Emergency Fund…taken for granted no more!

Posted on by Bing Ledesma - De Los Reyes

Having an emergency fund is a must in any financial plan as we do not want to touch the savings we have for our children’s education or the retirement fund we diligently built-up when some unforeseen events happen.

Although the pandemic disrupted this principle especially those who lost their jobs or got saddled with sickness, this simple guide remains to be relevant: a prescription of at least 3 to 6 months of your monthly cost of living and if you have more savings, it is better to put the excess in an investment fund that gives you better returns.

But first, why is an emergency fund important? Quoting Zach Buchenau, a personal finance expert (https://bethebudget.com/why-is-an-emergency-fund-important/) “emergency fund is important because it acts as a financial cushion in the event of an unexpected expense. Whether it be medical bills, home repairs, or a family crisis, an emergency fund can help you steer clear of debt, protect your assets, and avoid unnecessary financial struggle.”

So how do we build an emergency fund? Here’s a simple guide: Read more at https://www.saveandinvest.org/military-everyday-finances/start-emergency-fund

  • Chart your monthly income and expenses. This will help you determine not only your monthly cost of living but can also help you identify where you can cut expenses in order to set aside for the rainy days.
  • Set your emergency savings goal. As I mentioned earlier, a quick guide is 3 to 6 months.
  • Develop a plan to start saving. For some, cutting costs is a must and tracking your expenses can help you find what items you can give up to give way to savings.
  • Put your emergency fund in an accessible place. A regular bank savings account is a good place for this as you can access it without paying penalties. As such, do not mind the very low interest rate as that is the reason why you can withdraw it anytime.
  • Stick to your plan. It may not be easy as there are lots of reasons we come up with why we can’t set aside the amount regularly until the fund goal is reached but resist the temptation and stick to the purpose of the fund – it should only be used for Emergency.

I must add that expenses like tuition fees are not “emergency” expenses as these are scheduled and can be planned ahead. There are health plans that can help cover medical expenses and it is always advisable to get covered for these expenses too.

Finally, this Covid-19 pandemic has exposed our financial vulnerabilities and has taught us so many lessons including ensuring having a sufficient emergency fund, having health plans and insurance coverage. Let us not waste these lessons by not acting on them and plugging the holes in our financial plan.

Let’s not take for granted setting up an emergency fund anymore. It’s one lesson from this pandemic that we must learn and act on.

Set it up early…ensuring your child’s future

Posted on by Bing Ledesma - De Los Reyes

“Education is the most powerful weapon which you can use to change the world.”

~Nelson Mandela

One thing I am truly proud of as a Filipino is how we value education and parents go through great lengths to have their children finish a degree as we believe that it increases the probability of our children having a good future.

My story is no different. The conversation I had with my father that fateful night when I was in second year high school continues to be vivid in my mind until now. He came home and saw me crying because I was not yet enrolled as he was still sourcing the money. He sat me down and told me that no matter what happens, I will be enrolled and he promised that even if it takes selling all that he has, he will make sure he gets me through school. He passed away when I was in my junior year in College and indeed, he left provisions so I could finish my degree. His life insurance policy made sure I continue my studies despite the unstable income of my mother from her “sari-sari” store (a sari-sari store is a small neighbourhood store that sells common sundry items; sari-sari is a Filipino word for variety).

Thank you, Papang for fulfilling your promise.

When it was my turn to have a child of my own, setting up an education fund for our daughter was one of the first decisions we made as parents. Both my husband and I got separate policies three months apart. Last year, after 15 years, our education plans matured so we now have her college fund ready (she will be entering college in less than 2 years). Since both my husband and I are still earning, we have the choice to re-invest a portion of it which she can use later after graduation or if we need it for some education requirements, we can do that too. Our decision to set it up early gave us the options now plus the peace of mind that no matter what happens to our ability to earn, she can finish her chosen degree just like what my father did to me.

Our bundle of joy at about the time we started her education fund

The key is to start early. As soon as your bundle of joy is born (or better still, before birth), start setting up his/her education fund because the more years you have to grow the fund, the less amount you need to start it.

Invest it in a fund that is not easy to access. Simply putting it in a savings account does not only put your money to sleep (as it hardly earns anything) but it also gives you easy access to it so the risk of diverting it to other things is high.

Make it grow. If you start it early, like ten years or more before you actually need it, you can be more aggressive in the funds you invest in. Aggressive funds like equity give more upside but may also be more volatile. However, the longer time horizon you have mitigates the risks. Do frequent top-ups so you catch the “downs” of the market and get higher returns. Don’t just invest one time. Invest frequently.

Having more children requires an even more deliberate approach to education funding especially that we have other needs to prepare for like our retirement. Considering the ever-increasing cost of education, it’s either you will compromise the comforts of your daily living now by cutting your expenses here and there or you compromise your ability to save for a comfortable retirement. Both require long-term planning.

So while you still can, start it now. Every delay has a price to pay.

For related blogs, please read the links below:

Laying the Blueprint for Financial Wellness

Posted on by Bing Ledesma - De Los Reyes

I was recently invited to share my thoughts with almost 400 delegates of the 1st Virtual Youth Congress organised by the Rotary Club of Makati Jose P Rizal. It was a mutually meaningful talk based on the feedback of the very engaged attendees and at my end, it was quite inspiring to do my own share of addressing the still prevalent “sandwich generations” among Filipinos.

I call it “sandwhich generation” when children take care of their ageing parents at retirement (because they have not prepared for it financially) while they take care of their obligation to their own family…thereby affecting also their capacity to prepare for their own retirement.

I shared with them my own vision board that I drew 22 years ago. It is a crude representation of the future that I then want but it has served as my guide and the basis for a more comprehensive financial plan that i diligently implement. I am happy to say that all except two goals (we were only blessed with one child and at my age, I can’t bear another one (sigh) and the brand of dream car that I now find impractical to buy).

My crude Vision Board reflecting the future that I want which I drew 22 years ago.

I outlined 4 steps as a guide in preparing one’s road map towards Financial Wellness:

  • Envision – Know what you want in every stage in your life. Visualise how the future looks like for you. Just the broad strokes.
  • Plan – Put a price tag to the future that you want. Once you know what you want, you can then determine how much fund you need to build-up between now and the time you need it. The key word is “build-up” which requires you to start early to take advantage of the time horizon where you can grow your money.
  • Execute – Start putting the elements of your Financial Plan. One thing we discovered about investing is that people generally have a mismatch of their goals and the investment vehicle they use. For example, a young couple wants to start early in setting up the college education plan for their 2-year old child and yet, they put their money in a savings account with little or negligible interest income. A basic principle in investing is that you can take more risks (ie invest in an equity fund that may be more volatile) if you have a longer time horizon.
  • Track and Review – Our goals and aspirations change so it is important to track and review where we are so far and make the necessary adjustments while we still have time.

I closed by reminding the delegates that their youth is their main advantage and they must not waste it by starting early and making the right choices.