by which you can get credit cards have reinforced
our society’s culture of spending, which has resulted in
an ever-growing number of people stuck in a debt hole.
A credit
card is not a source of money but a tool (a very
convenient and efficient tool) to let you spend money
you still haven’t earned. Credit cards tend to give you
the power to purchase anything, anytime and once you
start to use it recklessly, you can get into financial
trouble pretty fast.
Get rid
of those credit cards; you only need one for emergency
use. As much as possible pay in cash; this will help you
cut down your spending 25 percent to 30 percent. If you
have to buy on credit then try to pay your bill in full
the next month to avoid paying high interest charges…
and you still get to earn those reward points. (The
missus got a home entertainment system through earned
points even though the card company has gained little
from interest charges because she often pays the balance
in full.)
Credit
card balance is one of the most expensive kind of debt
(next only to your local “5-6” loan shark), so keeping
it to a minimum will save you a lot of money.
2.
Impulse buying.
Both men and women fall prey to buying on impulse and
often it involves items that you really don’t need but
only serves to provide a short-lived feeling of
satisfaction to address an instant craving. Unrestrained
impulse buying can put your finances in a bind because
money for essential needs is diverted to something else
and you could be forced to borrow.
Always
have a spending plan or a list when you buy things and
resist the temptation of purchasing an item that’s not
on your list. Avoid places where you easily get tempted
to spend even if you don’t have any plans to do so.
These could be shoe stores, sporting goods shops,
Japanese restaurants, etc. In my case, it’s bookstores.
And don’t let yourself get into double trouble by buying
on impulse with your credit card. That’s a big no-no!
3.
Investment scams.
I have relatives and close acquaintances who have lost
their lifetime savings running into millions (and
irreparably damaged relationships) to investment scams.
People
are victimized by scams because of their burning desire
to earn big quickly and without much effort, which is
exactly how most investment scams are trumpeted. Who
wouldn’t want to earn 4 percent to 5 percent monthly
doing virtually nothing? When a friend or relative tells
you about an exciting, powerful and sure-fire
money-making investment or business, don’t take their
word for it.
Do your
homework and try to gather as much information as you
can about the scheme. Ask questions, a lot of questions.
Ask professionals like registered financial planners who
know about investment risks and what are realistic rates
of return. Just because you trust your cousin or your
in-laws doesn’t mean you also have to trust their
favorable “analysis” and recommendation of an investment
scheme (unless of course they are experts in this
field).
Saying
no to their offer doesn’t mean you love them less. It
would also help if you educate yourself about personal
finance so that you can easily spot a scam when it
presents itself.
4. Low
interest accounts.
Interests on regular savings accounts have dropped to
jokingly low levels. To me, P10,000 earning a pitiful
P80 in one year, coupled with being charged P200 monthly
for falling below the minimum maintaining balance is a
big mean joke. And if you consider the expenses for your
regular trips to the bank, it’s obviously a losing
proposition.
So, why
even bother to open savings accounts when you’re
probably better off keeping it at home, saving yourself
some precious time and money by not going to the bank? I
will never understand people who keep most, if not all
of their money in regular savings accounts. The amount
you ought to keep in these very-low interest earning
accounts is the minimum balance required to keep you
from paying charges plus enough money to cover your
expenses in one month. All the rest should be placed in
accounts or investment vehicles that pay or have the
potential to earn more than the prevailing inflation
rate.
For
instance, if the average inflation rate stands at 4
percent, you can put your money in a time-deposit
account that earns 5 percent or more. If you can handle
some risks, you can place your money in well-managed
mutual funds or UITFs, which have the potential to earn
double-digit returns.
For the
more intrepid investor the stock market can be your
playground.
5.
Buying too many things that decline in value.
This has most likely something to do with trying to keep
up with the “neighbors.” By neighbors, I mean not just
the next-door neighbors but also those distant
individuals (perhaps relatives or celebrities) that the
big spender is trying to emulate.
The
couple Ron and Clarissa (not their real names) has only
one child but their garage is packed full with eight
vehicles including a sports car and a souped-up Hummer.
What’s the big idea? It’s a good thing they can afford
it.
But
there are many who can’t afford it (or doesn’t need to)
yet you find them accumulating a lot of stuff that only
degrades and loses value over time.
Do you
really have to own more than a hundred pair of shoes or
dress differently every day at the expense of having
zero savings? Do you really have to have a TV in every
room in the house just like your best friend?
Who made
the rule that you have to buy the latest cell phone even
if your previous one is only six months old and working
perfectly fine? Do you really have to own three cars
even if your wife can’t drive?
Try to
calculate the amount you are spending to maintain these
unnecessary luxuries and you will probably have second
thoughts of getting another one. Before you buy
something that is nonessential consider the effect it
will have on your finances and how it will take you even
farther away from accomplishing your financial goals.
Try to
look for a less expensive way of accumulating pogi
points. Come to think of it, a big, fat bank account or
investment portfolio will score you a lot of pogi
points. Your choice!
Alvin T. Tabañag is a registered financial planner and a
member of the RFP Institute and the Financial Planning
Association (USA). He is the founder and training
director of Advantage Plus Consultancy & Training, which
is dedicated to promoting a culture of savings among
Filipinos through financial education. Comments &
questions about the article and other queries maybe
emailed to alvintabz@yahoo.com.
Join the Seventh RFP Program (July 7-August 25, 2007).
Visit www.rfp-philippines.com, or inquire at info@rfp-philippines.com
/Tel. No. 6342204. |
