Saving is the most basic aspect of financial literacy. When you learn how to give importance to every peso you earn, you can start your journey toward financial independence. We’ve heard this over and over again, yet a number of Filipinos tend to get their basic moneysaving practices incorrectly. All this depends on how we look at money.
While there may be hundreds of strategies out there to help us get out of the rut, every plan is bound to fail with the wrong mindset. Let’s start by busting these common moneysaving myths first.
Myth No. 1: Always buy items on sale
Three-day sales and holiday promos sure are a good way to pick up items at a marked-down cost, but sometimes rummaging through items on sale can actually do more harm than good.
Since these promotions are heavily advertised, we often fall for them and end up burning a hole in our pocket before we can even spend on our needs.
Learning how to discern needs from wants will help you overcome your desire to purchase items even when they’re on sale. If you don’t know how to start with this, you can ask yourself this question before you even pick up a certain item: “Is this something I can live without?” If the answer is yes, then forget about the sale and happily walk away.
Myth No. 2: Saving is all about putting your money in the bank
Financial literacy gurus say the same thing: savings should always come before expenses. But not everyone can withstand a payday seeing all of their money only go to savings and expenses. This often drives budgeting newbies off the wagon.
To prevent yourself from splurging, you may want to put aside a little amount for fun. “It keeps your personal finances simple so you can pay your bills, add to your savings, and have the freedom to use some money just for fun,” advises real estate professional site Trulia on Forbes. “It’s also a good starting point for the budgeting novice.”
For starters, allocating 30 percent of your budget for flexible spending is good enough for unnecessary expenses.
Myth No. 3: Saving is all about compromises
When you save a certain portion of your salary, you may think that you are denying yourself of life’s simplest luxuries. When people tell you to save, they all think that it’s just about hardships and the payoff is something you have to know once you’ve finally completed the first step in achieving financial freedom. Fortunately, this shouldn’t always be the case as every hardship you have now for saving means living a better life someday.
With the level of lifestyle people live nowadays, it is much harder to find a compromise between the two, but American wealth adviser Erik Strid believes that taking away the lifestyle today for a better living in the future is worth it. “There are two things you want to pay attention to. One is your quality of life today, and the other is your quality of life tomorrow and in the future,” he says. “Every time you save money, you steal from your quality of life today to enhance your quality of life tomorrow. So that is clearly a trade off.”
Myth No. 4: Saving money is a higher priority than paying off debt
Having a huge bank account may be a good thing, but sacrificing your other financial priorities to save can actually hurt your financial health more.
If you have outstanding debts, especially the interest accruing ones like credit card debts or loans, and you still choose to prioritize your savings account, you’ll only lose more money in the long run. After all, these loans have a higher interest rate than what you can get from your savings account.
There are times that you can do better by simply paying off your debt before you even prioritize your savings account. “Your best option is probably to simply pay off debts if you have any. Almost all of your debts should have an interest rate much higher than 1%, which means you’ll get a much better return by making an early debt payment,” Hamm said. While it may take a while before you can build up your savings, but having a clean slate before you for the positive numbers will allow you to get your priorities.
Having the right foundation about saving money is essential, especially now that the Philippines is becoming more competitive economically and there are more opportunities for Filipinos to become more financially stable. Discard the old myths about savings and become better equipped as we embrace a brighter tomorrow.