By Jay Ledesma

WE recently celebrated our 124th Independence Day as a nation. The day we commemorate the declaration of Philippine independence from Spain in 1898. While we have been freed from this bondage, as a people, we still have to enjoy freedom from a number of things… freedom from inequality, injustice, corruption, discrimination, misinformation, and from financial dependence, among others.  

This article will focus on how we can achieve financial independence, which is the state of having enough income or wealth sufficient to pay our own living expenses without needing to actively work or be dependent on others. Financial independence takes different meanings to different people. For the young ones, it means being able to meet their financial needs without the help from parents, grandparents, relatives, or others.  For some, it means not having to actively work and just live on their passive income. But for others, they do not want to stop working but just want to have enough money to live comfortably and free from debts. And still, for some people, it means being free from financial worries when they retire. 

Whatever financial independence means to us, unless we inherit a fortune or win the lotto, we will only achieve it when we plan, fight and go for it.  

Set financial goals. Your definition of financial independence can be one of these mentioned above. But these are still vague. The more specific your goals are, the higher the chance of achieving them. We have to be clear and specific with our financial objectives, how much money should we have to make it possible, how much time we have to achieve this amount and how to build the needed amount. The way a Millennial will manage his money will be totally different from someone who is nearing retirement. The purpose, timeline, and even the instruments that will be used will be different for these two generations. 

Make a monthly budget of savings and spending. Do not spend more than what you earn. Keeping a monthly budget is the best way to ensure that bills are settled and savings are on schedule. One may observe the 70-30 rule, where 70% of the income goes to expenses and 30% goes to savings. It’s a discipline needed to reinforce goals and resist the temptations to splurge. Now, that everyone can shop from the comfort of their homes and with left and right online shopping promos, one has to have a strong resolve to keep within the monthly budget. Know what are the needs and what are just wants. 

Allocate savings between short/mid and long-term funds. Place savings for short and mid-term expenses (such as tuition fees, annual family travel, emergency funds, etc) in instruments such as bank accounts, which you can immediately access. While money intended for long-term life milestones such as debut, graduation, wedding, and retirement, may be placed in long-term investment vehicles, where time can outweigh the risks. Never risk putting your funds for your short-term needs in long-term instruments as you may not have the luxury of time to rebound and recover in case of market dips. Whenever possible, go for an automatic savings facility so the money intended for savings will not touch your hands anymore.  Now, while saving for short-term funds may appear to be urgent, long terms funds are equally important and deserve urgent attention too. 

Start investing now. The magic of compound interest alone will help you grow your money exponentially but ups will need a lot of time to make meaningful growth. So the earlier you get into it, the better, as you have more time on your side.  Also, it is not true that you need big amount of money in order to be an investor. There are now different instruments that can help us grow our money and most will not even require a big start-up amount. Take for instance GCash, where you can start to invest with P50.00 only.   One can start small but needs to make it consistent and regular.  As you grow your funds and understand your risk appetite much better, you can try other investment programs such as mutual funds, variable insurance or stocks market, etc.  Remember these basic investment principles: buy low, sell high; higher yields, and higher risks. Low risks, low yields; don’t put your eggs in one basket; invest based on facts, not emotions.     

Create additional income sources. With all the opportunities available around us, we should not be limited to one source of income. This is what the young generations are showing us. They can have multiple sources of income. They can be an employee, online seller, financial advisor, virtual assistant, and social media influencers, all at the same time.  Each one adds to their income stream. They don’t just wait for opportunities, they create for themselves. We can develop and enrich our skills and talents through the different courses/programs being offered online, some of which can even be accessed for free. This comes in handy when looking for job opportunities that may require a set of skills different from what you currently have. One just has to be resourceful, creative, and determined. 

Settle credit cards in full. This is an often neglected reality.  But when not properly managed, credit cards and other high-interest-bearing loans can be damaging and toxic to our quest for financial independence. Charge to your credit card an amount that you can afford to pay in full come the due date. Otherwise, the monthly interest can set you way off your financial goal. Unless, you are very certain that no extra hidden amount is added, avoid availing the monthly installment programs of credit card companies.  Most of these have a built-in interest in the package. Make sure to pay on time to avoid fines and surcharges. Not only will this save you money, but this will also give you a good credit rating. I love using my credit card because of the convenience, plus the rewards and freebies. But I make sure that I pay on time and in full so I can truly enjoy its benefits.

The above may not fully solve your money problem but they will help you develop the right habits to achieve your financial independence. Have the plan and go for it! Let’s be mindful of what one of the richest persons in the world, Bill Gates said, “If you’re born poor, it’s not your mistake, but if you die poor, it’s your mistake”.  Let’s not make that mistake!

About the Columnist

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