Know how to set financial goals, manage your income, and borrow money wisely
by Don Kevin Hapal, Rappler, July 6, 2016
MANILA, Philippines – Overseas Filipino workers (OFWs) are often considered modern-day heroes. Their cash remittances help keep not only millions of families provided for, but also the Philippine economy afloat.
But despite their seemingly glittery life abroad, many OFWs still fail to manage their finances well. Some come home empty-handed, while others are burdened by debts.
What hinders many OFWs from being financially independent?
Last Monday, July 4, Vince Rapisura, president and CEO of Social Enterprise Development Partnerships Incorporated (SEDPI), sat down with Rappler to discuss OFWs’ spending habits and give tips on how they can become financially independent.
If you are an OFW aiming for financial success, here are bad spending habits you might want to break:
No emergency savings
According to Rapisura, about half of OFWs claim that they save, but only 1 out 5 save for emergencies adequately. An emergency fund, said Rapisura, should be equivalent to 6 months of an OFW’s income.
Rapisura also shared that OFWs do budget, but their budgeting is focused mainly on immediate consumption, not on budgeting for investments or for the attainment of their financial goals. “Very little, really, is budgeted for savings and investments,” he added.
Newfound wealth shock
Many OFWs get overwhelmed by their much bigger salaries abroad, and this sometimes leads to them prioritizing wants over needs. Some are also pressured to “prove their worth” in their communities, thinking that they must show they are well-off when they return home.
Rapisura added that OFWs are pressured to help their relatives, not just their immediate family members. This pushes them to overspend, leaving no room for savings. (READ: OFWs on money spending: Learn to say ‘no’ to extended family)
Rapisura said OFWs tend to use negative emotions when deciding on financial matters – fear, anger, guilt, envy, or shame. This leads to overspending or sudden – and sometimes even risky – financial decisions.
Lack of financial plans and goals
Many OFWs don’t plan ahead. When they go abroad, they do not consider how they will use their income once they are back in the Philippines. Their long-term goals are not mapped out. (READ: Don’t want to be an OFW forever? Manage your money right)
“When they go there, initially they say, ‘I only want a tricycle as a business,’ and send my children to school.’ After 5 years and they’ve already attained that, the goal would shift somewhere else. Maybe the tricycle is now a jeepney, and sending the children to school is finished and now they want to put up a house,” Rapisura explained.
Changing goals is not necessarily a bad thing, but having no definite end-goal contributes to OFWs overstaying abroad. (READ: Money management tips for 20-something OFWs)
Becoming financially independent
The first step to financial independence, according to Rapisura, is to craft a financial plan with your family.
“You have to be sure of what you want. You have to establish your financial goals and that should be put into writing in your financial plan,” he said.
After that, you’ll have to manage the changes in your lifestyle to meet your goals.
Ideally, a family’s income from the Philippines should finance their needs while an OFW’s income from abroad (remittances) should be used for financial goals. By only using their income in the Philippines for day-to-day needs, the family would be able to sustain their lifestyle better. (READ: 3 money-savvy tips for OFWs)
The bottomline? Save and invest as much as you can.
“A lot of people would ask me, ‘How much should I save and invest?’ And I say, ‘As much as you can,'” Rapisura said.
As a guideline, Rapisura suggests that OFWs follow the 5-15-20-60 budgeting rule, with 5% of income going to insurance premium, 15% to savings, 20% to investments, and 60% to expenses.
Many OFWs also resort to loans in order to provide for the needs of their families. When is borrowing money advisable?
According to Rapisura, OFWs should consider 5 cardinal rules before borrowing:
Borrow money only when you plan to use it for productive purposes. This means using the money to finance something that creates income.
Income from this project should be greater than the interest you will pay.
Installment amount should not exceed 20% of your regular income.
Do not borrow to finance wants. To be able to buy the things you want, save for it or create an investment portfolio that will provide you with a passive income.
Lastly, borrow only from formal financial sources. This way, you can take advantage of lower interest rates and establish your credit history.