Question: I have been reading your articles and other posts about finance. While I find most of them very informative, I find them difficult to apply. How do I find the discipline to follow the rules that you, finance advocates, always talk about?-Joshua via Facebook

Answer: Let me start by saying this, “money is behavioral and not mechanical.” It is too challenging for us to follow the money “rules” because we think we can just flip a switch and be on our way like a computer program. The famous author Dave Ramsey said, “Money is 80 percent behavior and only 20 percent skill.” The struggle will always be about our behavior and how consistent we are with such behavior. The money “rules” may be very simple such as “do not spend more than what you earn,” “live below your means,” “invest early” and so on. However, simple is not the same as easy and therein lays our struggles.

Finance advocates can give ideas that seem very sound but can sometimes be impractical. For instance, you will hear us say, “do not drink expensive coffee, do not upgrade your smart phones etc.” They are logical ideas, but hey, where’s the fun in that? I am a father of four kids and I know how important rules are, without them our household will be in constant chaos but my wife and I also learned how to set rules, relax the rules and be flexible—in other words, we are trying to strike a balance. With regard to money matters, it is the same—balance is key.

Having a budget is very important, you will need to track and allocate what you should be spending on. One of the many reasons why people are in a financial mess is that they are unaware they are over-spending. By the time they realize they are, it may be too late. A budget tells you where money should go, not just where it went. Allocating your money is critical to you being able to achieve your financial goals.

However, your budget should not be too stringent that it does not allow ‘fun’ items. Some finance advocates will give you very strict recommended budgets that even many of them can’t follow themselves.

For instance, you might have heard or read experts telling you that you should not spend your 13th month pay on buying gifts and festivities and just save and invest all of them. While it is a good suggestion, it’s actually easier said than done. We are people and we need to have fun, removing it will make us feel money is a hard taskmaster and we will find ourselves rebelling.

How do you strike a balance then? Unfortunately, there are no hard and fast rules on this. You will have to experience trial and errors until you find a balance that works for you. If your budget is too stringent that you feel like you are missing out on many things, adjust your budget. When you look at your bank account and you get stressed because your funds are so small, adjust your budget.

Know your priorities, we should all be responsible about our future. You should not sacrifice long-term gains by enjoying short-term benefits. After several trials and errors, I am sure you will find a balance that will allow you to enjoy the fruits of your labor, without sacrificing a comfortable future. After finding that balance, you will still need to recalibrate it from time to time—that’s what life is all about.

Be part of the country’s most empowering investing conference – #iCon2017 this May 27, 2017 at the SMX Aura. Join me and the country’s leading experts and let us help you build your future! For details, visit www.bit.ly/ICON_2017

QUESTION: I already have my financial goals but I am having a hard time achieving them, or even starting on them. What should I do?—name withheld upon request

Answer: There are many reasons why you are having difficulty. But I think the biggest reason is not having the right behavior. Personal finance guru Dave Ramsey says finance is 80 percent behavior and only 20 percent skill, and I agree with that 100 percent.

Your quest to achieve your financial goal is a big step in the right direction, and that should be backed up with consistent behavior.

The most important behavior that you need to watch out for is that in money management, and this is where a lot of people fail because it is a daily task. People do not get into a financial mess overnight, they do so with wrong behavior done on a daily basis. Spending and saving money are behavior concerns and not skills. Let’s break it down for better illustration: To achieve your financial goals, you need to invest properly. To invest properly, you need to save properly. To save properly, you need to spend properly. To spend properly, you need to earn properly. While investing is a skill, earning, spending and saving are all about behavior.

Here are some simple and practical tips:

1) Create a practical budget and stick to it. Have a spending plan. As your receive your income, you should already know where it will go. When preparing a budget, it is best for you to identify those that are needs and those that are wants so that when there is a need to make adjustments, adjust from your wants, not the needs.

2) Make savings automatic. The phrase ‘pay yourself first’ is one of the most helpful personal finance tips ever. Your budget will let you know how much you can set aside on a regular basis and when you know the amount, set it aside regularly. A 20- to 30-percent savings rate is an ideal target. You can also enroll your bank account into an auto-debit arrangement.

