It’s school opening time again. To many parents and guardians, it is not necessarily a most pleasant time. Some of us would have borrowed or used up what little savings we have for tuition. And yet, the start of classes will force open our wallets wider still. There are books and school materials to be bought, clothes, school bus and many more. That the rains had started, albeit still intermittent, just add to the gloom of the times.
Those who have not prepared will just have to find ways to cope. Sometimes, we are led to access the more expensive funds, like our friendly neighborhood loan sharks. Or go to pawnshops. Those with access to banks can get credit card advances or personal loans. But education is important. It is the ticket towards a better and brighter future. And many of us will move mountains to ensure that our children get proper education. To avoid school opening woes we need to prepare long before we actually need it.
If we were not lucky enough to have rich parents, generous relatives or fat salaries, having some savings is our only way out if school opening is to be a happy occasion as it should be. The hard part though is doing the actual savings. Most of us find it difficult to save even if we actually do in a roundabout way. When we borrow, we still have to pay those debts. And how do we pay? We pay by re-budgeting our income, cutting expenses to make room for debt repayments. Isn’t that a way of savings? The only difference is, in savings, we do it before the expenses happen.
When we borrow, we set aside money after we spent it. But both take a portion of our current income. Why aren’t we doing it or setting aside some money before we actually spend?
Mostly, it is because it’s hard to be disciplined. Many of us need to be forced to set aside some money. When people approach lenders for some short-term loans, they would say that they have income to get the repayment from. For unexpected expenses, we can’t really help it. But for anticipated financial needs, we will all be better off if we realize that borrowing is just a form of delayed savings. Sometimes, with a sprinkling of anxiety thrown in.
Many of us follow this savings formula, “Savings = Income – Expenses”. Effective and disciplined savers follow a different formula, “Expenses = Income – Savings”. In the first formula, Savings is what is left after budgeting for expenses. In the second formula, Expenses are what are left after savings. In other words, savings is prioritized over expenses. The two formulas represent a huge difference in mindset.
Many of us will ask, how can we save if we only have so little? Or, say, the reason we cannot save is because our income is not even enough for our needs. If we believe we don’t have enough, we will really not have enough. Whatever we believe shall happen. Our beliefs directly influence our behavior. And many had proven that the level of income is not a barrier to savings, if we choose to believe so.
My mother would often tell us that when they were starting as a couple, my father’s salary as a city postman was barely sufficient. But she found ways to save. Everyday, she budgeted certain quantity of rice. She would then put aside a 10th of the rice and on the 10th day, she would save the amount that has been budgeted. She would do this with other budgeted expenses. In other words she budgeted my tatay’s salary and then found a way to cut the budget. By the time they decided to go back to Bataan, she had some savings for a small business. There are different ways. As they say, it does not matter what the color of the cat is, provided it catches the mice.
There are numerous financial success stories. Invariably, their way to financial security involved savings discipline, delayed gratification, and hard work. The next question is how to make our savings work for us. We will go into that in future articles.
Tony Moncupa, Jr. is the President and CEO of East West Banking Corp. Please e-mail your questions, comments, suggestions to [email protected].
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