I have met a lot of people, mostly young who always laments that its hard to save money because they it prevents them from having fun. They would tell me YOLO! You Only Live Once — well, I agree but that also means to have wisdom since you only live once.

While you’re young (even when you’re not!), it’s natural to want to enjoy your money—sometimes at the expense of your financial well-being. But being smart about money isn’t all about penny-pinching and being kuripot (stingy). There are ways to save for your future while still having a portion for guiltless spending:

1) Pay Yourself First. Paying yourself first is the key to enjoying your salary while still saving for your future. Why? Because a lot of people spend first, then save what’s left. It’s funny how these people find at the end of the month, there isn’t much to save, if there’s even anything left. That’s paying yourself last.
Instead, before you do anything with your paycheck, immediately put a part of it away for saving or investment. If you do this automatically, you might not even notice it. Many banks have an auto-save feature, where every month (or every two weeks—you can set the time yourself) a certain amount is automatically taken from your payroll account and transferred to a savings account. Some also have features where you can automatically subscribe to a UITF or mutual fund.

Paying yourself first has many advantages. By saving first before spending, you won’t be tempted to skip saving for the month. This, in turn, will ensure that your savings grow consistently without you having to work too much for it. Once you see your savings grow, you’ll be more likely to add to it, and then later explore more options for your money to grow.

Twenty percent of your paycheck is a good portion to save every month. If you can’t afford that, start small (even 5 percent is fine) and increase your ‘paying yourself first’ money over time.

2) Budget. Knowing where your money goes will help you save more of it. Also, you may surprise yourself when you find out just how much you spend on expensive coffee every month. If you don’t already have a budget for the next month, track your spending. Try to see where every peso of your salary goes so you know what you’re spending the most on. Then, after a month, sit down and see what you spend on the most, what you could afford to spend less on.
Contrary to what you might think, having a budget can actually help you feel more free about spending—because you know what you can afford, and you know that the rest of your needs have been taken care of already. So pay yourself first, then pay for your needs, then buy that frappuccino and enjoy it guilt-free.

There are many ways to budget: the ‘envelope’ budget, where you set an amount for every category of spending; the 50/30/20 budget, where you spend 50 percent for needs (bills, rent, groceries), 30 percent for wants, and 20 percent for savings and debt payments; or the even easier 80/20 budget, where 20 percent goes to savings and 80 percent goes to everything else. It may take a while for you to find a budgeting style that fits you, so feel free to experiment—as long as you’re putting something toward savings!

3) Set aside some money every month for guiltless spending. For a lot of people who are starting to budget, they begin to feel guilty every time they spend money on a ‘want’ and not on a ‘need,’ even if they’re already putting money toward savings and investments. Just because you’re saving for the future doesn’t mean you can’t enjoy something for yourself.
To avoid needless guilty feelings, set aside a small portion of your income for spending on whatever you want. As long as you don’t exceed that limit, you don’t have to feel bad about your purchase. If you follow the ‘pay yourself first’ rule and you’ve already paid your bills, why should you feel bad about buying a new pair of shoes, especially if you already set aside money for it?

If you have wants that are more expensive, such as a nice vacation or a new gadget, you can budget for it little by little every month, so that when the time comes, you can pay for it in full.

Saving doesn’t have to be a burden. By following these steps, millennials can have their cake and eat it too—as long as they save some of that cake for the future first. Do not forget that we need to be wise with money, and balance is key. While it is ‘fun’ to be enjoying your money today, you will suffer in the future if you keep on spending every peso you make.

Remember, your older you will either thank or curse your younger you.

Q: I’ve been researching about retirement savings in the Philippines and found something called the PERA Law. There doesn’t seem to be a lot of information about it, though. Would it be a good option for retirement planning?—Joseph, via e-mail

A: The PERA Law would indeed be a good choice for your retirement savings—when it gets off the ground. Right now, there are only a few ways for people to save for retirement.

You could rely on pensions from the Social Security System or the Government Service Insurance System. You could open an investment account just for retirement. A savings account, because the low interest rates don’t beat inflation, won’t be enough, even as a MoneyMax.ph retirement survey says that 83 percent of adults 18-45 years old are using savings accounts as their main retirement fund source. For retirement, people must find long-term investment vehicles that will beat inflation and provide tax advantages.

The Personal Equity and Retirement Account (PERA) Law has been kicking around for a long time, but hasn’t been implemented yet, even though it was formally established in 2008.

The last Bangko Sentral ng Pilipinas announcement about the law indicated a January 2015 target launch date, but that obviously hasn’t been met. There are still guidelines and processes that the BSP has to work out with the banks and other administrating entities, which is causing the delay.

In any case, the PERA Law will surely come into effect in the future, and here’s what you should know about it.

What is PERA?

The PERA Law is a personal and voluntary retirement savings plan that will be provided to all Filipinos who want to participate.

It’s not supposed to replace the SSS or GSIS —instead, it’s an addition to them. This is good news for overseas Filipino workers, who may not be contributing to either of those funds but still need to save for retirement.

This is also good if you want another source of retirement income other than SSS, whose fund life is only projected to last until 2042 (as of Aug. 2015).

Who can open a PERA, and how?

As long as you have a Tax Identification Number and income, you can open an account anytime. The maximum amount each person can put into a PERA yearly is P100,000; for OFWs, it’s P200,000. To open an account, you choose an administrator, who will be in charge of all your PERA accounts (you can have up to five). The administrator will be “banks, trust entities and other entities” accredited by the BSP.

You will also have an investment manager, whom you will authorize to make investment decisions for your PERA. A custodian, separate from the administrator, will be the one receiving the funds connected to your PERA and will provide you with regular reports about what’s happening to your money. The process will be clearer once products are actually offered.

Will my money be at risk?

