Top Four Money Mistakes You're Making

 

1. We prioritize spending over saving—leaving nothing. Fitz Villafuerte sees this far too often with people who share their experiences with him—“Whenever they get their paycheck, they usually just spend first, and whatever’s left, that’s what they save,” he says. “Most of the time, there’s nothing left at the end of the month.” 

Solution: Turn it upside down. Set aside a portion of your paycheck for savings first, then feel free to spend the rest. Villafuerte also recommends asking your company’s H.R. department for help: “You can actually make saving money automatic—ask your H.R. to automatically set aside part of your salary into another savings account at the same bank as your payroll.” Such proactive methods make saving far less painful than it should be. “That way, you don’t feel that you’re saving,” says Villafuerte. “You’re guilt-free to spend what’s left. Saving feels lighter and more rewarding.”

 2. We invest before we’ve built an emergency fund. Villafuerte observes that the second mistake a lot of Pinoys make when they come into extra money is to invest it before even setting some aside for an emergency fund. “They don’t really use it to build their emergency fund first,” he says. An emergency fund is a basic building block of any personal portfolio: a cash amount worth six times your monthly household expenses, stored away for emergency use 

Solution: Villafuerte recommends having one in place before investing your funds. Not that he downplays the importance of making one’s money grow—far from it—but like the previous problem, the issue here is one of priorities. “Hospital expenses, emergency car or home repairs—those are expenses that you can’t put off.” Without an emergency fund, you’ll either need to get in debt or liquidate your investment immediately.

3. We avoid the stock exchange. Villafuerte thinks the stock market is mostly misunderstood by Filipinos. “When you talk about the stock market, Pinoys think about stock trading, and they get cold feet, because they think it’s like gambling,” he explains. “That’s the reason why it’s underutilized as an investment vehicle.”

Keep in mind: But stock trading is only the short-term aspect of the stock market. “There’s also stock market investing, which is more long term,” explains Villafuerte. “If Pinoys get more educated about investing—about buying stock or holding it for five to seven years—you’ll see that you’ll earn a lot more compared to just saving your money in a time deposit.” Villafuerte avoids giving stock market advice, preferring instead to refer friends to his broker: “They offer free stock market investing seminars.” There’s quality advice on the stock market out there—but you need to look hard for it. Which leads to the last problem. 

4. We get financial advice from the wrong people. Villafuerte has seen this far too often—fledgling entrepreneurs who ask their friends for free business advice and get what they pay for. “We Filipinos love shortcuts,” he observes.. “They don’t read up on the business side of things; they don’t ask people who are entrepreneurs, ‘how do you run a business?’ so that increases their risk of failure.”

Keep in mind: There’s a reason certain information is free and easily gotten, says Villafuerte: “because it’s not really the best quality advice that you can get.” Valuable business info is harder to get to. He remembers a friend who was putting up a laundry shop and wanted his advice. “I told her about a laundry shop operations seminar at Negoskwela: ‘Why don’t you enroll there? You can get advice from people who really know the business.’” The friend passed on the offer—“Fortunately her business didn’t go under, but it took three years before it stabilized.” Compare that to another entrepreneur friend, who also set up her own laundry shop. “It turns out she attended the laundry shop seminar—the shop’s been open only three months, but it’s already stable,” recalls Villafuerte. “That’s where you can see the difference: asking money advice, business or investment, from people who you just happen to know, against getting it from somebody who is an expert in that field.”