To say that the years 2020 and 2021 have been challenging is an understatement. In 2020, the Philippine economy contracted for the first time in 22 years. It is also estimated that about 10.9 million Filipinos have experienced job disruptions (either as job loss or reduced income) due to the Covid-19 pandemic (ILO 2020).
The global pandemic has taught us a few things - that we have to take care of our health, relationships, and our finances. These aspects of our lives are more connected than we think. Financial stress can affect our physical and mental health, and also impact our relationships with family and friends. Health woes, especially in the Philippines where medical expenses are often out-of-pocket, also adversely affect Filipino families financially. When relationships break down, it impacts on the finances and general well-being of the family, including children.
With 2021 slowly coming to a close, the new year is a good opportunity to commit to goals to improve on our financial well-being. Here are a few financial resolutions you may want to set for the upcoming year as a promise to become better in 2022.
Track your expenses
Whether you do this old school with pen and notebook, or on spreadsheets on your computer, or using apps on your phone, is not important. What is crucial is you are diligent in doing this. Allocate 15 to 20 minutes every night to record all your personal or household expenses. This can be an activity you can do with your spouse. Tracking your expenses is also a requirement before you can create a budget.
Start one or revisit your budget
If you catch yourself wondering where your salary has gone, you likely have no budget. A budget is a plan that can help you be in control of your finances and have a better understanding of how money that comes in can be best utilized. In general, there exists an imbalance between money flowing in and money flowing out of our accounts.
Incomes are often fixed, and limited in number and value, whereas expenses are diverse and many. Expenses may be big or small in amounts, may also be of different types - fixed or irregular, and may come in different frequencies - daily, weekly, monthly, annual or ad hoc. A great strategy to manage this unavoidable imbalance is to plan how much income can be allocated into different pots for savings, emergency fund, and every expense item on your list.
Start an emergency fund
An emergency fund is your stash of money that you can access for any surprise expenses that may throw you off from your regular cash flow. These curveballs may include medical expenses; death in the family; natural disasters; vehicle or home appliances breaking down; or gadget loss. The common denominator with these expenses is that they are usually not within your control. So a way to reduce their impact on your finances is to prepare with an emergency fund that they say is anywhere between 3 and 6 months of your living expenses.
Start saving more and spending less
So wait, is this separate from the emergency fund? Does savings not equate to an emergency fund? The answer is no. Savings is preferably something you use later on for investments if you have not started this yet. Do not set unattainable ambitious goals. Start by allocating a small percentage or fixed amount of your income towards savings, and only use the remainder for expenses (i.e., Income - savings = expenses and not Income- expenses = savings).
Pay your debts
Write down all your debts both to institutions (like credit cards, and government and bank loans) and to people (family and friends). Include information on the amount, what was this used for, include remarks whether these were wants or needs, when the debt was taken out, and when you originally promised to pay them back. Loans may not be something you can pay off easily and have to stick to an existing schedule. Create a new schedule on when you can realistically pay off your debts. Start by paying one of them fully, starting with the smaller amounts, especially those that earn interests. If you have many credit cards, choose to pay off one of them in full and move on to the next. Make it a habit to pay debts you owe family and friends. Crossing out debts off your list one by one will make you feel good and motivate you to completely clear the list. Avoid adding new debt to your list and aim to keep the list shorter.
Use your skills and find new income streams
Be creative at finding new ways to earn money. Surely, you have many other skills or talents outside of your current job. These talents may be in music, baking, cooking, art, design - the list is endless. Everyone is forced to stay indoors due to pandemic health guidelines, so there is an opportunity to start classes for your friends or their children. There also are so many odd jobs available online where you can earn small amounts that later add up. Answer surveys, encode data, editing jobs, translation, among others.