With the Covid-19 pandemic raging through the World, bringing financial hardship to millions of people around the world, learning, and keeping sound financial habits is more important than ever.
Young generations in Emerging Markets, like the Philippines, can learn from the mistakes of Western Economies and build a sounder financial future.
Debit Cards are better than Credit Cards
Credit Card debt is one of the many types of short term debts that come with the highest interest rate. It is therefore important to avoid using Credit Cards as much as possible, unless when strictly necessary, thus cutting interest build-ups to the minimum. Debit Cards by definition guarantee lower purchasing power (i.e. you cannot spend more than what is in the account) and might be subject to spending limits. Nevertheless, they do not carry any interest payment with them as the balance is decreased immediately after purchase. Filipinos should learn from the crushing debt hovering over Western (especially American) Millennials, who often think credit cards are just a synonym for ‘free money’. Keeping your debts low will have a positive impact on your financial future, especially when the hard times hit.
Buy a used car, if you need a car at all With governments Worldwide trying to decrease pollution and ease traffic congestion in sprawling urban centers through regulations and taxes, owning a car has become increasingly more expensive. Moreover, increased quality and efficiency of public transportation are making cars obsolete in different cities, although the process is proceeding slowly in many parts of the World and has arguably slowed down amid the ongoing pandemic.
In case a car is needed, it is almost always better to go for a used car because of the effect of accelerated depreciation. Given that cars depreciate (lose value) quickly soon after they are bought, buying a used car is usually the most financially sound method to save money (provided that the car is of decent quality and does not break down soon after the purchase). There are many ways to check if the car you are buying is of good quality, all it takes is some research and youtube videos.
Keep a tab of monthly revenue and expenses Keeping a properly organized tab of monthly revenue and expenses is easier said than done. This exercise can be done for any level of income and can be done even by students without any fixed revenue stream who just want to keep track of their monthly expenses.
A nicely done tab will include different columns for different sources of income and expenses and an end of month figure showing the difference between income and expenses. By keeping track of the evolution of the difference month by month, users can see where the money is going and if it is spent on things that matter.
This habit will help mitigate the “one-off” feeling a lot of people have when making a purchase, which is justifying a superfluous expense as a ‘one-off’ event. When one-offs events keep repeating periodically, that means they are not really exceptions, which means that the monthly budget should be modified accordingly.
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