Financial IQ: How much should we save?

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Financial IQ Philippines Quick Hit(s):

Savings is a habit.  Once it becomes a habit, increase the amount of savings as you go.


How much money should a new credit card user save?


Your columns about money issues are thought-provoking. I’m a new credit card user and it’s so much fun to be able to spend even before my salary comes. I often also just pay the minimum required plus the interest. In your columns, you keep advising that saving money should be promoted in the Philippines. Can you quantify that with specifics like how much savings we should aim for in order to be safe?


On life insurance, I am still very young. Who should be my beneficiary and can I change that to my future kids when I eventually get married?


Nathaniel K. Velasco, 27 years old, Dumaguete City


Answer


Thank you for your interest in insurance, Nathaniel.  Being young should not deter you from acquiring life insurance; in fact, it should be an advantage because of the much lower premiums for younger ages.  In my particular case, I realized the necessity and beauty of life insurance in my early 20s when I first started working.  At that time my income was not enough to acquire properties or other material assets, so I decided to prioritize savings and insurance coverage.


Even if I wasn’t married then, my principal reasons for getting life insurance were (1) to preserve my financial independence (for example, if I get hospitalized I would have money to pay my medical costs and not have to rely on my parents to finance me), (2) to strengthen my desire to set aside money for the future — my bank savings account represented my liquidity savings while my insurance policies represented my forced savings, (3) to begin accumulating wealth by acquiring an asset I could afford — life insurance, and (4) in case something fatal would happen to me I could contribute to the future welfare of my parents or siblings.


The last reason also answers your question — you can initially designate your parents or siblings as your revocable beneficiaries and later make a beneficiary change to your fiancée, wife or children, which life insurance companies allow, when the appropriate time comes.

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