Recently in spending habits Category

IT'S Wednesday as I write this. These past two days, Monday and Tuesday, I saw my retainer fee for the month from a publishing company disappear--in just two days. First, my desktop computer refused to do anything at all, and so I brought it to the computer shop. It turned out that the power supply is broken and the video card sympathized with it and broke down as well. Since the computer guys were tinkering with the CPU, my son and I figured we might as well add 1 gigabyte of RAM. Then on Wednesday, it was time for the car to have its 40,000-kilometer check up. This does not come cheap, I realized, especially after I OK'd a rustproofing job, etc. So there, a whole month's work pay gone in two days. Why does money "evaporate" so fast? Parents with school age children may be thinking along the same line at about this time of the year. With tuition fees the way they are now, it's no joke to send one child to private school. And what now if there is more than one child? I learned from a financial management talk I attended years ago, that one must prepare for annual expenses by saving for it monthly. Take tuition fees, for instance. See how much the annual fee is for next school year, divide the amount by 12, and begin saving that amount monthly this June. This can be done as well for other annual expenses: car registration fees, annual income taxes (for the self-employed), and insurance premiums. As for repairs and maintenance expenses, saving a little more for this purpose every month will cushion you from the shock of getting your repair bill in the future. Preparing for big expenses this way will help you avoid panicking when it's time to pay up. Save, save, save.-Karen Galarpe

The Registered Financial Planners (RFP) Phils. is giving free financial planning seminars to companies in an effort to help out firms and organizations who, in turn, want to help their employees manage their personal finances in the midst of the ongoing financial crisis. It guarantees that there will be no commercial promotion of any kind during the seminars. After the seminar, RFP Phils. will also be giving out survey questionnaires on Filipinos' saving and spending habits to more fully understand how Filipinos are coping during these financially challenging times. If you want to know the full results of the survey, answer the following questions through this blog, or copy the questionnaire in a Word file and email your answers to me at lightdream (at) gmail (dot) com. Name: (Optional) ________________________ Age: ____________________________________ Gender: Male, Female (Encircle one) Civil Status: Married, Single, Separated, Living with partner (Encircle one) Monthly Gross Family Income: a. 20,000 – 35,000 b. 36,000 – 50,000 c. 51,000 – 65,000 d. 66,000 – 80,000 e. 81,000 – 95,000 f. 96,000 – above Home ownership: Own, Rent, Living with parents/relatives (Encircle one) A)    How would you describe your personal financial situation? Would you say you:

1. Live comfortably
2. Meet your expenses with a little left over for extras
3. Just meet basic living expenses
4. Don’t have enough to meet expenses
5. Don’t know

B)    How often do you worry about money matters?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

C)    How would you describe the extent of this crisis’ impact on your personal finances?

1. No impact
2. Some impact
3. Major impact, but I can handle it
4. Very high impact, I’m having difficulties
5. Wouldn’t say

D)    How often would you say you spend money on things you can’t afford?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

E)    Have you ever felt that your financial situation was out of control?

1. Yes
2. No

F)    How closely do you watch the amount of money you spend?

1. Very closely
2. Fairly closely
3. Not too closely
4. Not at all closely
5. Don’t want to say

G)    To what extent is this increased watchfulness a result of the ongoing crisis?

1. Not at all connected to the crisis
2. To some extent a result of the crisis
3. A direct result of the crisis
4. Wouldn’t say

H)    Are you always aware of how much money you are spending or you just have a general idea?

1. Always aware
2. Have a general idea
3. Neither
4. Both

I)    Which expenses are you having most trouble budgeting for now but are still including in your expense list?

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car/cars
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

J)    If you need to cut back on your expenses, which items would you need to remove from your list or have already scrimped on in recent months? (Choose up to three)

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

K) Which items do you splurge on, even when you know you should not? (Choose up to three)

1. Food and dining out
2. Entertainment and recreation
3. Shopping and personal items
4. Home and housing
5. Children and schooling
6. Bills and utilities
7. Cars
8. Medical
9. Luxury items
10. Travel
11. Others
12. None of the above. I have everything under control

L)    Do you or your spouse have a formal budget for your household?

1. Yes
2. No

M)    Would you say you are saving and investing as much money as you should, or should be saving and investing more?

1. As much as I should
2. Should be saving and investing more
3. I don’t know

N)    Do you have savings in the bank that you can count on when there’s an emergency?

