In our fast-paced, consumer-driven world, balancing spending and investing is a constant challenge for many, including Ilonggos. The allure of immediate gratification often competes with the necessity of long-term financial security.
Spending is an inherent aspect of life, yet it can lead to dire consequences when it spirals out of control. The signs of overspending aren’t always apparent, but they encompass living beyond your means, carrying high credit card balances, lacking savings or an emergency fund, frequent impulse purchases, struggles to cover bills, absent budgeting, frequent shopping sprees, excessive dining out, borrowing from friends or family, and neglecting your financial goals. (Calculate your monthly expenses and receive suggestions here: Sun Life Expense Calculator)
Spending: The 50/30/20 Rule
Nuri Castells-Barrios , a Sun Life Financial Advisor and Unit Manager based in Iloilo City, offers valuable insights into managing these financial challenges effectively. Her approach rests on the 50/30/20 rule, which simplifies budgeting by segmenting your income into three core areas:
50% for Needs: This category encompasses vital expenses such as housing, utilities, groceries, and transportation. It forms the bedrock of your financial security, addressing your basic necessities.
30% for Wants: The 30% allocation provides room for discretionary spending, enabling you to indulge in life’s pleasures. Nuri recommends optimizing this 30% by reallocating some of it for charitable donations or random acts of kindness, enriching both your life and others.
20% for Savings: This section serves as your financial safety net. Initially, it’s designated for building an emergency fund, ideally covering three to six months of living expenses. Once your emergency fund surpasses this threshold, the savings can then be strategically invested to meet your long-term financial objectives.
Investing and Overcoming the Temptation to Spend
“Saving and investing actually entail discipline. The goal of saving is not to spend the money. It is for emergency fund and short-term needs; and to be invested eventually once it exceeds your short-term needs. The money for long-term needs should be invested ideally in investment instruments exceeding the inflation rate,” said Nuri.
For Ilonggos who are new to the world of investments, Nuri emphasizes that low-risk options are readily available, such as the Sun Life Prosperity Peso Starter Fund. This fund offers a low-risk, short-term investment option with a decent return since its inception in 2015. The minimum initial and minimum additional investment amounts are both a modest PHP 100.
The Sun Life Prosperity Peso Starter Fund is designed for conservative investors. There are also options for moderate, balanced, growth, and aggressive investors. Additionally, there are investment-linked life insurance plans to meet your needs in every life stage. A financial advisor can assist you in determining your investor profile and which financial instruments best suit your needs. (Recommended investment mix)
Once you have begun accumulating savings for investments, the crucial step in avoiding the temptation to spend them lies in understanding the intended purpose of these funds. To stay on track, consider these steps:
Set Clear Goals: Define your long-term financial objectives, such as retirement, homeownership, a vacation in Boracay, or education funding, to stay motivated and disciplined.
Allocate Time Horizons: Determine the time frame for reaching your goals, which will help you stay focused on the bigger picture.
Automate Your Investments: Set up regular contributions to your chosen investments, ensuring a consistent commitment to your financial goals.
Practice Patience: Discipline yourself to forget about your invested funds until your target date arrives, avoiding the temptation to divert them to short-term indulgences.
Balancing spending and investing are essential for securing your financial future. By following Nuri’s tips, you can embark on a journey towards achieving your financial goals while building a stable and secure tomorrow.
To find out how Sun Life can help you achieve your financial goals, head to www.sunlife.co/partnersforlife. If you’re ready to start your journey to a brighter life, you can get in touch with a Sun Life Financial Advisor via www.sunlife.co/TalkToAnAdvisor.