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Best Financial Habits To Build

Sean: We have a question from MJ. Being financially fit takes time. Yes, it does. What do you think are the small and easy steps an employer could do to be on the right path of becoming financially fit?

Fitz: One of my favorite quotes comes from James Clear, he says that, “We do not rise to the level of our goals, but we fall to the level of our habits or our routine.” Which means if you want to be financially fit, it’s not really about focusing on what we want to achieve, but looking at how we live our life every day, so that we can make those small changes and we can start our way towards the goal that we want to achieve.

One of the simplest advice that I tell people if they want to learn how to save is to set aside one peso every day. So why one peso? Because saving one peso is effortless. You don’t need willpower to save one peso. However, if you do it every day, just have a piggy bank at home and you put one peso everyday there, it will eventually become a habit. So according to studies, it takes around 66 days to form a habit, an average. So by two or three months, it’s now something that you do automatically, putting one peso on your piggy bank every day.

Now the secret here is that if you can afford to put a larger amount on your piggy bank, then go ahead, do that. You can put in twenty pesos on some days, you can put in a hundred pesos, and you can put in two pesos. Whatever amount you put there, as long as you put something there. So the minimum amount is one peso, which is something effortless and doesn’t really affect much of our budget. Right? But by learning that habit, you will realize that slowly you are becoming better at saving money. And before you know it, you will realize there’s already a large amount inside your piggy bank.

So being financially fit is the same. You look at different aspects of your personal finance, particularly your spending habits, your saving habits, your budgeting habits, your goal setting. So there are a lot of areas in personal finance that you have to look at and then set small doable habits that will help you improve through the years. And before you know it, by just improving 1% every day, you’ll find yourself 30% better after a year. So that’s what James Clear says in his book, Atomic Habits.

Sean: And I love that book as well. A really, really good read. I highly recommend it. I remember one of the stories that he mentioned there would be when you work out, even if you work out like 30 minutes a day, you don’t usually see the results in a month, not even in two months, not even in three months. Sometimes you see the results after six months. But by then it has compounded and you have built the habit and now it’s easy for you to do, a lot easier for you to do. And then you see the results and it skyrockets. And people will think that, “Oh, overnight change. What’s your secret? What’s your, you know, new diet you got into?”

It’s not about a secret. It’s not about something tactical that you are able to use. It’s about the discipline that you have been doing in compounding it over time. And you use the word financially fit because it actually looks pretty much like that. You know, if you’ve ever tried it, the results don’t show after a quarter, it shows after six months onwards. And then people start to ask you, “What did you do? What did you do? What did you do to get there?” And they think that you did it in three months or less, but it’s a lot of hard work.

Can you give us practical tips that will help an employee with budgeting and investing?

Fitz: The very first thing that you need to do is to really track your expenses. You can just use pen and paper or an Excel file. It’s really important to check if you are spending less than what you’re earning. So that’s really the very first thing that I advise people. You have to really set it as a habit. So what would help is to really allocate a time in your day where you do it.

For example, right after dinner, that would be a great time to track your spending for the day. And just do that for a month or two. And the next step will usually appear in front of you. You will really see, “Oh, I am spending too much on this. I can probably cancel the subscription.” Because you realize that you’re paying for this, and you’re not really using it that much. So once you start tracking your expenses, the next step on how you can save money and improve your budget will appear in front of you. So that’s really the most practical way to go about this.

When it comes to investing, one of the things that I tell people is before you invest, before you grow your money, you have to ensure that you have financial protection. A lot of people are excited to invest and grow their money, but it’s important to save and build your emergency fund first. If you’re a breadwinner, you should secure an insurance policy so that your family will be financially protected if ever something bad happens to you. So those are things that you should prioritize before you even think about investing, having enough financial protection. And the most basic financial protection that we can have is building an emergency fund, which again goes back to our budgeting and saving habits.

You will not be able to save or build your emergency fund if you don’t have the habit of saving it. It will be hard to save money if you don’t know how to budget your income. And to budget your income, you have to first start with tracking your expenses. So the most practical tip that I can give you is just know where your money is going. Track your expenses and it will all go forward from there.

Sean: Completely agree. Even as a marketer, how I do my craft, I benchmark. Where is the client? Where are you now? Where’s your traffic coming from? How many eyeballs do you have on certain pages? Before we do any planning after that, we have to first figure that entire map out. When you look at a map in the mall and there’s a certain place you want to get to, you’re not going to be able to get there if you don’t know where you are on the map. That’s why it’s really important to first find the, “You are Here”. You have to look for where you are first before you can realize, “Oh, this is the route I have to take to get to where I’m going.”