1. Yes
2. No

O)    How many weeks’ worth of living expenses can your savings cover?

1. One to two
2. Three to four
3. Five to six
4. Seven to eight
5. Nine to ten
6. More than ten

P)    Have you resorted to borrowing money in the last six months to cope with financial needs?

1. Yes
2. No

Q)   Do you foresee a need to borrow money in the next six months to cope with financial needs?

1. Yes
2. No

R)    Have there been unexpected expenses over the past year that have severely set you back financially?

1. Yes
2. No

S)    Which unexpected expenses have set you back financially?

1. Medical
2. Cars
3. Home and housing
4. Life events and children
5. Work-related
6. Travel/vacation
7. Taxes
8. Pets/veterinary bills
9. New baby
10. Need to take care of parents/relatives
11. Business-related expenses
12. Others

END OF SURVEY

Last Friday, we were teasing one of our reporters who used to receive bouquets of flowers at our Makati office from her boyfriend. She also used to buy gifts and have them delivered to his office, come Valentines’ Day. They have since gotten married and had children. Amid the ribbing, she said: “If he’s going to get it from the family budget, never mind!” We all guffawed at that good-naturedly. Blame the economy, I guess. On the way home, I told my husband that I was amused to see couples doing HHWWPSSP (what, you don’t know what that means? It’s short for “holding hands while walking pa-sway sway pa!”) Some of them were carrying roses, obviously on their way to some romantic date place. I saw my husband from the corner of my eye smiling and teasing me because we used to be like them. I then punched him gently on the shoulder and greeted him “Happy Valentines Day”, a gesture that earned me a hearty laugh. That was our Valentine’s Day celebration, plus several episodes of “Lost” that we watched when we got home. How far we have fallen from the nice-fancy-dinner, night-out-of-town, chocolates-and-roses-and-stuffed-toys couple. How steep the slide from weeks of planning on how to surprise and delight one another. But come to think of it, the simple snacks and shared moments of TV pleasure were just as, if not, more satisfying. At this time in our married life, we have more pressing matters on our minds: a growing family, amortization to pay, children to send to school, and long-term health care for parents to think about. Are we becoming our own personal Scrooges? I pause a moment to face the situation. Nah, not really. Honestly, financial security is an even better Valentine’s Day gift, and we both felt that deep in our bones. How about you? How did you spend Valentine’s Day?

One of the reasons I fell in love with our little home is the balcony near the master’s bedroom. I am so much of a garden-sky-fresh air person. Plants, birds, quiet moments under the night or early morning sky relax and reinvigorate my soul. I have little sketches in my mind of how my little patch of heaven would look after I adorn it with orchids, little bonsai trees, lots of plants, perhaps those little water fountains that delightfully makes you feel you are in a fairy tale forest. Hmm. Visions of a little garden set where I can relax and perhaps type a blog post or two. Where I can unwind with the kids. It has been three months since we moved in. My terrace is still bare. There’s a quiet scream occasionally inside my head: you have money in the bank. Why not buy what you want? Then I quell the urge. That’s my emergency fund, and it’s still not enough. I need six months’ worth. Only when I have that stashed away will I consider setting aside some for the terrace. It’s empowering. Even deeply satisfying to know that now I can master those little voices inside me. I used to believe I was the worst spender in the world! Living on less when you can, postponing a purchase when you can, because you are trying to reach a certain financial goal, is a great way to feel good as a person. For now, I find other ways to relax. The little wild birds near my bedroom still chirp to my hearts’ desire and their songs are free.

Later on this evening, you can catch me on Lucy Torres’ show, The Sweet Life (QTV 11), where we talked about how to live on a budget without going “losyang” as Lucy herself calls it. It was an interesting evening when we taped the show, as I had a front row seat watching fashionistas talk about how they have fallen prey to the urge to splurge (but have since learned their lessons). Giselle Sanchez, a schoolmate at UP Diliman, was as usual funny, smart and very much honest with her spending binges. She talked of how she ended up buying almost all of the bags in a Louis Vuitton shop in Italy (guess how much it cost her), because the snooty manager tried to boot her out of the store because he mistook her for a Filipina domestic helper. (You must watch the show to fully appreciate her effort—albeit costly—to defend Filipinas). This made me think about how much we spend on clothing (my weakness is clothing for my kids), bags, shoes, accessories, perfumes, mobile phones. Yes, the techie gadgets are as much a part of being in vogue these days, as clothes and shoes. Work places that require power dressing like media, show business, and anyone above vice-president level in a big company, needs suits, barongs, spiffy shoes—and these are all expensive. A New York Times article says there’s a new trend that allows fashionistas to respond to the call of the times by turning into “recessionistas” or recession-chic.

