Financial IQ: How to save money with high cost of living?

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Financial IQ Philippines Quick Hit(s):

We just need to shift our money management ways.  We need to set aside a fix savings amount per period regardless of our projected expenses.


How do you save money with the high cost of living?


Your columns on personal money questions are relevant and interesting, especially your advocacy for people to save money. I agree with you about saving money, but it is easier said than done in our society where the costs of living are so high like electricity, transportation, food costs, housing, education, medical and others. I think even life insurance is more costly here than in other countries, because my sister in New York told me that their life insurance there is cheaper. Why? How can we save?


Patricia J. Pastrana, 32 years old, businesswoman, Makati City


Answer


During one annual employee recognition program of my former company, I will never forget what one of our co-workers said when she spoke on behalf of the awardees.  She was receiving a salary just above minimum wage, but she told everyone that no matter how little one earns, one can still make ends meet.  I take inspiration from her words because while it is true that today’s higher living expenses pose an even greater challenge to saving money, we can still set aside part of what we earn if we are determined enough to do so. 


We can exercise our power of choice to decide on what we truly need to spend for.  Moreover, the other side of this higher-cost-of-living reality is that businesses compete more fiercely for a share of our income and this often results in their offering discounts and promos to lessen the cost of their products/services (like budget airfares, for example).  In order to save more effectively, make a paradigm shift. 


Most Filipinos spend first, then save what is left of their salary before the next payday.  This does not work most of the time.  What does work is to save first, then spend what is left.  For example, if you regularly deduct 10 percent  or more from your salary each time you are paid and immediately put it into your savings account, you will eventually develop the discipline of prioritizing your savings before any expense as well as adjust your spending habits to make the remaining 90 percent of your income fit your needs.  My wife does this for our house help, and you will be amazed at how much they have been able to save!


As for life insurance in the Philippines costing more than in other countries, if indeed it is so, it would be because (1) the more developed countries have a greater percentage of their population insured and can thus spread the cost of insurance to more people, (2) the tax treatment in other countries is much lighter for life insurance policies and this leads to lower premiums, (3) quality of life insofar as health services and overall safety standards is better, which then promotes longevity and lowers risk-management costs, and (4) stronger insurance penetration leads to a greater variety of insurance products available, which cater to a wide range of affordability.  As our country’s economy improves and more Filipinos are enlightened about insuring themselves, we are confident we can eventually achieve parity with these nations, but don’t let it stop you from insuring locally today.  

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