MINDFUL

By Jay Ledesma

HOW fast time flies! Today is the last day of January 2022. One month has already gone in the new year. By this time, plans have been drawn and laid down for 2022. In fact, some are already being implemented.  And from my talks with some family members, friends, and colleagues, I sensed their confidence and optimism about their plans. They were bolder in what they planned to do and achieve this year. Perhaps, this optimism is felt by many as we see some wins in our battle with covid.  Though the new variant Omicron is more contagious and has recently caused a substantial increase in our COVID cases, with more people getting vaccinated, the majority of those infected showed mild symptoms and required no hospital care. Many have adjusted and adapted to live in the new normal and have planned accordingly. 

I bet, much of the plans made, may it be personal or business-related, required budget and involved money. Therefore, it’s very important that one of the first things we should have and be clear on, at the start of the year, is our own financial resolutions. What is your financial goal for this year? What do you need to start doing, continue doing, and stop doing in order to achieve your financial goal for 2022? While we agree that making our financial resolutions is very important, sadly, it is often, neglected.   

The first step to making your financial resolution is to identify your financial goal. Is it to remodel your house or build your dream home for the family? Is it to save up for your kids' college education? Is it to build your emergency fund? Is it to fully pay your credit card debts? Or is it to add up your retirement funds? Having a clear financial goal/s will allow us to prioritize and will give us the purpose why we need to save our hard-earned money. The job of the money we are saving or have saved is to help us achieve our financial goals.  As we usually have multiple financial goals, it will help if we categorize them as short, mid, and long term and whether essential or non-essential. Then we put a target date for each goal. Though it's not cast in stone, somehow having a timeline will give us some sense of urgency and control. 

Next is to analyze and work on the 3 important variables that will impact your financial resolution and determine your capability to achieve your financial goal. These variables are Income, Savings, and Spending. 

Variable #1: Income  

First things first. Before we can talk about how much to save and spend, we need to have income or money. How is your present income? Do you have a steady source of income from your employment? Are you paid based on projects or contracts? Are you on a commission basis? Salaries, wages, and commissions earned from these are called active income. Or are you living on money received from investments, rentals, etc? Or what we call passive income. In my case, prior to my retirement, income was mainly from my employment. But since I was already investing and have properties back then, passive income was coming in as well. Now that I have fully retired, my main source is passive income. 

Wherever our income is coming from, the goal is to keep it and add to it. What will you start or continue doing this year to fatten your income? While it is true that the pandemic resulted in job losses, it also created a number of income opportunities for the more creative, hardworking, and resourceful ones. Online sellers mushroomed everywhere. In most households, one member is at least involved in online selling.  And since most are in a work from home setup, even full-time employees now have the chance to do part-time online selling and earn extra income.  As one rider said in an interview, “basta huwag lang choosy sa trabaho, may paraan kumita!” To which I totally agree! This might also be the year to start building your passive income. 

Variable #2: Savings 

But having an income is just one side of the equation. What we do with what we earn is equally critical. I used to follow "Income minus expense equals savings". No wonder I had very small savings then. However, when I joined the insurance career, I was introduced to the right formula of “income minus savings equals expense”, which I have been applying on my own financial management since. Every payday, I would immediately set aside 30% of my income for savings and investments. Note the order, savings and investment. It is not advisable to go direct to investing without building your saving funds first. 

Savings is the money that you can take out on a per need basis or as the need arises. We save for our children’s tuition fees next year, for that annual family getaway, for a brand new gadget, etc. The Emergency savings fund (which for me, at any point, is at least 6-12 months worth of expenses), is for the unforeseen or unexpected expenses brought about by sickness in the family, calamities, job loss, or by this pandemic that we are in. 

On the other hand, my Investments are for my long-term money requirements. These can come in the form of stocks, mutual funds, insurance, and real estate. This is the money used for the college education of our children and now, my retirement money. That’s why in setting our financial goals, we have to identify what’s for the short, mid, and long term.

Unfortunately, since many didn’t have enough emergency savings funds and/or medical and life insurance when the pandemic happened, they were forced to use (and deplete) even their long-term funds, such as their retirement money.    

Now, when you are not yet confident with your savings discipline, as I did when I was just starting with my yearly financial resolution, it might help to enroll in the auto salary deduction program of your company or ask the assistance of your financial or investment advisors who can remind and facilitate your regular savings/investment.     

Remember, the money we are saving will do the job of helping us realize our financial goals. The sooner we build them, the sooner we make our goals a reality!   

Variable #3: Spendings 

The 70% of my income is for spending, which can be categorized into essentials and non-essentials.  

The essentials are usually the recurring expenses such as utility bills, food, mortgage, maintenance medicines, transpo allowance, schooling, church donation, and insurance premiums.  While the non-essentials include our R&R spendings such as weekend getaways, wardrobe, entertainment, salon, spa, and derma visits. 

As spendings take much of the income and are usually for the present needs, it is really possible that none will be left for our savings if we don’t put a system. That’s why it's strongly suggested that we already keep the 30% even before we start spending and we categorized our spending to essentials and non-essentials so we can prioritize, in case the 70% is still not enough to pay for everything.  

Priority should be on the non-negotiable fixed expenses such as amortization, school expenses, rentals, and food. I include food in this list because I can scrimp on other items but not on food. But still, I believe we should have a fixed budget for this. 

What’s left of the 70% can now be budgeted for the other non-essential expenses or those which we can afford not to have. One thing pandemic made us realize is that we only need and can only use so many clothes, shoes and bags. For 3 years now, I have stopped hoarding these items.   

When we cannot increase our income but we want to save more, the only thing left for us to do is to reduce our expenses. What are you willing and ready to give up for that additional savings?  What are you willing to stop doing or buying so more can be spent on the essentials? 

When we are able to manage these 3 variables, we are getting closer to fulfilling our financial resolutions and achieving our financial goals. Now, let’s be mindful that having financial resolutions is not only for the rich and the moneyed.  Don’t think that you need to have a big income or salary to do this. Our income levels may vary, but the save 30% and spend 70% is constant. I started with small income plenty of years ago. It's not really the amount, it’s the discipline and consistency that matters. 

We’re just one month from the new year. Still, the best time to make or revisit our financial resolutions!  It can be fun and exciting!  

About the Columnist

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Ms. Jay Ledesma writes about local tourism and business bits that delve on investments and insurance.