How Will You Become Financially Free?
In April, I ran a survey asking Frugal Pinoy readers “What is your #1 financial goal?”. Most of the answers were “financial freedom” or “to be financially free” or “financial independence”.
Image by jdhancock from Flickr
While almost everyone in the world wants that, we all define it differently. To reach this “financial freedom” or “financial independence” that we’re talking about, we need to know how to objectively quantify it. And this will depend on your definition.
To make it easier, think of your definition as a checklist. What financial goals much you reach before you become financially free? Here are some questions to consider:
- How much should you have in emergency funds to not worry about financial emergencies?
- How much should you have stashed away in retirement investments? How much is their historical average growth? Do you think you’ll have enough to live comfortably when you retire?
- How much should you be earning each month to fulfill all your financial obligations? How much do you need to live comfortably and pursue all your hobbies and other leisure activities?
- Do you have any debt? If so, have you developed a plan to repay all of your debt and stay debt-free?
- Which stage of personal finance are you in? Which stage do you want to be in within 6 months? A year? How do you plan to accomplish this?
Don’t be afraid of being as specific as possible. Include numbers such as: “I must have at least P120,000 in emergency fund savings” or “I should be earning an additional P20,000 monthly from my side business”. The more specific you are, the easier it will be to know the steps you have to take to reach these goals.
So let me ask you again, “What is your #1 goal that will help you reach financial freedom?” Answer the completely anonymous survey below to share even just one criteria of how you define financial freedom.
Read MoreRecommended Reading: Building a retirement fund, avoiding MLM scams, and teaching kids about money.
It’s nearing the start of a new month again, so let’s take this opportunity to review some of the more interesting and insightful personal finance posts around the web last April. I’ve included a few non-Filipino articles because I found them insightful, but most of the links below are relevant to Pinoys.
Check them out and don’t forget to leave a comment and share your own favorites 
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How I Spend Money from Get Rich Slowly. Blogger JD Roth shares the practical strategies he and his wife use to practice frugality. The post is realistic and sobering, especially since JD writes this at the end:
By using these strategies and tactics, I’ve reduced my monthly operational expenses significantly, freeing money to be put into savings or used for other priorities. But I’m far from perfect. I still spend money on things that I shouldn’t, and I still make mistakes.
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Pinoy Retirement Rx has an interesting post on Pinoy Retirement Fund Building 101. It lists a few other options we have for building retirement funds, apart from SSS, GSIS, and other pension plans.
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I haven’t talked about multi-level marketing (MLM) schemes in the blog, but I have some strong feelings about them. They can be profitable with the right strategy, BUT most of these programs try to sell you on unrealistic profits without telling you the disadvantages or the “catch”. So if you’re looking to join an MLM program, I suggest you read these tips from Pinoy Bisnis about how to avoid MLM scams.
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Ever thought about buying a franchise as a way to start your own business? EntrePinoys has a handy list of advantages and disadvatages to buying a franchise.
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Francisco Colayco wrote a couple of posts this month on teaching kids about money. The first one is about teaching kids to save and invest, and how to inform kids of your family’s financial troubles.
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Is there a personal finance article, resource, or blog you want to share with other Frugal Pinoy readers? Go ahead and post them in the comments 
Does More Knowledge Mean More Money? Uhm, No.
The last informative article I wrote for Frugal Pinoy was published last October 2010. And the post before that was published February of the same year. Out of the 365 days last year I only published 10 posts. Because of this sporadic posting schedule, I’ve received a few comments and emails from readers about how I’m not posting enough for them. Some even step in and make excuses for me, like: “Hey, your last post was in February, maybe you’ve been busy.” But most people who write in let me know that they want more tips.
And this is where it gets tricky. Of course I want to give readers as much information as possible. I could even post something new twice a week here at Frugal Pinoy to keep readers coming back. This would be beneficial to me too – the more pages I have on this site, the higher my chances of getting paid for the ads I place here. I could even get better offers from advertisers and make more money.
So, posting more tips here at Frugal Pinoy sounds good for everyone involved, right? You get your tips and I may get more money if I play my cards right.
Well, no.
The truth is that it doesn’t matter whether I post once a year or once a day. What really matters is what you take away from whatever you find here. More importantly, have you acted on any of the financial tips you’ve read here or anywhere else? Which of the following tasks have you done:
- Have at least a 6-month emergency fund
- Start investing your money, even at least P5,000.
- Compute how much you need for retirement.
- Taken one concrete step towards one of your financial goals (such as starting a business, automating your savings, tracking your spending, etc.)
More Information ≠ Better
We often assume that the more we know about something, the better our decisions will be. This can be true to some extent – gaining more knowledge isn’t necessarily bad – but constantly accumulating information can have diminishing returns. Or even no returns at all, if you don’t act on it.
Most of the time, we feel like we have to know everything about something before we can get started. This seems to be especially true of money. To start investing, we think we need to stare at dozens of historical stock charts and watch Bloomberg or CNBC all day. To start saving, we think we need to study accounting or know the details of every type of account available in all the banks in the Philippines. We want to get things perfect. But if we do all these things, if we focus too hard on becoming an expert, all we’ll have is a collection of facts in our heads with nothing to show for it in our bank accounts.
