Money down the drain
Let’s admit it. All of us have been guilty of our own money mistakes—those habits or things that throw money down the drain. A bit of a splurge here, some expenditures there—it all happens to us. It could be a little thing, but being done regularly, it gnaws at our bank accounts. It could also be big purchases that really do not add any value over time.
Buying things is perfectly normal. We all need to buy stuff for our needs to treat ourselves or simply make us happy. Nothing wrong with that. But the issue lies not in the purchase itself but in its effects to our present and future cash needs.
The problem begins when it adversely affects the present and immediate future–when these outflows downgrade or even sacrifice future needs for the present.
I do not intend for us to have a Spartan living. We definitely deserve our needs and to enjoy the fruits of our labor, but there should be balance of present and future, providing the means for both.
I, too, have my own share of guilt. But being honest to oneself, I believe, is the start of change for the better. Knowing the problem is a big step towards solving them.
What then are the top money drainers we should be conscious of and avoid? Here are some of them:
Unpaid credit card balance – This is one of the most expensive way to throw money away. Imagine a three percent monthly interest rate translating to three percent multiplied by 12 months equals 36 percent annual rate.
Imagine paying P36,000 for every P100,000 of debt. I know a lot of people who carry more debt than that. Paying off only the interest would just raise your balance, prolonging the time to pay. So what’s the trick with credit card balances? Pay them off as soon as possible. If you have cash, pay for it.
Expensive eat-outs – Filipinos love to eat. But for spending P250 per meal, five days a week means P60,000 yearly. That amount if invested for the next 10 years at 10 percent rate of return would be P1 million. You may also consider picnics instead of expensive restaurants for reunions.
Gadgets – I love gadgets—tablets, smartphones. But getting one every two years that depreciates instead of going up in value is unsettling. But that is not to say buying gadgets is a no-no. We simply need to prioritize our needs. I couldn’t imagine buying a high-end gadget yet being hard-up or having no money to pay for my kid’s tuition fee.
Unused gym memberships – We have to be healthy. Gyms have their advantages, but having a membership and not using it only makes your wallet thinner. Imagine spending P2,000 a month for something you barely use. You may try jogging around or do brisk walking within the village or a nearby park for no charge at all.
Vices – A pack of cigarette now costs P80. A pack a day would mean P29,200 per year or P292,000 for 10 years. That expenditure can be translated to other vices such as alcohol and gambling which, like smoking, can empty your pocket, Vices cause diseases that could further increase your expenses while lessening your life span.
Expensive coffees – You may also like to avoid buying a cup of coffee at P175 every day, because in one year that would equal to P42,000. Coffee can be had with instant sachets, home brews or coffee presses. If you can afford to buy expensive coffee after having paid for all your needs and goals, then go ahead, sip it with success.
Unused subscriptions – Paying monthly fees for newspaper or magazine subscriptions that you do not read is another way to drain your pocket. We do have some interests and print media adds up as resources. But if you are not reading them, maybe it is time to go on-line.
Expensive accessories – A lot of people “dress to impress” but a lot of them also dress until they get broke. That P60,000-bag could mean your kid’s tuition fee and that expensive clothing could mean additional protection coverage for your family while those rubber shoes could mean cash for medicine during your retirement years.
Again, it’s all about prioritizing needs.
Rienzie P. Biolena is a Registered Financial Planner of RFP Philippines. He’s president and chief financial planner of WealthArki and Consultancy, a financial planning firm. Learn more about personal financial planning at the 73rd RFP program in November 2018. To inquire, e-mail info@rfp.ph or text <name><e-mail><RFP> to 0917-9689774.
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