Buying a car and owning a home – these are part of the Filipino dream; however, saving up for big-ticket expenses, such as a vehicle or a house, may seem like they will take forever. A fresh graduate earning an entry-level salary may not even be able to afford the monthly amortization for these items. A person in his thirties and forties may afford the monthly payments on a car or house loan, but paying such a large amount may be discouraging because it’s still taken out of one’s income. However, owning a car or a home is certainly possible whatever your age is. The key is building the habit – the habit to save, the habit to pay debt regularly, and the habit to stick to one’s goals.

Here are 5 easy ways to save for big-ticket items, so soon enough, owning a car or a house is your reality:

1. List down your income and expenses

‘What can’t be measured can’t be improved.’ – It’s an age-old adage.

When it comes to finances, the bottom line is you have to know how much of your money is going in and going out in order to come up with realistic plan for your finances – such as buying a big-ticket item. If you don’t know how much money you’re left in a month after spending, it’ll be very difficult to come up with a payment plan that is realistic and fits your current situation.

What to do:

• Track both your income and expenses.
• Categorize your expenses (e.g. rent, utilities, entertainment, etc.).
• Set a budget according to category.
• Money going out (outflow) should never exceed money going in (inflow).
• In the next month, cut down spending on categories where you overspent.

2. Sacrifice today for tomorrow

Nothing great ever comes easily, and your personal finances are no exception. If you want to live in your own home in the future or drive your own car to avoid the horrendous Metro Manila commute, you need to make a few sacrifices today for a better tomorrow.

What to do:

• Forego short-term gains for long-term ones. (e.g. don’t buy a new shirt every month and save the money instead)
• List down your long-term goals in your phone or a place where you’ll see it every day to keep your eyes on the prize.
• To control impulse spending, compare your hourly income to an item’s cost per hour, and then determine if the item’s really worth it. (e.g. if you want to buy a shirt worth Php 800, and you earn Php 200 an hour, it takes 4 hours of working to afford that)

3. Save as you would pay a loan

When it comes to paying a loan or your credit card balance, the pressure is on. You’re more determined to tackle your credit card debt or loan balance with the monthly statements you receive. Worse, your balance seems to increase every month in which you don’t pay the full balance because of interest. When saving for a future expense, you’re not as pressured. You don’t have any liabilities (e.g. interest fees, defaulting, collateral) because you haven’t bought a car or a home yet. However, to build the habit of saving for big-ticket items, save for them as diligently as you would pay down a loan.

What to do:

• Know the exact amount you need for your future purchase.
• Create a savings plan (should include how much you should save every month, your timeline for saving among many others, etc.)
• Transfer a percentage of your monthly income from your payroll to your savings accounts during payday. As what Warren Buffett says, “Do not save what is left after spending, but spend what is left after saving.”

4. Invest

Investing allows you to save money at a faster rate because the possible return on investment (ROI) beats the interest you earn in your savings account. However, it’s best to know that high reward equals high risk, and investments are not guaranteed. Since you stand to earn more by investing, you stand to lose a lot as well. That shouldn’t scare you away. If you’re diligent to learn and practice, you’ll become a better investor.

What to do:

• Read investment-related resources and attend seminars or conferences. This way, before you even open an investment account, you already have an idea of what to expect.
• Know your purpose or goal for investing. Are you saving for a home in the next five years or for retirement thirty years from now? Knowing you goal allows you to pick the investment most suitable to your situation and preferences.
• Don’t be a one-time investor. Once you open an investment account, put a portion of your monthly income into your investments. This way, you’ll ramp up your savings.

5. Increase your revenue sources

There’s no magic trick when it comes to saving more, and there is definitely no substitute for hard work. If you want to save for a big-ticket item in less time, increase your sources of revenue, be it investing or taking a second job. By increasing your monthly income, you’ll be able to put more into savings.

What to do:

• Investing is one way to increase your revenue sources.
• Know your strengths and take up freelance gigs aligned with your strengths. People will pay you for what you are good at and for what they aren’t.
• Save ALL your income from your sidelines. Do not use the money to spend for expenses; otherwise, it beats the purpose of earning more to save more.

Living the Dream

The five steps above will bring you closer to your dream of owning a big-ticket item. Whether this is buying a car or owning a house (or another purchase), you’ll reach your financial goals as long as you build and keep the habit of saving.