In an economic climate in which buying a handbag with a four- or five-digit price tag is starting to seem gauche, the free-spending style hounds formerly known as “fashionistas” are rebranding themselves. Consider the $1,235 patent-leather satchel with golden hardware designed by Anya Hindmarch. Mary Hall, a marketing manager at I.B.M. in Redondo Beach, Calif., heard its siren call. Then she went to Target to purchase a similarly shiny purse, made out of polyvinyl chloride, by the same designer. Price: $49.99. “In the current economy, I thought I would reform,” Ms. Hall said.”

Now, is this a money-smart move? Or is it falling prey to a marketing spin that makes you feel it is alright to spend because you’re after all spending just a portion of what you normally would? The article goes on to say:

In part, the word reflects the efforts of fashion and beauty publicists to spin the economic downturn as an attractive retail trend. For instance, Bourjois, a moderately priced makeup line from France, sent a recent press release by e-mail to reporters promoting the brand’s cheapest mascara and lip glosses as “the Recessionista Collection,” an antidote to gloom. An e-mail message sent last week on behalf of Salon Eliut Rivera in Manhattan promoted “Recessionista Beauty,” offering discounts on haircuts and eyebrow shaping.”

To me, there are no seasons for being money-smart. If you are used to buying what you need, looking for quality items that last long at a good price (hmm, just like Warren Buffett’s criteria for a good company to buy), whether you are in boom times or in a recession, you won’t have to adjust your spending habits. It’s when we are used to luxuries we cannot afford, perennially trying to keep up with someone that’s two notches above our income levels, when we find it hard to adjust to crunch times. Lately, I was going through my eldest sister’s office clothing she left with me when she and her family migrated to the United Kingdom earlier this year. I found suits and clothes she bought more than 10 years ago that still look good and haven’t gone out of style. Classic cut; good quality textile. They were pricey, I bet. Her taste dictated that. But for the items to last 10 years? That’s recession chic :-) If you feel like it’s time to try this new skill, here are some tips I found helpful:

1. Shop with friends who are like-minded. Frugality is now back in vogue! If it’s tough to schedule it, then phone-a-friend when you feel that you’re about to splurge!
2. Tune out advertising. Remember, what you see on television as “the good life” is almost always way out of line with reality.
3. Don’t give in to the siren song of easy credit. Swiping a card seems painless, but that’s just an illusion. You still have billing day to deal with.
4. You will NEVER run out of things to buy. Believe me! There will always be a sale, always be a pair of shoes, a bag or an outfit that’s jut perfect for you, your spouse or your children.
5. Always know how much you earn. It’s not bad to enjoy what you earn; what’s not right is wanting to spend what you haven’t yet earned.
6. If you feel that you can’t resist, don’t go inside malls or shops. In Makati, the best way to go to my office is through the Ayala mall walkways and buildings and buildings of eye candies. When I first walked through them without buying a single item, I was as pleased as a cat that has just finished a meal!

Photo courtesy of Aladdin Cordero I learned a few more things while preparing for my interview at ANC’s Shoptalk, as well during the show and would like to share them with you:

1. Use a budget. Makes you consciously think of what you put in your shopping carts. Write a shopping list.
2. If you must shop, go for frugal shopping hot spots. The psychological rewards of saying yes is the same whether you do it at Zara’s or Divisoria. (Read my previous post to to find a list of frugal shopping hotspots.)
3. Set aside a Christmas fund. In government finance, a sinking fund allows the government to set aside every month some money for future payments. We can do the same in our personal finances. A 12,000 budget for gifts and noche Buena every year for example will not be as heavy when you prepare for it by seting aside 1,000 a month from January to December.
4. Don’t forget the “hidden costs” of Christmas holidays, like contributions for company/church Christmas parties, Kris Kringles for children, etc.
5. The law of supply and demand in economics indicate that if you buy in January, you will get lower prices because demand is bound to drop. Not so, says Pia Hontiveros-Pagkalinawan, who is a self-confessed Divisoria shopper. She says apparently shop-owners have realized that children who get cash gifts during Christmas time go shopping in January!
6. Be a bulk customer: contact your company’s suppliers
7. Recycle gifts
8. Keep Christmas parties simple, go potluck!
9. Think of giving the gift of experience instead of toys
10. Don’t go overboard when buying toys. Some of the most expensive toys these days kill children’s imagination

