A Quarantine Guide to Jumpstart Your Personal Financial Planning
Key ideas to send you off on the path to financial freedom
Coronavirus has been tough on us. Apart from being a health scare, it fueled an economic crisis from a global to an individual level. Some of us have been frenzied from a scale of “How are we going to have enough cash to pay our employees?” to “I don’t know if we’ll have enough food on the table next week.” Overseas workers have been repatriated, thousands have lost their jobs as businesses close down and many are worried about how to pay the bills.
I know what it’s like to be worried sick about money, be it for tomorrow, next month or a year from now. I felt that pressure throughout high school and college, when I was surrounded by kids more privileged than I. It gnawed at me when I least expect it. It made me feel left out. It diminished my self-esteem. But it became motivation for me to work hard, learn more and earn enough to not be anxious about it for the rest of my life.
As a teenager, I sold clothes and accessories online when most people were still used to brick-and-mortar stores. I attended numerous seminars on business. I interned for big and small companies. I volunteered for non-profits, social enterprises and college organizations. After college, I worked in sales for our real estate company and, when I started earning from commissions, I taught myself how to invest in mutual funds, stocks and real estate because I dream to live off interest for the rest of my life by the age of 40. I want to be financially free—to get rid of the nagging anxiety about having enough money to live comfortably—so I can fully use my time and resources to make a difference.
In this article I present a guide to teach what I know about personal finance. It is not a crash course, but it covers key ideas to send you off on the path to financial freedom.
Define Your Compass
Set your vision. We all have a picture of how we want to live in 10, 20, 30 years. The more vivid it is, the clearer the direction it provides.
Clarify your values. Personal finance isn’t just about saving and living below one’s means, these are just icing on the cake. What drives these actions are the values behind them, like relationships, quality and justice.
Develop the right mindset. In order to achieve your vision and live out your values, decide what mindset must you develop. Must you be: Positive, seeing problems as opportunities? Growth-minded, always looking for ways to improve yourself? Independent, not easily giving in to herd instinct?
Build good habits. In order to support this mindset, what habits must you add and subtract?
Once you define your north star and a clear and strong core, the outer levels will follow.
Record Your Finances
Let’s do a quick review of your expenses. Sit down and write all your spendings up to two months back from when the Enhanced Community Quarantine (ECQ) began. I highly recommend doing it on a spreadsheet. Make sure to have at least two columns for a description and the amount spent. After listing them down, group them into categories. A few sample categories are food, beauty, transportation and gifts.
Then, lump together the items under each category, then get the sum total of each and the percentage of each category against total spending. Lastly, divide the total by two to get the average spending.
This simple report shows you which items you spend on the most.
Set An Earnings Goal
Robert Kiyosaki, a guru on personal finance, would often say, “It’s not how much money you make that matters, it’s how much you keep.” Hence, we will begin our goal-setting with savings.
Step 1. On an Excel sheet, type down how much money you want to save each month a year from now.
Step 2. Building on your actual monthly expenses in the previous report and realistically forecast how much you’ll be spending per category a year from now. Add categories, if necessary. Also, budget funds to set aside for emergencies.
Step 3. Add desired savings to the forecast expenses to get your minimum earnings amount.
Here’s what it should look like:
You can adjust the figures later, but what’s important in going through this exercise is having a tangible goal to work toward: to earn X amount monthly one year from now. It motivates you and drives the choices you make. Now that you have a goal in place, let’s strategize how to achieve it.
Increase your earnings by building your assets
According to Kiyosaki, an asset puts money in your pocket and a liability takes money out of your pocket.
My formula is simple: use human assets, your unique set of individual strengths, to build financial assets. Here are examples of human assets:
Knowledge, Skills and Abilities (KSA) are qualities you directly have control over. Detailing your LinkedIn profile, taking psychological tests and asking for feedback from colleagues are great ways to build awareness of your capabilities. Relationships are also a great source of synergistic partnerships. Take stock of your personal and professional networks and build them.
Knowing your human assets can now guide you to choose which financial assets to pursue, apart from your full-time job: a side business, real estate, securities (stocks, bonds, etc.), cryptocurrency.
Choose the best option considering how aligned they are to your strengths, as well as their earnings potential. As much as possible, use your savings to build financial assets. The more financial assets you build, the sooner you will achieve financial freedom.
Convert your bad spending habits into good ones
Here are a few examples: Before making a purchase decision, ask yourself: Do I borrow, rent or buy? Wait for a good deal by buying during the off-season. Stay away from places where you’ll be enticed to buy something you don’t need. Unsubscribe to newsletters. Avoid idling around in the mall. Put down those fashion magazines.
Focus on habits with the highest impact on your expenses. This way, they’re sure to positively impact your savings.
Diligently educate yourself
Knowledge is a human asset. The more you build it, the more informed your financial decisions will be. Be proactive in seeking more information. A few tips when self-educating:
Access different mediums. Books and online courses are the best way to start because these provide structure. Try articles, podcasts and videos to support your learning.
Listen to different perspectives. Variety is good. Getting lost in the chaos of information is a great way to develop an independent perspective.
Choose who to listen to. After some time, begin to filter your sources. Listen to the people with whom you share the same values. Warren Buffet is my investment guru. Find yours!
Practice. If you spend time educating yourself, spend as much time practicing what you learn.
Steps two to five make an iterative cycle, guided by step one and strengthened by step six.
If you have been worried about money this season, don’t keep your chin down for too long. By concretizing your goals with numbers, you create a map to help you recover and even go beyond that. I hope this guide laid out a few things to bring with you on your journey. Remember, it doesn’t take a math whiz to get there, just someone with incredible determination.
At the end of the day, financial freedom is not about money. You only need to get money out of the way so that you can focus on your vision and pursue your life’s purpose. And if you have read this far, you’re already one step closer.
Words and Photos Hannah To
Art Matthew Ian Fetalver