So that’s exactly what Fitz is trying to say. First, figure out where you are, what’s happening with your money. Then you can figure out where you want to go.

Now we have a question from Pam. Is it a good idea to get insurance at the age of 20 or in your 20s?

Fitz: First of all insurance or life insurance in particular is a form of financial protection. Specifically, it’s a form of financial protection for your family or for your financial dependence. So it’s a form of financial protection for your financial dependence. So the first question that you need to ask is, do you have financial dependence? Because if you don’t have anyone who you support financially, then you don’t probably need life insurance at all. It would be better to just start investing and growing your wealth.

But if, for example, in your twenties, you have your brother whom you’re paying for college or your parents failed to prepare for their retirement or they’re now financially dependent on you. So as a breadwinner, then it’s important to get insurance. I also tell people that if you are already engaged and you have plans of getting married within a year or two, then it would be also a good idea to get life insurance. Because of course, once you get married, you’ll probably start a family, then you definitely have someone who will depend on you. You already have your child, or you already have your spouse who will be financially dependent. So it’s a good time to buy life insurance once you are engaged.

But if you’re single, all the money that you earn is spent on yourself, then you might as well prepare for the future and just invest it. So it depends on your situation. Most of the 20 year olds that I met are still single and still enjoying life. So I tell them, “No, you don’t need life insurance yet, but it’s important to invest as early as possible.” So that’s my answer to that question.

Sean: Yeah, I have the same take. It’s not critical if you would want to, just so you’re kind of forced to save money because you need to pay life insurance once you get it. Right? I mean, sometimes people like outsourcing the discipline of saving money and ways that they would be forced to save money. If you want to outsource that discipline and you’d be forced to pay for the life insurance, sure, go ahead.

But you know, I think the smarter way is what Fitz said. Just invest it in investment vehicles that could produce you more returns because no one’s dependent on you yet. So if you know, something happens to you and it’s unlikely that things will happen to you compared to when you’re a lot more advanced in years, I think that the risk-reward ratio is better if you invest somewhere where you can get a lot more returns for your money.

Fitz: That’s right. And to add to what I mentioned earlier, why is it better to invest? Because some insurance agents will tell you that insurance becomes more expensive as you get older. But from what I’ve studied, the rate of increase of premiums for life insurance would be around 4% to 5% a year. But if you can invest your money in something that costs more than that, then it would be smarter to just invest.

For example, for the past 20 years, the stock market has grown to about 11% to 12% per annum for. If you don’t have financial dependence, you might as well just invest with the stock market, growing your money up around 11% to 12%. And then when the time comes that we need life insurance, even if the premiums have increased by around 4% to 5% a year, you’re still ahead. You still have a profit when it comes to your wealth.

Sean: That’s right. Great. I just found out now, 4% to 5% increase for insurance per year.

Fitz: Yeah, this is for the twenties and thirties. Life insurance premiums go up drastically once you hit the forties and fifties. And it’s actually not smart anymore to get life insurance when you’re in your sixties anymore.  

Sean: Got it. So yeah. Definitely buy all that you can when you’re 39.

Fitz: Yeah. That’s actually true.

Sean:  If you guys are wondering how I did it. I bought insurance from the Isle of Man. That’s somewhere in Europe, I believe. And that’s because the amount I’m insured for is huge versus what I paid in principal. Life insurance here in the Philippines, I found to be too expensive for my taste. So even if the growth there in Isle of Man is nowhere as beautiful as the growth we have here financially, because there, it grows like 3% to 4% per annum. But it’s a steady growth because it’s a lot more steady and a lot more mature in terms of their economy than the Philippines

Here we can get as much as like 10% to 12% if the insurance is invested mostly in equity, but the amount you’re insured for, I’m not really happy about it. Like, yeah, it’s not that big. And I’m buying insurance. I’m not buying an investment. So make that crystal clear. What do you want? Do you want the insurance? Do you want the investment?  This is where we differ when it comes to knowledge. Because if you knew that there’s a lot better pay out in terms of being insured in another country, you’d probably go for that. But a lot of people don’t know that. So they would, you know, a lot of people just go for what we have here in the country. I’m going to get burned by a lot of insurance companies here for saying that. But, you know, that’s how I did it. You can do it however you want.


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