Is there anything wrong with enjoying the spirit of the season that’s fast approaching? Of course not. We wouldn’t want people to think we are misers who are only concerned with the glint of money. There is nothing wrong with enjoying what we earn. But therein is the key—the words “what we have already earned.” We should be enjoying in moderation past income with some set aside for the future. But Filipinos have to stop enjoying future income, future bonuses, future salary increases. After all, what if these don’t come in? Then we have to live with the reality of bounced checks in January or missed credit card payments when the new year rolls in. Break the cycle by refusing to mindlessly spend. The psychology of spending is a topic that I have been studying for quite some time. Unless we face the deeper reasons why we get into debt come Christmas season—and even after—we cannot really get rid of these urges to splurge. The psychology of spending Drazen Prelec (associate professor of marketing at the Sloan School of Management) says that “people’s complex attitudes towards money defy economic theory.” For example, some buy lotto tickets and insurance at the same time. Buying lotto is risky behavior while insurance shows risk-averse behavior. I also find Prelec’s findings to be “fascinating glimpses into our own complex relationships with money.” He says we all have personal rules when it comes to money, rules that we think will keep us out of money trouble. For example “I never take a taxi unless in an emergency.” When we don’t live by the rules, we feel guilty. That’s what he calls a moral tax on consumption that interferes with the pleasures that we get from doing what we do. Marketers take advantage of these findings by offering freebies or bundled pricing, for example. At a cosmetic shop, for example, you get a free item if your purchases reach, say 5,000. So if your total purchase so far is 4,500, and the next item you like is 700, you add to your basket so you can get the free item. Makes you feel good about adding that extra item. Credit cards, he says, are “insidious” because they remove the pain of that moral tax, or make it appear that the pain is not there. That’s why when you pay with plastic, you tend to spend more than you budgeted for. Money and happiness In one study, a psychologist named Miriam Tatzel, PhD, of Empire State College, State University of New York, compared peoples' spending habits with their sense of well-being. Her study of 329 students examined what types of spenders are the happiest. She observed that there are generally four groups of people with different combinations of the trait frugality and materialistic.

1. First group: frugal and materialistic. They look for sales on high-price items.
2. Second group: not frugal and materialistic. Big spenders who rack up credit card debt to buy, buy, buy, and are the least happy.
3. Third group: frugal and not materialistic. Financial planner Melvin Esteban of Motivating Minds would most likely call people in this group “Ilokanong Intsik”, which is what he calls himself proudly ☺
4. Fourth group: Not frugal and not materialistic. People who pay little attention to prices and don’t care what others have. They are the happiest.

Any violent reactions? How “successful” are you? The psychology of spending can also revolve on how we define success. Jennifer Cuddy in this article makes a very important point:

From the mid 80's to the 21st century, consumers have fallen prey to cues created by socioeconomic standards of living by measuring what is deemed 'normal' against those whose incomes are far beyond their socioeconomic statuses. We measure ourselves by what we own, what we wear, where we live, how we spend our vacations, our choice of automobiles, and other material measures of success. And yet, the majority of us are still unsatisfied with what we have. When our income increases, we inevitably spend more money in order to match those whose income brackets are yet again, one, if not two, levels higher than our own. This creates a society consumed with materialism, and sets the stage for dangerous vulnerabilities associated with consumer debt. Constant, mounting debt forces the consumer to work longer hours, sacrificing their freedoms to a sort of enslavement to money. Meanwhile, corporations merge, monopolies are created, and profit margins that drive capitalists determine what is culture, simply by measuring what sells. This is further complicated if you are a parent, because not only does your self esteem rely on where you fit in the social strata, but your children measure their self esteems in similar ways. " If my friend, Johnny, has a cell phone, a computer, and attends private schools, why can't I?" Middle class parents send their children to unaffordable private schools out of fear that their children will not succeed. What results is enormous debt and related stressors due to debt. And it is debt that enslaves society to the mercy of their employers.

