For most people, financial planning means talking to a paid professional and getting this “expert” to tell them what to do with their money. Which is why most people don’t do financial planning. they believe that they can’t afford this expert, or they aren’t experts themselves.
But we can do financial planning. This doesn’t mean listing “wishes” and “hopes and dreams” and unrealistic budgets that you can’t follow. Let’s face it – we all have weaknesses. This is why we should set up automatic, hassle-free systems to work around these weaknesses. One way to do this is by creating a money map. The objectives of the money map are the following:
- Automation. If you’re employed, notice how your employer automatically deducts your tax payments and SSS payments? You can do that for your savings and bill payments as well. After setting this up, don’t have to think about setting aside money for savings, or for paying some of your bills.
- Simplicity. You don’t have to decide what happens to your income once it arrives. You’ve already pre-decided. Just make the necessary calculations everytime new money comes in and send them to the right accounts (15% goes to this, 25% goes to that, etc.).
I first encountered this idea from this article by Ramit Sethi in The 4-Hour Workweek Blog. Normally, I’d just point to the article and tell you to read it there, but a lot of the principles there don’t apply to the Philippine banking system.
Note: I am not affiliated with any of the banks, companies, or accounts I mention. These mentions are limited from my own experience, and I encourage you to add comments here about your favorite banks and banking solutions that are similar to the ones I mention.
I tried this exercise myself, and here’s the money map I came up with:
How do you make your own money map?
1. List the dates you get paid.
For employees who get paid twice a month, this is usually on the 15th and the 30th.
2. List all your utilities/bills and the payment due dates for each.
This depends on your utility providers. For example, Meralco’s deadline is usually on the 7th, PLDT is on the 30th, and Manila Water is on the 16th. Also, make some notes on their “rules”. Your list may look like the following:
- Meralco. Deadline: 7th. Notes: Must be paid asap, because they disconnect service if you haven’t paid for the month. Payments can’t be automated because you have to enter a code each time.
- Manila Water. Deadline: 16th. Notes: They disconnect if you don’t pay for 2 straight months. Payment amounts are variable but don’t exceed Php 200.
- PLDT. Deadline: 29th. Notes: They disconnect if you don’t pay for 2 straight months. Payments can be automated monthly from bank. Payment amounts are usually the same, unless I make overseas phonecalls.
Note: Don’t forget to include other regular payments you make, including rent, credit card payments, tuition, insurance, educational plans, homeowners’ association fees, memberships, etc.
3. Schedule utility/bill payments at least 2 to 5 days before the deadline.
You then use your bank’s online banking facility to make scheduled payments shortly after you’ve receive your last paycheck, but before the usual deadline. For example:
- Meralco. Payment Schedule: the 3rd day each month. Not automated.
- Manila Water. Payment Schedule: the 3rd day each month. Automated.
- PLDT. Payment Schedule: the 17th day each month. Automated.
4. List all the things you are saving up for, and how much you can afford to set aside for them each month.
For me, this includes long term savings such as my house+farm fund, retirement, and savings for when I have children. This also includes short term savings like my emergency fund, travel savings, Christmas savings, and driving lessons. Example:
- Travel. Can set aside P2,500 per month.
- Emergency fund. Can set aside P2,500 per month.
- Retirement (aside from SSS). Can set aside P5,000 each month.
5. Schedule automated savings payments 2 to 5 days after you get paid.
Philippine banks now offer automatic transfers from one of your accounts to another. This means that if you have a paycheck account and a savings account in one bank, you can easily schedule monthly automated transfers. You no longer have to actively think about saving. As long as your computations are right, you’d be able to stash away savings easily each month without thinking about it.
(Some examples: BPI has a product called “Save Up” that does this, and other banks like UnionBank let you schedule recurring funds transfers between your accounts.)
But, as far as I know, I haven’t seen banks that offer automated transfers to your accounts in other banks. This can be difficult for those who have their paycheck account in one bank, and a savings account in another bank. Here are some alternatives:
- You can consolidate all your accounts – savings, paycheck, credit cards, and extra savings accounts – in one bank. This is assuming that the bank is reliable, allows online banking, and has great customer service. (Let me know if you find a bank like that :p )
- You can settle for bank-to-bank transfers that aren’t automated. Just put the schedule in your phone or calendar and set a monthly reminder about the deposit. Unionbank’s EON account allows you to do bank-to-bank transfers online, though it’s not automated, and you have to enroll in the service first.
6. Separate your expense account from your savings accounts.
This is crucial. Make sure that your bank account for your emergency fund, retirement, and other savings is separate from your expense account. This “expense account” is for your guilt-free, not-necessary expenses for the month. Your expense account is for the following:
- Leisurely expenses like going out, dining out, etc.
- Groceries, both food and non-food items.
- Transportation expenses.
- Gifts, hobbies, and other unnecessary expenses.
This could be the same account that you use to pay your bills, but if you have a tendency to spend your money before you pay the bills, they should be separate too. (Huwag kayo mahiya. I have to keep my expense account separate from bills and savings. It’s okay to admit that we have low self-control for certain things and need to keep expenses completely separate. This helps us set up systems to work around this weakness – that’s what this article is for.)
7. Schedule your investments.
If you’ve started investing your money rather than just saving it – good for you. But you can schedule your investments as well, especially if you reinvest often or practice principles such like unit cost averaging (which basically means you reinvest a specific amount regularly, whether it’s monthly, quarterly, or yearly).
Note: Again, if you can’t make automatic, recurring payments from your paycheck or savings account to your investment accounts, then at least schedule a reminder for it on your phone, or use an email reminder service if you check your email daily. (I use Google Calendar or Followup.CC for this, but other reminder services include MemoToMe and FollowUpThen.) The same goes for any other payment you can’t automate – at least set automatic recurring reminders.
8. Put this money-map to work and set up the schedules with your banks.
Of course, a money map on a piece of paper is nothing but an idea. You need to bring this idea to reality by actually checking your accounts (usually online) and making the necessary payment schedules yourself. You need to ACT on the principles outlined in your map. Call up your bank and ask them if they have automated savings programs, or if you can make automated transfers from one bank to another.