In the Philippines, only one out of four households has savings, with an average saving rate of six percent. With this statistic among others, financial literacy is truly important. Whether you’re a fresh grad and want to learn how to stretch your salary, or a long-time professional who wants to be smarter about money and investments, we have some gems from the Family FQ Workshop with the Faustos, held at the SMX Convention Center in Taguig in May. In it, we learned about several money-smart moves every person should be making, regardless of age.
The Faustos are a family of five: couple Rose and Marvin and their three sons, Martin, Enrique, and Anton. The family advocates financial literacy among Pinoys and has been holding seminars and workshops to help increase FQ, or financial intelligence quotient. Each member of the family, from the parents down to the youngest son, has been working to build wealth and make their money work for them for years now. Below are some lessons we learned from their workshop.
1. Use core values as a compass. Set goals annually.
Martin, the eldest son, recommended asking yourself, “What values are non-negotiable for you?” These values could be freedom, security, health, etc. He said that what you do with your money should align with your core values, or no amount of money will make you happy. In his mom Rose’s case, it has helped that she has the same values as her husband when it comes to money.
Martin also said that their family sets their goals annually. Goal-setting can be done on a quarterly, monthly, weekly, and even daily basis. When doing so, this must also be aligned with one’s core values.
2. Pay yourself first. Adopt a system of saving.
It may sound strange at first to “pay yourself” when you get your salary from your employer. But spending it first elsewhere, be it on third-wave coffee, a concert you’ve been wanting to see, and your phone bill, not only literally makes the money not yours, but will leave you with nothing. “You’re paying others before you,” said Martin.
Savings is equal to income minus expenses. The reality nowadays however, especially among the youth, is that savings isn’t common. When saving, it’s important to really distinguish your needs from your wants; confusing the two leads to financial stress, said Martin. Understanding these guides you to financial freedom.
A system you can adapt is to divide your money into three: one for the bills and other necessities you have to pay, another for savings, and another for your luxuries, or the things that you enjoy. Martin said that when adopting a system of saving, save at least 20 percent of your income.
3. Live within your means, but enjoy the fruits of your labor.
Diets have cheat days, and in the same way, your cheat days when it comes to earning and saving is when you shop—or splurge—on something you enjoy and may have been saving for. This “brings a sense of pride,” according to Martin.
Youngest son Anton added that their mom taught them that when buying luxury, you must be able to buy 10 times of whatever you buy so you don’t overspend. Also, when you’re earning your own salary, it’s especially important that you are independent, even if you splurge. Martin said that it’s important that your “financial umbilical cord,” or financial dependence on your parents, is cut, especially after you’ve graduated from college.
4. Create passive income.
Enrique, the middle child, also believes that you shouldn’t let the number of hours per day limit your income. And since the purchasing power of money can go down, it’s important to grow your money. Your first option is to deposit in a big account or an account for fixed-income investments. This includes time deposits, money market, and bonds.
Your second option can be to invest in the stock market. The stock market is basically buying part ownership of a company. Your money grows when the stock price goes up, and when cash dividends are paid back by the company to the investors of the stock. Enrique said that he and his brothers started investing in stocks when they were still in elementary, so you’re never too young to start. Your money can triple in three years; the Fausto brothers saw their investment grow to 16 times what it was when they started in 1993. You should also seek help from knowledgeable, competent people like financial advisers when you are investing.
5. Use a balance sheet.
According to the youngest son, Anton, a balance sheet is the snapshot of expenses at a certain moment in time. The basic formula for this is as follows:
assets – liabilities = total net asset value
Using a balance sheet, he and his brothers are able to see where their investments go.
The Fausto brothers also mentioned the relevance of the Marshmallow Test, which is about the delay of gratification. You must be patient and postpone spending to become richer. In this case, you postpone spending so you’ll have enough money for investing, allowing that money to grow, and thus being wiser and more patient with your money.