Know yourself: the first baby step to financial security

You’ve all heard of the expression “know yourself.” Experts believe this should be the first baby step of people who want to successfully get off their little gerbil wheel of consumerism, where it is custumary to work like horses the whole week and spend everything on weekends. No matter what investing prowess we have achieved, or what superior knowledge about wealth accumulation we have attained, if we skip this process, there’s a likelihood we may crash and burn and perhaps question whether financial independence is really an achievable goal.

Thing is, facing reality is tough. Nevertheless, knowing our inner financial blueprint could bring us closer to financial happiness or hinder us from getting there.

From the perspective of the financial planning professional, taking this route requires more work and dedication. Cookie-cutter financial plans will not work. A financial plan that folds in clients’ money personalities addresses their inner money demons and strengths, and hopefully builds on those strengths to create a more financially responsible and happy person.

MoneySmarts has matched a couple and a yuppie with two financial planners who have committed to work with them for a year to show readers that financial independence is possible to attain. These volunteers are named Diego, Bianca and Sheldon in this blog, aliases that protect their identities. In a recent Money Makeover session, an experiment highlighted the need to understand this inner financial blueprint.

(If this is your first time to visit MoneySmarts, you may read the background of Money Makeover here)

To recap: financial planner Augustus J.V. Ferreria digs into the past of the volunteers and asks them to jot down every item they spend on for two weeks. (See previous post) Here are the results of the experiment:

Multi-media artist and teacher Diego spends everything in his wallet from sunup to sundown, the main reason why he only receives allowance from Bianca. Diego walks into a mall and buys C2, water or soda. He smells Jamaican patty and he buys one. His eating adventures are stand-up ones, like a hot-dog stand, buko salad or a shawarma sandwich – a long running joke between the couple.

“Whether he starts the day with P500 or P5,000, he will have nothing by midnight,” says Bianca, a lawyer.

This is typical of persons who have experienced prolonged periods of deprivation, says Ferreria. Diego grew up in poverty but enjoyed his father’s reversed fortunes as a young adult and thus admits to having urges to splurge.

Ferreria accurately guessed something that the couple had been dreaming about for quite some time: a restaurant with a unique concept, like an artiste’s eating place showcasing Diego’s artworks. The financial planner’s take: it’s the perfect business for Diego because it’s a “feeling” business and fits his personality.

Moving on to Bianca. The lady loves fine dining. Her little spending diary is that of a mommy’s: food pasalubong for her daughter, ballet lessons, school supplies and similar items. Oh, of course parlor fees and gym memberships are there too!

Who do you think spends more: Bianca or Diego? A Splash Money program shows that Diego’s below-P100 spending adventures are actually more expensive than Bianca’s.

Despite being outspent by Diego the “walking eater”, Bianca did not get off the hook easily. “You are not an off-the-wall spender, but you have a tendency to be. You are a very emotional spender. You spend on anything if you feel your baby wants it. If you travel, you will spend a lot of money,” Ferreria tells her.

“Women don’t buy things for themselves. If they spend two to three weeks in the US, look at their balikbayan boxes. Ninety percent are souvenirs for parents, brothers, sisters, nephews and nieces,” Ferreria explains.

On the whole, Diego and Bianca realized they spent astronomical amounts in maintaining their two cars and parking fees for Bianca, who works in Makati. They were advised to think of retiring their oldest car, which is very expensive to maintain.

Practical solutions for the couple: Diego should not leave home hungry and he should bring with him a bottle of water all the time. Ferreria taught Bianca to have a little fun money, with limits, and to program major spending items like vacations. They are to look into retiring their oldest car.

Sheldon’s spending tally showed restraint considering his age. The yuppie said the most interesting revelation for him was the way he spent at night. “The highest I have ever spent is P3,500 a night. I also spend a lot on my mobile phone usage,” Sheldon says.

He also realized that he loves to travel, but what a revelation his small notebook showed! He spent almost nothing during his recent trip to Boracay. (His plane fare was gratis. Boracay photo courtesy of Michelle Morelos.)

“It’s very easy to spend money and buy trinkets off the shelf. But you have the financial discipline to keep spending low,” Ferreria tells Sheldon.

Sheldon is worried about his telco bill. At P3,000 per month, it does not look bad at first glance. Multiplied by 12, it’s a major concern.

“If you multiply it by 12, it can reach more than P40,000 a year. You can already go to Boracay with that amount of money,” Ferreria says. “It’s also important to look at the small stuff because a leaking faucet for example, is money in my hands,” he added.

The financial planner advised looking at promos given by telcos, like a PLDT scheme that allows calls to other PLDT phones all over the country at P10 per call. “A lot of these promos are used to build the brand, but their consumer studies have already told them people will not use them. Take advantage of these promos,” Ferreria said.

He counseled Sheldon to look more carefully at his expenses, and separate personal and business spending. “It may be too ambitious to target a 50% reduction in your mobile phone usage especially since you use it for work, so lets look at reducing your expenses without making you stop calling,” he explained.

While Diego has the makings of a hands-on restaurateur, Ferreria again guessed accurately that Sheldon would prefer buying a franchise, paying someone to operate it, making it profitable and selling it after it has generated sufficient cash. Typical of his “racketeer” personality that helped him survive his father’s business failures.

Practical solutions: Study telco promotions and take advantage of them, but most of all, to calm down and not worry too much.

“When people spend money, we normally don’t relate it to our life that’s why we spend shamelessly. The answer is to put more quality into spending. I don’t want to turn you into misers, but remember that 80% of Filipinos make money but don’t know how to spend their money wisely,” Ferreria tells the volunteers.

He explains that just having more money would not solve financial problems. Ferreria tells of a cigarette vendor who won the sweepstakes but after five years went back to selling cigarettes.

“The background and psychology make-up determines a person’s success. It determines how he will react to stimuli. The poor will remain poor unless someone sits down with them or they educate themselves. Otherwise, they will just live out their frustrations through money. How many livelihood programs failed because beneficiaries were not taught financial literacy? That taxi livelihood program failed because the beneficiaries ate the principal,” Ferreria explains.

To Diego, Bianca and Sheldon, Ferreria says with a twinkle in his eye: “You are redeemable people. You have financial insanity from time to time (an observation that elicited laughs across the table), but that’s okay. You are influenced by your ancestry, but you don’t have psychological problems. I am comforted by the patterns in your spending. If you don’t have a pattern, I would be worried.”

“You (Sheldon), manage the money. You (Diego) manage the hunger.”

Till the next meeting :-) .

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