Are You Prepared for a Personal Financial Crisis?

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You and the Philippines may have one thing in common, other than geography: money problems.

The International Monetary Fund (IMF) warns that the Philippines is going to face definite challenges with what it calls “sustained expansion” amid rising inflation rate and trade tensions with greater economies. The international financial institution and the Moody’s Investors Service, however, have given the Philippines a thumbs up on its macroeconomics. What that means is that even with a soaring inflate rate — now at 6.7 percent — the country’s economy will remain stable.

Will the same forecast apply to your personal finances?

The Big Picture on Microeconomics

The country’s outlook might seem positive, but the rising inflation rate is affecting individual finances. Oil companies are announcing hikes faster than you can keep your wages. Because oil is the energy source that fuels the country, utility companies are raising their prices, as well and the price of basic commodities are going up while you watch your paycheck remain the same.

In the larger scheme of things, you’re barely able to afford the cost of living in the Philippines. Your situation may appear even more dire if you’re the sole breadwinner in the family, which is typically the case in most Filipino families.

So what happens when you struggle to pay the bills and buy the necessities on your current earnings?

The logical move for most would be to:

  1. Borrow money; you’re likely to use your credit card to pay for most things, and maybe you even apply for cash advances on that card.
  2. You might also try missing payments to cover other critical bills.
  3. When you have savings in the bank, you might start to dip into it, thinking you’ll replace what you took out once you find room to breathe from the expenses.

Maybe you’ll finally win the lotto jackpot, and you’ll be able to recover from debt.

Unfortunately, you can’t leave your finances to chance because the only sure thing that’s going to happen is a financial disaster.

The three logical steps to overcoming cash-strapped times are precursors to a financial crisis.

Flirting with Financial Disaster

Skipping payments, using credit cards for payments, and dipping into your cash reserve all sound like a good idea when you feel overwhelmed. They sound perfectly all right in the short-term, but their long-term effects could put you deeper into a financial hole.

Why?

  • Missed payments lead to extra charges and create a bad credit rating
  • Credit card usage leads to further debt
  • Depleted savings leaves you with nothing for your future

When you’re starting to do any one of these steps, you’ll want to remind yourself that these are all red flags for further money problems.

It’s small wonder then that Filipinos are unable to save to secure a better financial future and retirement. According to an Entrepreneur.com.ph report citing a Bangko Sentral ng Pilipinas survey, 52 percent do not have savings versus the 48 percent who do.

For starters, how do you even save money if your income isn’t even enough to pay for necessities? Still, you can’t throw your hands and give up, especially when you’re in a single-income household — and the household has a fair number of residents.

Financial Management 101

Financial responsibility is overwhelming, but it’s doable when you have a plan in place.  You’ll need one not just because you want to avoid a personal financial crisis, but it’s critical preparation should the country experience economic instability. When international financial institution forecasts amount to mere projection, you could expect:

  • Businesses to close shop
  • Unemployment to go up
  • Financial markets to remain stagnant, or crash

A solid financial plan allows you to have a bit of cushion against the potential blows of a likely recession.

So what do you do?

Watch your spending

You can’t spend money you don’t have, so it’s good practice to control expenses. You’ll want to list what you typically spend on. For example, your daily habit might include a tall caramel macchiato (P155) and cookies and cream muffin (P95) from Starbucks or the 1-piece chicken with rice, egg, hash browns, and coffee meal (P159) from McDonald’s. Add your spending on those items for a week, then a month, and see how much you spend.

It’s tough to cut back on what you’ve been used to, but if an undeniable figure is staring you right in the face, you’ll feel more inclined to change your spending habits.

Pay your financial obligations

One potential reason you might not be able to pay your bills or debt is that you’re spending more than you can afford. When you cut back on certain expenses, you could have more budget for payments. It’s ideal to separate cash for payments once your paycheck comes in. Divide your expenses accordingly in marked envelopes; this method works because it keeps you from using your money for other, non-immediate items. Pay your utilities and credit card debt on time, and you won’t have to suffer through late payment charges. Get your debt out of the way, and you’ll have enough — eventually — for the fun expenses.

Stay sharp

Whether you’re working for someone or independently, you’ll want to invest in your skills. Your biggest asset happens to be your mind, so hone it well enough to make yourself an attractive investment for businesses or clients. Add to your skills, and you’ll remain not only employable but also become indispensable enough to move up and increase your earnings.

Save now for an emergency fund and retirement fund

Finally, uncertainty with finances is what remains certain. You could lose your job when the company closes, or an illness might put you out of work for a time. You need to save up for those uncertainties now while you still can.

Start small with an emergency fund, instead of the usual six months’ worth of your salary. Aim for three months now and work your way up to the full six months. As for your retirement fund, put in a little bit into your savings or an investment product. Every bit of peso counts, and they will all add up to something substantial in the long run.

The idea is to start today so that you avoid a personal financial crisis in the future.

 

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