I agree that we need to learn about money, but we don’t need to learn much to get started. We can start with the basics we already know about (“Don’t spend more than you earn” or “Pay yourself first”) and act NOW. When it comes to money, acting as early as possible is key. Usually, the earlier you start earning extra income, investing, or saving, the more money you’ll have in the long run.
Now that we’re well into 2011, past the hopeful irrationality brought by our unrealistic New Year’s Resolutions, let’s all strive to take concrete steps towards our financial goals. They don’t have to be big steps, they don’t have to be extraordinary. One simple step will do. Here are some examples:
- Automate your savings. Some banks allow you to automatically deduct funds monthly from your payroll account to a savings account. Ask your bank if they have a service like this. Since you don’t have to think about it too much, this automatic savings system can help you reach your savings goals faster.
- Take 10 minutes to evaluate your subscriptions. Note how much you are spending on newspaper subscriptions, gym memberships, a post-paid cellphone plan, and other similar subscriptions. Add up these monthly expenses to see how much you spend each year. If you’re spending more than you’d like, maybe it’s time to trim down these expenses.
- Put up a used item for sale on eBay or Sulit. This could be a used book, movie, gadget, or furniture.
These are just examples. If you pick just one from this list – especially from the first two – you would’ve made a dramatic change already. And getting either of these items done takes less time than reading all the Frugal Pinoy articles on saving.
So more information doesn’t necessarily mean more money. It’s our informed actions that will actually help us get rich.
In the past week, did you take any steps towards your financial goals? Share them with us.
Read MoreWhat’s next for Frugal Pinoy?
As you may have noticed, the last update to this site was several months ago. Recently, I’ve been planning new content for the site, and I’ve also been making a few changes.
The first thing you’ll notice is the new site design. If you’re viewing this via email or feedreader, click here to see the new site. It’s still a clean, uncluttered look which reflects the slight changes that are going on behind the scenes. I moved FrugalPinoy to a new, more reliable web host, since I had issues with the site being down several times with the old web host. Because of the transfer, there may be some bugs that I haven’t worked out yet. If you find anything broken, please feel free to contact me.
Another change is that I’ve created a Frugal Pinoy Facebook page. You can click “Like” on the sidebar on the right, or visit the page itself. I’ll be using that Facebook page to share interesting articles and websites about personal finance, or I’ll post tips that are too short to post here at FrugalPinoy.com. By clicking the “Like” button, you’ll be able to receive these updates that I won’t publish here.
Finally, there are new articles lined up for next month, so stay tuned
Thinking of Your Expenses in Terms of Time
The default way we look at our finances is to add up the numbers and think of the cost in terms of pesos, dollars, or whatever currency we’re using. But here’s another number you should be considering – time. There are instances where it can even be considered as a resource that’s more valuable than money. After all, when time passes you can’t get it back. If you’ve lost an hour waiting in line at the bank, you won’t be able to “withdraw” that time and use it for something else.
With that in mind, we should try measuring our expenses using time.
Computing Your Expenses and Liabilities Based on Time
How much of your workdays are devoted to paying for stuff? How many hours or days do you spend working just to earn money that will eventually go to bills, food, debt payment, and other expenses?
Over at Steadfast Finances, I found a compelling post entitled “Visualizing How the Things You Own End Up Owning You”. Though the post is mostly about debt, it contains steps on how to compute the amount of time you spend working to pay for each bill/expense. Here’s how you can do that:
- Compute your daily take home pay. This is your salary minus taxes and other deductions that your employer makes. For example, if your monthly salary is P18,000 but P3,000 is deducted for taxes, SSS, etc., then your take home pay is just P15,000 monthly. Then divide that by the number of days you spend working each month. For example, if you work only during weekdays this November, that’s 22 days. This makes your daily take home pay P681.81.
- Compute how many days it takes for you to pay each expense. Write down all your monthly expenses and divide each of them by your daily take home pay. Continuing with the example above, let’s say your Meralco bill is usually P1,500 per month. After dividing it by P681.81 (your take home pay), this means you spend more than 2 days working each month just to pay your Meralco bill. Do this for every expense you have.
How will this affect they way you think? Here are some examples:
- Suppose you want to buy a brand new car. This new car will cost you a total of P700,000 – including interest, if you’ll be making monthly payments. If your take home pay is P681.81, can you spend 1027 workdays or almost 3 years (assuming there are no weekends or holidays) just paying for that car? What if it’s a job you hate?
- That 1-week vacation with your wife may be more important to you than a new gaming console, so you’ll feel that it’s worth it to spend 3 weeks at work to pay for the vacation rather than the console.
- After following the computation steps mentioned above, you may realize that your accumulated credit card debt from your shopping sprees causes you to spend almost an entire month’s worth of work every month just to meet the minimum payments.
Time isn’t something you can stash away in a bank somewhere. It’s the days and hours of your life. When we remember how much of this time is spent working just to pay for our possessions, needs, and desires, we’ll see things with a fresh perspective and we can better identify the things that are truly valuable to us. These are things that we are willing to spend our money – and our lives – paying for.
Image by magicmarie from sxc.hu
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