Understanding how or why we spend also means we have to look into how we react to advertisements and whether we fall prey to the contrived psychological triggers that marketers cook up to remove the rationality in our spending. These triggers don’t even have to be “materialistic” in nature. They may include such noble desires as wanting to please our children, our spouse, our relatives and friends. At the end of the day, there’s always a reason to spend if you want to find that reason. Taking control of your money will not happen by magic; it will require conscious choice, and an understanding of the complex relationships we have with money.

Finances On The Edge Photo by DeadAir For the purposes of analysis and policy-making, there is no escaping the pounding on the table and the endless debates on what caused this crisis, who is to blame, what could have been done to avoid it etc. etc. But at the end of the day, reducing all that talk to doable measures is a process that could end to be as convoluted as the shadow play that caused this crisis in the first place. Personally, I would rather focus on things that we all can do—now—to deal with what’s happening. After all, crises are part of life, whether financial, emotional, relationship, spiritual. They will happen, again and again. Only the details will change, but the fact that they will railroad our lives and make us shift our priorities will not. An excellent series in the Philippine Daily Inquirer has been showing readers how different households are dealing with the crisis. Some are moving to condo units near mass transit systems to reduce travel time and stress, some are really cutting down on expenses especially dinners outside the home—even if they are only trips to fast food places. Shoppers are also going for lower-priced items and dropping non-essential ones from their grocery list and dropping their brand loyalties while others have shifted from using gas for cooking to sawdust, charcoal and rice husk. The Hotel and Restaurant Cost Controllers Association of the Philippines (HRCCAP) have finished another survey of groceries in Metro Manila and concluded that Cherry Foodarama is still the lowest-priced grocery in the Metro, while South Supermarket and Waltermart (surprisingly) have the highest prices. Cooking oil and canned goods’ price increases were steepest. Supermarket shoppers can take advantage, however, of vinegar, soap and bathroom tissue freebies, which store owners use as a marketing strategy to attract buyers since they have been reporting less sales recently. We can talk till we’re blue in the face about investing, but the truth is, increasing earning power and practical habits on reducing spending can affect our personal finances much more significantly. It’s a good thing that Filipinos are masters of ingenuity, and time and time again, the best of us have adapted to the numerous financial crises we have experienced in our history. Another way to deal with the crisis is equipping yourself with the knowledge and determination to make it through. Your favorite public speakers Francis Kong (The Right Pursuits In Life) and Chinkee Tan (The Right Perspective On Money) have teamed up with Efren Cruz (Prosperity Begins with an ‘S’) and Randell Tiongson (Managing Personal Risk and Insurance) to help you weather-proof your personal finances. Details: October 29, 2008, 1-5 pm, Makati Sports Club. Cost P1,800. Early bird rate: P1,500. Please call Rachelle at 634-2204. See you there! How about you? How are you dealing with the crisis?

The not-so-friendly bundle of grocery receipts have been winking at me for quite some time, so I finally got around to putting all the figures down into an Excel worksheet to make a Grocery Booklet—an exercise that reveal some pretty interesting lessons. Here are some of those lessons: From January to August, these items showed the biggest jump in prices: 1.    Condensed milk and other dairy products like cheese. If some stores are crazy enough to still have dairy products from China on their shelves and are selling them at bargains, I hope no one buys them just for the savings! 2.    Canned goods like sardines, tuna etc. 3.    Toothpaste, soap, and shampoo 4.    Olive and canola oil 5.    Bread 6.    Sugar 7.    Bacon 8.    Ready-made soup mixes 9.    Longanisa Where brand substitution can work: 1. dishwashing liquid 2. bathroom tissue 3. pride detergent (washing machine and all purpose) Most effective strategies for cutting corners: Avoid snack items, canned goods, use more tomato paste instead of real tomatoes when prices of tomatoes at the market go up, and make your own soup stocks. Those who want to have a copy of my Grocery Booklet can email me at lightdream (at) gmail (dot) com. In the booklet, you will find comparison prices of everything I have bought from the grocery since January. You can enhance it by inputting your own figures. I promise, it will make you squirm sometimes, but taking the time to jot everything down will be worth it. ☺

(Photo by Din Cordero) Personal Finance Reminder: avoid busting your budget by shopping early for Christmas. Early birds get more time to look for bargains, more time to stretch artistic skills to create unique and personal  (and less expensive) gifts, and avoid overcharging credit cards and paying hefty fees. Sometimes, the late birdies do get rewarded, because retailers have been known to cut down prices at the last minute. But would you like to fall prey to an "if?" What are your plans for a money-smart Christmas? Let me hear those ideas!