Saving in Time of Crisis, part 2

By Randell Tiongson on July 20th, 2009

Here’s the part 2 of Edmund Lao’s blog on Saving in Time of Crisis… Randell T

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3. Invest in your health. Health is wealth. By maintaining good health, One can eliminate spending huge amount for medicine and hospitalization. Imagine how much critical illness can hurt a person’s finances. With a single stroke, his wealth can be wiped out instantly.

4. Eliminate or reduce vices. Vices are one of the greatest hindrances to wealth building. These are the unnecessary wants that we can live without. Just imagine a person smoking a pack of cigarette everyday. How much money did he burn in a year? Not only that, he also is not investing in his health. In short vices are not good to one’s physical and financial health.

5. Live below your means. This statement has been used so often but is taken for granted. Yuppies tend to splurge money to enjoy the money they worked hard for. That is instant gratification. Sometimes they spend too much that they have to incur debt just to sustain their extravagant lifestyle. Isn’t it debt sounds like death? Remember the book “Till DEBT Do Us Part” by Chinkee Tan? The only way to delay instant gratification is to have proper mindset. You have a choice, either SACRIFICE NOW, ENJOY LATER or ENJOY NOW, SUFFER LATER”.

6. Start your savings program. Saving money is not at all difficult. Every time people hear the word “savings”, there is only one response” “I have no money left for savings”. They do not realize that the amount of money to be saved is irrelevant. It is the discipline and habit that matters. By saving, you are, in principle, “paying yourself first”. Imagine paying all your bills first and leaving yourself for the last and penniless? The trick here is to consider yourself as an expense on top of your other expenses. Take ten to twenty percent of your paycheck and save it. (Remember the story of Joseph as governor of Egypt?) Then budget the remainder for your expenses. Learn to determine the wants and needs. Cut down on wants and focus on the needs. If the budget is still short, it is time to look for additional income so that you can increase your cashflow for your budget.

7. Create emergency fund. As a rule of thumb, savings equivalent to three to six months of salary must be reserved for emergencies. The usual problem is there is always emergency but no fund. Emergencies are those events that suddenly arise without our control. Childbirth can not be considered emergency. Some time in the past, a worker was borrowing money from me for emergency because his wife will be giving birth. I frankly told him that it is not emergency because the time he learned his wife was pregnant, he should have planned and prepared the amount needed.

8. Invest to grow money and outpace inflation. After accumulating emergency fund, it is time to transfer excess money to an instrument yielding higher rate of return. Inflation can not be seen but can be felt. Inflation, by definition, is the loss of value of money over a period of time. To make it plain, just imagine you have fifty pesos last year. That amount today can not be able to buy the same thing you bought last year. So it pays to learn different investment vehicles for your financial growth.

Time is of the essence here. It can be your ally or enemy. One only realizes the dull importance of TIME when there’s little time left. Everyone’s greatest asset is one’s unexpired years of productive life. Take advantage of time and make it work with your money.

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Saving in Time of Crisis, part 2