How are you with money management?

Imagine yourself with your family or with your friends at the flat.

It’s almost 2021!

You guys probably prepared a humble dinner since there’s fewer people to spend New Year’s Eve with this time around. You’re not alone in this. A good number of people are in the same situation, because it’s safer for everyone this way.

That’s not the only thing that you figured out in 2020.

Since most of us work from home, we’ve seen the amount of money we can save if we don’t commute regularly, don’t drive regularly, or don’t eat out often.

Or haven’t you computed how much more savings you were able to set aside this season?

For all you know, you have more than this guy up there.

And this is one of the most common concerns for Filipino families: Budget Tracking and Allocation.

It’s no wonder that the Bangko Sentral ng Pilipinas (BSP) and the Department of Education (DepEd) have been talking about the need to have financial literacy as a critical subject in tertiary education. If you ask me, we should have the basics taught in high school.

What are the Basics of Money Management?

If we are to look at the hierarchy of financial needs, we only need to look at the first two layers. This is similar to Maslow’s hierarchy of needs where the first two layers denote a person’s basic needs.

To briefly discuss them, here are the basics that we need to consider:

Ensure Cash Flow and Financial Resiliency

This is all about income. One thing we should know by now is that a single source of income is no longer safe. In 2020, a lot of people had their jobs disrupted due to some companies having too much overhead and not enough income. Either they lost their jobs, their pay was cut in half, or they were paid on a day-to-day basis.

And when there’s no income, bills don’t get paid, debts don’t get settled, and (worse) monthly amortizations get missed.

Basic Solutions:

1. Have additional sources of income. There are a lot of options for earning an income on the side and most of them are the necessities sector. Utilities, nutrition, health and insurance were thriving industries in 2020.
2. Build an Emergency Fund. When you’ve run out of options to generate income, an emergency fund is your lifeline. An emergency fund should last you for at least six months of expenses, which should be enough time for you to find a new job or income source.

Have Insurance and Financial Security

And I’m not just talking about car insurance.

2020 may very well be the year that Filipinos learned the importance of life and health insurance — that it’s not an expense, but something that they need to have. Other countries have used life and health insurance to cover their finances with a protective mantle for ages. Why can’t we Filipinos do the same?

Insurance is all about income protection and income replacement. This is why it’s part of the basics of financial health. Whether it be life or non-life insurance, insurance provides cash/income when crisis situations arise:

• House is on fire – home insurance to provide cash for home repairs;
• Car got into an accident – car insurance to provide cash for car repairs;
• Insured victim lives through an accident – accident insurance to provide cash for treatment/therapy;
• Someone acquires critical illness – critical illness insurance to provide cash for treatments/therapy;
• Someone passes away – life insurance to provide cash for the family who’s left behind.

To think that the life insurance policies nowadays have investment linked options. This means that it is no longer an expense since there’s an investment component, which you can use as a means to improve your financial resiliency for the long run.

Basic Solution: Get your insurance policies now.

Someone asked me in 2020: “Coach Mike, which one should I get first — life insurance or a house?” If you know me, I don’t usually answer directly. So, my answer to this was: “Which is more important to you – life or lodging?” They already had a humble home but had no insurance yet, which leaves his family at risk in case something bad happens to him.

So if you’re faced with the same situation, ask yourself the same thing.