Once you reach that point and buy that big-ticket item, it’s best to keep these safe. One way is to keep your discipline of saving since unexpected expenses will arise (home repairs and car maintenance fees). The need to save never really end. Another way is to protect yourself through insurance, be it car or home insurance. Insurance premiums may take a chunk of your income, but you’ll end up paying less for your insurance policy (in the event that you need to make a claim) versus than if you didn’t have insurance at all. To get the most affordable deal on non-life insurance policies, comparison portals such as MoneyMax.ph, allow you to compare different types of insurance from various providers.

You never really stop spending, but this is the importance of building the habit of saving. You never really stop needing to save even after you’ve bought that big-ticket item. Whether it’s paying down debt or saving for a big-ticket item, the key takeaway is building the habit of keeping and growing your personal finances.

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Q: Hi Randell, I’m a regular employee in my late 20s. Having read your articles, I know it’s important to save for retirement early, but I also want to support my family (my parents and my younger siblings) financially. Is it possible to do both? –Inez, via Facebook

A: I’m glad that you’re looking out for your financial future while still being concerned about your family’s. In such a close-knit family culture like the one we have here in the Philippines, it’s natural to want to help out. But oftentimes, in their desire to help, a lot of people ignore their own financial health – and that’s not good. Here are a few steps to take if you want to support your family and save for your own future:

1. Put the mask on yourself first. If you’ve been on any flight (and you actually pay attention to the flight attendants’ pre-flight instructions), you know that when the oxygen masks drop, you’re supposed to put the mask on yourself first before you help put the mask on others. It’s the same for your finances; before you can help anyone else, help yourself first. Do you have an emergency fund? Is a portion of your salary going towards retirement already? Are you free from high-interest debt like credit cards? Then you can step up and contribute to your family. If not, take care of your own finances first.

2. Get insurance. Your contributions are vital to your family, so it makes sense to protect yourself with life insurance in case you’re unable to work. If you budget concerns and investments is not yet a priority, look at term life insurance plans, which provide coverage for serious illnesses and death for a certain period of time. You may also consider health insurance or HMOs if health is a major concern for you.

3. Know your family’s financial situation inside and out. Knowing your family’s financial capabilities will help you keep better control of your own finances. What do they need help with? How much do they need to pay whom? This may not be an easy conversation to have, but it’s important so that you don’t overextend yourself, and they don’t become reliant on you at the expense of your own future. When you know how much money they truly need, you can measure it against what you can provide as assistance, and you can provide for them while saving for yourself.

4. Set boundaries. Exactly what monetary help does your family need? How much will they need from you monthly, and for how long? What is the maximum you can provide for them? What are their financial goals? Setting these markers down will ensure that you stay on your financial track while still being able to help your family. When you help, make sure it is not encouraging the habit of dependency and entitlement.

5. Teach them good financial habits. Like the old saying about teaching a man how to fish, teaching your family good financial habits will be much more help to them in the long run that simply giving them money. Help them set a budget so they can meet their expenses, or assist them with finding money-making opportunities so that they can sustain themselves with minimal help from you. This way, they can have their own sources of income other than just you – freeing your finances up so you can save more, build your wealth, and be in a better position to help them out if more financial setbacks arise.

Discussing family finances is not the easiest thing to do, but it’s very important if you want to help your family while still helping yourself. Improve your finances and get yourself on solid ground before you commit your resources to helping out. It’s important to be there for your family, and by following the steps above, you can ensure a good future for yourself while getting your loved ones on better financial footing.

What does the bible say about these things?

We should honor our parents — “Honor your father and your mother, that your days may be long in the land that the LORD your God is giving you. (Exodus 20:12, ESV). It was further reinforced in Ephesians 6:2 —“Honor your father and mother” (this is the first commandment with a promise).

However, the bible is likewise clear about the obligations of a parent — Here for the third time I am ready to come to you. And I will not be a burden, for I seek not what is yours but you. For children are not obligated to save up for their parents, but parents for their children. (2 Corinthians 12:14, ESV).

Seek wisdom with these things… be in faith and be a good steward of your finances lest you your children may end up having the same burden as you have for your parents.

A good man leaves an inheritance to his children’s children, but the sinner’s wealth is laid up for the righteous. (Proverbs 13:22, ESV)

Here’s a truly wonderful video by Fidelity Investments on the wisdom of Savings. Many of us do not see how a a lifestyle of savings builds a strong personal economy.

I love how the lady in the video enjoyed skydiving at the age of 90!

Check out this video…