Photo source: LIOsa, Pixabay
Though I have passed my financial adviser exam last 2015, I am not a personal finance guru. In fact, what led me down the road of personal finance were a series of financial bloopers and very costly lessons.
And this post’s goal is simply to share some of these lessons. In the realm of personal finance, I am beginning to realize, I am probably still at the first-grade level. But hey, I began from the bottom! In my first 20 years, no one taught me about personal finance. Then the next 10 years were spent making expensive mistakes and conducting little experiments and finding a path to follow. The past few years I have spent learning (and paying for) those mistakes. More importantly, I am beginning to seek mentors, books, any reliable material I can find to guide me through this maze. Plus gradually replacing negative financial habits and limiting beliefs with more empowering, expansive ones.
If you, too, grew up knowing nothing about personal finance, I hope this post can help, or at least keep you from making the same mistakes I did.
- I bought a property for the family. And while it wasn’t being used yet, we rented it out. The initial down payments and property improvements to make the house livable emptied my pockets. When we began renting it out, we realized that it could only be rented at a price slightly lower than our monthly mortgage payment. Having good-paying, long-term renters were blessings, lowering significantly the money we had to shell out for mortgage. We did have to cover for a two/three-month period when the house had no renter, plus occasional maintenance and property tax.
I would recommend any future homeowner to first assess their capacity to meet long-term monthly obligations and occasional expenses. And also to seriously look at the interest rates and projected earnings (if you plan to rent it out) before taking out the loan. In my case, I realized that most of our monthly payments actually went to interest rates; only about 20% was deducted from the principal. In effect, within a 25-year period, we would have paid an interest that’s more than twice the price of our loan amount. A friend who had the same dilemma recommended I make additional payments to be deducted from the principal, thereby minimizing interests.
- My mindset began shifting because of books. I first read Robert Kiyosaki’s Rich Dad, Poor Dad. I no longer remember which of his books contained something about Alice in Wonderland Through the Looking Glass. The gist of the message was if you somehow believe that there is another reality beyond what you are living now (ex., earning solely through employment), then you will take a risk and walk through the glass.
- I also began reading books by Bo Sanchez (such as The Turtle Always Wins, The Abundance Formula) and Francisco Colayco’s Pera Mo, Palaguin Mo and Pisobilities.
- I attended seminars. But I learned NOT to buy products they sell immediately. Some people (including agents) truly care about your financial future and honestly believe they are helping you reach your financial goals. But some products may not fit your needs, or what you can afford to pay for the next several years. It is so tempting to shell out funds right after a seminar, get carried away by all the hype, and immediately join or avail of their products. But give yourself some time to think this through. Keep reading. Consult people whom you know are better at managing their personal finances.
- I opened an account with COL Financial so I can purchase stocks. I shelled out Php5,000. It was a good learning experience. I relied on my friend for advice on what to buy though (since I had no idea about stocks). Contrary to what I’ve heard from many, I did not lose money. Somehow, I did earn via a buy-and-hold strategy. But eventually, I had to pull out all my investments. This leads me to my next valuable lessons.
- Take care of your health. When I got sick, I had to stop working for more than a year. That was when I realized how important it was to . . .
- Build your emergency fund. When I got sick, I only had two-month’s worth of salary saved. Since I was an output-based worker, I had no health insurance. So apart from my living expenses, I also had to shell out money for my medical expenses.
- I did have insurance though, a value life insurance. For the first two or three years, I had no fund balance (investment/savings component) because the funds went to setting up my fund. After which, I was so happy to see my fund balance growing every month. Then, I got sick. I asked my agent if I can withdraw my funds to cover my medical expenses. But I can’t, since there was a policy on minimum withdrawals and my fund balance has not yet reached this amount. It’s been over a year since my last payment. In a year, my fund balance has dropped significantly (equivalent to about 1/3 of my yearly premium payment), as insurance and administrative charges were deducted.
- Good points: My illnesses were not among the critical illnesses covered by the insurance policy. (Thank God!) The fund balance covered the insurance and administrative charges. Thus, my insurance coverage remained in force even if I have not paid monthly premiums for a year.
- Not-so-happy points: I was relying on the fund balance as a retirement fund/investment. Now, my investment has not just stopped growing; it is even decreasing. And I could not tap it for more urgent medical expenses.
- So now, while I’m recovering, I’m back to reading and learning. I have been going through Burton Malkiel’s A Random Walk Down Wall Street and Eric Tyson’s Personal Finance for Dummies. I’ve been tracking all my expenses, opening up passive and active income streams, and exploring other financial products that may better meet my needs and capacity to pay.
- I’m once more building up a savings and investment fund. I remember my college professor in Microfinance teaching us that the only way to save is to follow this savings equation: Income – Savings = Expenses
This is so difficult to do now. But I’ll keep trying.
- More importantly, I am taking care of my health and my personal life is ongoing a major makeover. I’m also learning to set boundaries, with myself and other people, so I can better manage my finances. I have crafted a new life goal and definition of success, to serve as my guidepost as I choose how to invest my time and resources and how I live my life.
I remember my therapist telling me it is a blessing that I am learning some difficult lessons while I’m in my 30s, instead of later in life. It did not feel that way at first, but now I know she’s right. Rock bottom sucks, but I would rather learn to build back better now rather than never.