If you’re worried about risk, the law requires that PERA investment products be non-speculative, readily marketable, and with regular income payments to investors.

There will be a variety of PERA investment products you can choose from; we’ll know more once the law is in effect and the banks and other entities make their PERA investment products available to the public.

What’s the advantage of opening a PERA?

The main advantage of PERA is the tax breaks you get. You can get a tax credit of 5 percent of your annual PERA contributions every year.

So if you pay P150,000 in income tax for one year, but you contributed P100,000 to your PERA, you can get 5 percent (P5,000) credit, so you only have to pay P145,000 in income tax that year.

Plus, your money in PERA grows tax-free. It’s exempt from withholding tax, capital gains tax, the 10 percent tax on cash received from corporations, and income tax.

If you make withdrawals from your PERA at the age of 55 and up (after contributing for at least five years), you won’t be taxed at all. In the case of death, the assets in your PERA account will be distributed to your heirs tax-free (even if it happens before you turn 55).

Additionally, your PERA doesn’t count toward your assets, so it cannot be seized or levied upon by creditors, and cannot be dissolved if you declare bankruptcy. It’s there for your retirement, no matter what happens to you financially.

Similar to the 401k plans in the US, employers can also contribute to your PERA, as long as the combined contributions don’t exceed your annual limit. You still make the investment decisions regarding your PERA, even if your employers contribute to it.

Because the aim of PERA is long-term retirement savings, you will be penalized if you withdraw early. However, if you’re making the withdrawal because of an accident—or illness-related hospitalization of at least 30 days, or because of total permanent disability, you can get your money with no penalties.

If you want to keep contributing to your PERA beyond 55, you can simply continue doing so, and withdraw at a later date with no penalties.

There’ll be a lot more information about the PERA Law once it’s implemented, which I hope will be soon. A product like this will make it simpler for Filipinos to save for retirement, and thus to provide a secure financial future for themselves in their golden years.

Once it’s available, consider making PERA part of your investment plan.

45% – that’s the grade Filipinos received when they were asked to take a financial literacy quiz. The results were reported in a World Bank study entitled ‘Enhancing Financial Capability and Inclusion in the Philippines’. Part of the study is statistics on financial management and knowledge habits of Filipinos. On average, the adults surveyed were only able to answer 3.2 out of 7 questions correctly.

Another cause of concern is 41% of Filipinos do not use any formal or commercial financial products. You’d think that a savings account is the most obvious way to store money.

Numerous reasons were cited as to why they haven’t used any financial product, the most common being lack of money. Because of insufficient funds, not only are Filipinos unable to open a basic bank account, but 55% of the respondents report being unable to pay for basic necessities.

For households earning Php 10,000 a month, that is believable. The average size of a Filipino family is five members per household according to the Philippines Statistics Authority (PSA). What is surprising is even for households earning about Php 50,000, 64% say that lack of income is the reason for not having enough money for basic necessities (compared to 62% of those earning only Php 10,000 a month).

The information can be a brain-twister. How is it possible to still have insufficient funds with much greater income? The answer is Filipinos’ lack of inclination to save, budget, and monitor expenses. Only 38% of the respondents monitor their expenses; however, data analysis shows that those who plan and monitor their expenses are more likely to have funds left over. This shows that whether you live on Php 10,000 or Php 50,000 a month, monitoring your expenses is essential to avoid overspending.

A Failing Grade

With a 45% grade, Filipinos fail at answering basic personal finance questions. From understanding compounding interest to comparing bargains, here are the top 3 finance-related questions Filipinos failed at:

1. Impact of inflation on prices and compound interest

Inflation and compound interest are the same in principle but work in opposite directions. Inflation increases the value of prices, while compound interest increases the value of our assets. Inflation works against us, compound interest (when it comes to investments) works for us. In the World Bank study, 69% of respondents answered inflation-related questions incorrectly, while 68% answered compound interest related questions incorrectly.

2. Stock risk diversification

For this section, 68% of Filipinos answered incorrectly, saying that it is safer to buy stocks of just one company instead of buying stocks from a variety of companies.

A majority of the respondents don’t understand the importance of diversification and how it minimizes risk. They are scared to put their money in risky and non-guaranteed investments. However, if Filipinos understand diversification, and how it minimizes risk, they would be more willing to invest.

3. Compare and bargain

Below is a question used in the study measuring the respondent’s ability to compare and bargain prices:

Let’s assume that you saw a TV-set of the same model on sales in two different shops. The initial retail price of it was Php 1,000. One shop offered a discount of Php 150, while the other one offered a 10% discount. Which one is a better bargain, a discount of Php 150 or 10%?

 *taken from ‘Enhancing Financial Capability and Inclusion in the Philippines – A Demand-side Assessment’, World Bank (July 2015)

For this question, only 31% of the respondents answered correctly! Knowing basic computations and comparing bargains can make or break your budget. A Php 50 increase in discount may not seem much for a one-time buy like a TV set, but the ability to compare and bargain may prove more essential for regular buys such as clothes, food, and others. And any money you save can add up to a lot.

A Financially Literate Philippines

The root of financial management is basic education on personal finance and practicing what you learn. To educate yourself on the basics such as the effects of inflation and compound interest, read online resources and blogs to get a better understanding. For comparing bargains and finding good deals, if you’re nervous of practicing your negotiating skills with a real person, you can start with financial comparison platforms such as MoneyMax.ph where you can compare prices on car insurance, credit cards, and personal loans.

My hope is for a financially free Philippines, but for that to happen, Filipinos would have to become more financially literate. Thankfully, there are many resources out there for you to learn and serve as a guide on proper financial management. Hopefully in the future, all Filipinos won’t only pass the financial literacy quiz but live financially free lives as well. The best time to start learning is today.