Periodic financial maintenance schedule
Question: How do I know if I am on the right track with respect to my finances?
Answer: From the time you set off on your journey to earn money for yourself and your future family, you set into motion your most valuable and powerful earning assets, those of your brain and body. Let us collectively call them your human capital.
And exactly how valuable and powerful is your human capital, you ask? Well, according to the My PF App™, a person earning P30,000 a month today on 13 months of pay a year, enjoying a mere 3-percent merit increase a year, looking to file for retirement benefits with the SSS at age 60, receiving one month of basic pay times his total years of service with his current employer as his lump sum retirement benefit, and expecting to live up to the age of 70 will have an absolute human capital of (drum roll please) P47 million!
Now this P47 million is the future value. Money in the future is not worth the same as money today. So, if we assume an inflation rate of 4 percent a year, the value of this human capital in today’s pesos will still be P15.3 million.
And if we work back to when this person were born, his human capital will still be worth roughly P5 million. He is already a multi-millionaire even from birth. And so are you.
Now do not go celebrating yet because your expenses will also be worth a lot both in the future and in today’s pesos. That is why there is a need for you to continually convert your human capital into financial capital, funds that will help you enjoy more in the future especially when you have your own family.
You will need to do needs based analysis of your finances to value what your financial goals will be worth in the future vs. what you have to start with, in terms of actual money, and what you can periodically add to derive the return you need to make on your investments as tempered by your risk profile.
Never ask whether an investment is good. Rather, ask what good an investment can do for you.
But before you go investing, you will also need to first protect your downside through life, health and property insurance.
Maintaining those yearly premiums will be a challenge if you have a budget burdened with debt. That is why you need to first make your debt manageable before you buy insurance.
And the way to make your debt manageable and to be able to even borrow in the first place is to have a budget where savings is a priority. The cardinal rule in personal finance management stays the same: “spend less than what you earn and invest the difference.”
In addition, your human capital, just like any other piece of machinery, needs to undergo a periodic maintenance schedule.
There are many apps nowadays that can help you track your income, expenses and investments. The only thing is that, even with the advent of AI (artificial intelligence), nothing beats personal consultation with experts.
So, if you are interested in learning more about managing your money and improving your financial security, save the date for the 13th Financial Fitness Forum this coming Saturday, April 5.
The forum will bring together top registered financial planners who will share their valuable insights, strategies and tips to shape your financial well-being.
The event is supported by International Marketing Group, Kaiser International Health Group, Manila Bankers Life Insurance, Rampver Financials and ATRAM and offers a fantastic opportunity to learn from industry leaders and get practical guidance on effective financial management.