3) Invest small amounts regularly. Most people make the mistake of waiting for their savings to grow substantially before investing it. However, many will never get into investing because they keep on waiting for their savings to grow, but it never does because there is always the temptation to use the money every time we see it grow into something sizeable.

A number of people are not aware that they can invest small amounts. When done regularly and consistently, these amounts can grow into hefty sums someday. Some banks and mutual funds accept investments as low as P1,000 a month that can be invested in long-term instruments. Just make sure that you have emergency funds set aside before you invest. Once you invest, forget about it so that you will not be tempted to pull it out before you hit your objectives.

4) Study. It is always a good idea to learn about finance and investments. So go buy a personal finance book, attend a finance seminar, read blogs and posts. Learning helps you get motivated and to be on track with your goals. It’s not rocket science but you will need to do some studying. It can be a big help in the future. By studying, you will also surround yourself with financially-able individuals who can hold you accountable to your goals.

Don’t worry, there is still time for you to achieve your goals. But make sure that you begin with the change in behavior.

“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.”— Proverbs 21:5, NLT

Happy New Year to all!

Sharing my column at the Inquirer last Wednesday

http://business.inquirer.net/10159/know-your-investment-objective-first

Question: I have some extra money that I can invest. What’s the first thing I should consider before I invest?—Raymond Sison, businessman

Answer: It is admirable that you are considering investing your money. The majority of Filipinos do not invest their money and just keep their money locked in savings, which is better than those who do not even save at all.

Before you do anything with your hard-earned moohla, I would recommend that you first consider what your investment objective is. In my seminars, I always tell people that our objectives will determine nearly every action we make with regard to finance. It is paramount that you determine the reason for the investment first and foremost. What is the investment intended for? What do you wish to achieve in making such an investment? Is it for retirement, future education needs of your children, purchase of an asset, or a general fund? Knowing what your objectives are will help you choose appropriate investment instruments and asset classes.

To simplify objectives, one can categorize general purposes of investments as those that will result in capital growth, provide income or both. Certain investments will yield according to your desired purpose. For instance, people buy real-estate properties because of capital appreciation while some people buy them for income purposes. Investment objectives can also change according to one’s situation. Let me use real estate again as an example. When you were younger, you bought a piece of real-estate property because you want to have capital growth. Many years after, say during your retirement years, capital growth is now overshadowed by your need for income and the rent you can get from said property becomes your objective.

Investments in the stock market are generally done for capital appreciation and although it can also provide income through dividends, the general purpose of investing in the stock market is for growth.

Investing in fixed income securities (treasuries, bonds) are made for income purposes as it provides steady flow of interest payments. Even if fixed income is sometimes traded for capital growth, the main purpose for it is still income. An asset class or investment instrument can also provide both capital growth and income at the same time. However, and as a general principle, capital growth and income provision would be relatively diminished for instruments that provide both growth and income. Don’t you just wish you can invest in something that will give you both substantially? Don’t we all?

If you are looking at pooled funds like mutual funds, UITF or unit-linked (variable) insurance, it is very important to first know your purpose or your objective before investing in them. Just like any other investment instrument or asset class, pooled funds can give you capital growth (those invested primarily in equities), income (those invested primarily in bonds) or both (balanced funds).

It is good to first check what your intended purpose for making an investment and then look at instruments or asset classes that is a best fit. Also, investment objectives should not be your only criteria whenever you are choosing where to invest. Other factors are just as important such as time frame and risk tolerance, but let’s leave those for future discussions. To learn more about better investing and learning more on personal finance, let me invite you to my seminar “Steps to Financial Peace” on Aug. 12, 2011, at the Teatrino in Promenade, Greenhills. I will be joined by my friends, Francis Kong, Paulo Tibig and Jayson Lo. You can find out about the event through https://www.randelltiongson.com/steps-to-financial-peace/.

(The author is an advocate of life and personal finance and a director of the Registered Financial Planner Institute (Phils.) and has over 20 years’ experience in the financial services industry. To know more about becoming a registered financial planner (RFP), visit www.rfp.ph or e-mail [email protected].)