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Don’t Make These Mistakes In Financial Planning
Sean: Hello. Good evening everyone. Thank you once again for being here tonight. And tonight, just like last week, I have a special guest and tonight I have Mr. Fitz Villafuerte. Fitz, thank you for being here tonight on the show. It is an honor to have you here.
Fitz: Alright. So hello, Sean. And hello to all your followers. Good evening. And I’m really excited to be part of this live stream and to be able to share what I can share to your audience about personal finance and business and entrepreneurship. So I’m really excited. Thank you. And I’m looking forward to the questions of your audience.
Sean: Yeah, I’m sure they’re looking forward to your answers more so. So we have a lot of new episodes. Please do check it out, lead me.ph/spotify. The link is below, or just go to Spotify and search for Leadership Stack. The questions are pouring in and the first one we have is from Erika.
And Erika asks, oh, a very basic question for everyone who doesn’t know. Thank you, Erika, for this question. What is financial planning? What is it?
Fitz: Well, financial planning is similar to business planning. A lot of people, they ask me how to save money, how to invest, how to avoid a scam, et cetera. So if you are going to give those tasks an umbrella term, it’s called financial planning, which is basically planning for how you will use, how you will protect, how you will grow your money. So that’s basically what financial planning is. It’s not as popular as investing in the mindset of Filipinos, but I think it’s really important to understand the foundations of financial planning to be able to manage your money well.
Sean: You know, a lot of people actually need to know what that is because, you know, we have all of these financial gurus and they haven’t even laid out what financial planning is by definition.
And we have a follow-up question from Erika. What are the common mistakes when it comes to financial planning?
Fitz: Well, a lot of people, when they think about financial planning, they immediately go to investing. How do I grow my money? So that’s a common mistake because when it comes to financial planning, you really need to first define your financial goals. A lot of people believe that the goal for their money is to grow it. I believe that your goal for your money is to be able to afford the dreams that you have for your family, for yourself, the things that you want to do with your life. So that’s really the use of money.
And when it comes to financial planning, you really need to have that goal first before you are able to come up with a strategy, with a plan on how you will be able to achieve those goals. It’s like going to a particular place. You cannot reach a destination if you don’t define where you want to go. When people ask me what’s the best investment, it’s just like asking me what’s the best vehicle to take. But I have to know where do you want to go? If you’re just planning to go to the sari-sari store around the corner, I will not tell you to take your car. You can just walk.
So financial planning is like that. You have to define where you want to go so that you will have the right vehicle that will bring you to that destination. And that’s the common mistake that I observed when it comes to financial planning. Everyone’s just so focused on growing their money. But they don’t ask why they want to grow their money. What is it for? So that’s the most common mistake that I observe.
Sean: I think one of the most common mistakes that I know is, they’re planning to buy the next iPhone.
Fitz: Well, for me, there’s nothing wrong with that as long as it is within your budget. So I think that’s a common misconception when it comes to financial planning. We Filipinos have that mindset that it’s wrong to go to Starbucks and have expensive coffee, it’s wrong to buy luxuries or gadgets for you. But as a financial planner, my goal is for you to be able to afford both the things that you need and the things that you want. Of course, the priority is to first have the things that you need, but there’s nothing wrong with buying the things that you want as long as you don’t compromise your finances and don’t waste your money on things that are not necessary for your life.
Sean: This question is coming from me stemming from that answer. Is there like a percentage of a budget when you finally say, oh, you’re overstepping it or you’re spending too much? What would be that indicator?
Fitz: I always believe that personal finance is personal. There are a lot of gurus out there that give out percentages like 10% savings, 20% for your wants, et cetera. Those are good starting points. But at the end of the day, it is only you who can dictate how you allocate your income when it comes to your needs, to your wants. For me, as long as you are able to pay for your necessary expenses, then it’s okay to spend what’s left with luxuries or the things that you want.
Of course, one of the necessities that everyone has is to prepare for the future. So I would say that it’s important to prioritize first your present needs. Then at least 10% to 20% of your income towards your future needs, which means investing and saving it. And then what’s left, you can freely spend it however you want.
Sean: Got it. Another question from Erika, how can I save money with my low income?
Fitz: Saving money on a low income is always a question that people ask me. What I tell them is you can start with just tracking your expenses because sometimes we don’t know where our money is going. So tracking your expenses will give you a great view of how you spend it. And then by knowing exactly where your money goes, you can definitely see what the expenses that you can eliminate or minimize are.
Of course, after tracking your expenses and studying your spending, let’s assume that there’s really nothing else, no area where you can save, then you have to go to the other side of your cash flow. Of course, our cash flow is not just our expenses, but it also involves our income. So if the money that you’re earning is just exactly when it comes to your necessary expenses, then go to the other side of the equation and find extra income, find ways where you can earn extra money on the side. We all have free time. So it’s all about making sure that we are productive during our free time. Even if you’re a full-time employee, of course, there are things that we can do at the end of the day or during weekends, which can help us create more cash flow for us.
So study first your expenses. Eliminate the unnecessary ones. If it’s still not enough, you try to earn extra income. Find ways where you can earn extra income. Especially today, there are a lot of opportunities online and there are a lot of simple ways that you can do to get yourself some extra cash these days.
Sean: A good friend of mine, Carlo Ople, said with his project seven to one.
Sean: 7:00 PM to 1:00 AM, build your dreams. How you use your spare time is a big deal. It will direct where you’re going to go generally in your life. And if you feel like with your salary, low incomes, as to what Erika, it’s lacking, there are other ways to go around it. And one of them is to work hard in your spare time or use it productively.
Fitz: I also believe that having a job, which is linear income, will definitely give you financial security, but you have to be an entrepreneur. You have to work on building something so that you can earn variable income, which is the source of financial freedom. That’s what I also believe. I agree with Carlo Ople. His project is really a great way to teach the entrepreneurial mindset among Filipinos.