Q: I have been working for 10 years now but I don’t seem to have clear financial direction in life. I am having sleepless nights lately worrying how I can sustain my personal expenses in the future. Although I have set aside some savings, I have no idea if it is sufficient to take care of my finances later on. What should I do? — Lix, by email
There is every reason to be anxious about your financial security when you don’t have control of your personal finances. Many people, even those who are already successful in the business, also struggle when it comes to financial planning. It is difficult to focus on work when you are constantly bothered by money issues.
Rising expenses at home, missing credit card payments, feeling of not earning enough to support your family are some of the causes of financial stress. While it is good that you were able to set aside some savings for rainy days, you should also know how to secure it and make it more productive. You can minimize your financial stress when you know how to manage your financial situation.
Here are five strategies you can follow to reduce your financial anxieties and build your security in the future:
1. Knowing where you stand financially
Take an honest look at your finances and analyze your cash flows. How do you prioritize your expenses? How much of your income do you set aside as your savings? Do you spend your money more on consumption or investment? How much money do you need to set aside as emergency fund?
Answering these questions will help you assess your ability to do financial planning. It will also help if you can estimate your current net worth. You can do this by summing up your total assets, which can be your savings in the bank, house, car or any property, minus all your payables. Your net worth will tell you where you stand financially and you can manage it from there on.
2. Knowing what your financial goals are
Set your financial goals by identifying what you need to achieve with a target timetable. Your goal must be specific so you know how much you need to earn in order to achieve it. For example, do you have any idea what your living standard will look like when you retire? How much income do you need when you retire so you can afford to sustain your daily expenses and enjoy life?
How much do you need to earn to move into your dream house? How much do you think you need to have in order to travel the world? How many years do you intend to build your savings to achieve your goals? These are the questions that will guide you in determining how much savings you need to accumulate.
3. Knowing how you will achieve your financial goals
When you have made up your list of goals, classify them as short-term or long-term. If you think you can carry out a goal within the year then that will be considered short-term.
Any goal that is beyond one year should be considered long-term. Your short-term goals can be about buying a new laptop or mobile for yourself. It can also be achieving a savings target of 20 percent of your monthly household expenses, or finding a new job that pays well. Your long-term goals, on the other hand, can be about investing in a retirement fund that will take care of your finances when you reach 60 years old.
4. Knowing your financial roadmap
Develop a financial plan to achieve your goal. This plan will serve as your guide in your journey. You may need to revisit your plan from time to time as there may be some assumptions that you have made that need to change due to changes in economic environment.
For example, you may have to adjust your retirement projection because of changes in interest rate or exchange rates, or you may have to adjust your goal higher because your income situation has changed.
In the plan, you also put an action plan for every goal in your list. For example, if you want to cut down your monthly expenses by 20 percent, your action step would be to reduce the number of times you buy your café latte to once a week from daily.
5. Knowing how to put discipline in your finances
Make a budget of your income and expenses and try to follow it consistently. A budget is similar to how you assess your cash flows earlier but, this time, it is not about how you spent but how you plan to spend.
You may not be able to follow every peso in the budget but this will help you become conscious of your spending. You can make your budget flexible so you can adjust when you need to until you get it right.
Monitor your progress regularly. You may also need to consult a Registered Financial Planner (RFP) to help you at some point for specific counseling about your financial situation when necessary.
