One of the top struggles of many OFWs living here in the Middle East is saving money.
A study in 2016 led by Dr. Jalagat Jr. and Dr. Dalluay titled “Managing Financial Resources: A Never Ending Challenge to Overseas Filipino Workers (OFWs) revealed a staggering 8 out of 10 respondents who said that they have worked many years but have little to no savings at all. Worse, some of them even experience deficits.
Financial Advisor and Coach Dr. Sanjay Tolani pinpoints four factors as to why OFWs might be finding it hard to save in the first place:
Not monitoring your expenses. One of the biggest reasons people are unable to save is that they are not actually monitoring what they are spending on, even if they know their spending is out of control.
Peer Pressure. Some OFWs feel that they ‘need’ to keep up with their friends abroad. This includes unncessary purchases of clothes, updating gadgets, and material things.
“While it may not be “pressure” as much as it is your “own want to keep up with them”, but it’s still draining your savings. It is absolutely vital to understand that no matter how much you love doing things with your friends, not everyone earns enough to spend on those activities everytime” said Dr. Tolani.
Lifestyle inflation. Whenever OFWs get a raise, there’s that risk of overspending compared to what they really need. Just because your income has increased, doesn’t mean your spending needs to grow as well. Increasing the gap between the income and expenses is where the saving happens.
The YOLO effect. Dr. Tolani states that the most dangerous of all reasons is “denial” – especially for young OFWs who spend like kings for a day instead of saving their money for future use.
“A lot of young people are in denial of old age and emergencies, to a point where they have forgotten accidents and illnesses can happen to anyone and at anytime,” said Dr. Tolani.
So what can OFWs do?
Dr. Tolani advises that it’s never too late for OFWs to start saving and has suggested the following tips as a guide:
Follow the 50/20/30 rule. Dr. Tolani advises that it’s important to split your entire salary into several categories as follows:
Ensure that no more than 50% of the income is spent towards your essential expenses (make a list and stick to it).
A minimum of 20% of the income should be invested towards building a strong financial foundation – like a retirement fund or children savings accounts, or any other forms of untouchable long-term savings.
This 20% has to come before the remaining 30% that can be allocated towards lifestyle and luxury spending. This piggy bank with the 30% is your money to spend with friends and on your comforts.
Pay off your credit card outstanding. The most expensive form of debt that needs to go first – is your credit card outstanding.
Use the money from the 30% piggy bank to clear your debts as soon as possible. These debt traps force you into paying more towards interest than what you probably even purchased with it.
Which one should you prioritize? Make a list of your debts and focus on the expensive ones which you should clear as soon as possible.
Explore ways to earn monthly, apart from your salary. Having income every month, whether you work or not, should be your goal. Building a stream of income from your 2nd Piggy Bank allows you to eventually be able to retire whenever you wish to.
But before you are able to hit your financial goal of retirement, use Income Protection Insurance and Life Insurance to protect yourself in case of a major illness, and your family if something was to happen to you.
A simple rule of thumb to keep in mind when getting this insurance is having 7-10 times of your annual income protected.
Emergency Savings. You should prepare your very own emergency fund that should cover 6 months of your expenses without pushing you to ever touch any of your other savings.