Money BasicsManaging Money

Why financial education matters (to you)

When it comes to managing and growing your money, Metrobank sees a journey that you should understand as you move towards achieving a financial goal. To get there, you have to know these fundamental principles:

  • Managing your debt
  • Budgeting and tracking your expenses
  • Creating an emergency fund
  • Improving your quality of life
  • Growing your money

Growing up, you may have heard conventional wisdom about money from family, friends, and teachers.

Advice like “start saving up for a rainy day,” “buy the cheapest items only,” or “having debt is bad” are just some of them.

Sadly, these conventional wisdoms are either incomplete or utterly wrong.

Without the proper knowledge and guidance about personal finance, you will continue to misunderstand the role of money and subsequently make bad financial decisions that will prevent you from enjoying life and achieving your financial goals.

The bank’s view on financial education and money

One way to understand money is through financial education. Simply put, financial education will help arm you with important financial skills necessary to make informed decisions.

Our financial education covers fundamental principles and topics on money-saving and debt management, to more complex concepts such investments.

It’s in our view that learning these money basics will help:

  • Improve your awareness of your financial situation
  • Make you financially resilient and secure
  • Build your money confidence and habits that add value to your lifestyle
  • Turn money into an asset to help protect you and your family’s future
  • Develop and sustain your financial wisdom

Financial education as a journey

One way of looking at financial education is a journey towards a specific financial goal.

This journey has five important goals. These are:

  • Understanding how you can manage your debt
  • Learning how to budget and track your expenses
  • Knowing how and when you can start an emergency fund
  • Learning how you can help improve your quality of life
  • Learning how and when you can invest

Before you can take this journey, there are some things you need to know: First, you must be prepared to change your old views about money. You must also be willing to manage money and make it grow. You must follow through by practicing what you’ve learned here and making improvements. Finally, you must have a financial goal because whatever you learn will be directed to achieving this.

So, let’s begin!

Managing Debt

When you start your journey, the first thing you need to understand is your debt. Despite what you think, debt isn’t all bad.

Debt is considered bad if you fail to track how much debt you have, if you are unable to pay it regularly, and if you start borrowing more money to pay off other debts. You only make your debt worse if you fail to settle them properly. It also affects your ability to borrow again in the future.

On the other hand, debt becomes good if you regularly pay it, if it safely improves your quality of life, and most importantly, if it is intended to generate more value for you. For example, education or business loans are debts that can be beneficial in achieving your financial goals.

Budget and track expenses

Once you understand how to manage your debts, the next part of your financial journey is budgeting and tracking.

Your income usually goes to your regular expenses. These include food items, housing and utilities, home essentials, transportation, and leisure and entertainment.

Budgeting and tracking expenses require discipline when it comes to managing your money.

Start by setting a monthly budget, listing down your expenses, and using free mobile apps to track your expenses. Or you can make use of a simple spreadsheet to list every item you spend on.

Then you can adjust your budget according to how much you spend, to help you make changes in your lifestyle. The 50-30-20 rule is often cited as a solid model when starting to budget. This means you can set aside 50% of your budget for your needs, another 30% for your wants, and 20% as savings. You may change this depending on your lifestyle though it is paramount that savings should be an essential part of your budget routine.

Create an emergency fund

Once you have done your monthly budget, you can proceed to building your emergency fund.

An emergency fund is the money you have saved for the rainy days. This money is meant to be spent on medical emergencies that require hospitalization, home or car repairs, and unforeseen education expenses (especially if you have children). An emergency fund can also ensure that you have money to spend if you fall on hard times, such as losing a job, closing a small business, or even spending due to sickness or death. An ideal amount for an emergency fund is between three to six months worth of expenses, which should help you sustain your lifestyle.

To start building an emergency fund, you must:

  • Set aside 3 to 6 months’ worth of your monthly income, or whatever you’re comfortable with.
  • Put it in a bank account that is separate from an account that is used for other expenses. Be sure that it is kept safe.
  • Follow through with your budget and make the emergency fund happen.

Improve your quality of life

As you continue building on your money basics, you also need to move towards improving your quality of life.

This means being able to take on loans to buy a house or a car, making home improvements, or even getting a life or health insurance.

Invest and grow your money

Finally, you are ready to make investments!

An investment is anything that takes time and effort to grow in value. It’s like a plant that you put in the ground, watered and fertilized, until it grows and produces fruits that can either be eaten or sold to others. But with investments come risk (i.e. market movements), which like plants are also exposed to external elements that may affect its growth.

There are several financial products that can be considered as investments: time deposit, stocks, bonds, and mutual funds. Even education is a form of investment because it makes you even more suitable for hiring and being the boss of your own business.

Remember, anything that improves your financial goals and adds value to your needs is a kind of investment.

A word on fraud

In your financial journey, you can build the knowledge to identify and avoid fraud. A lot of criminals use methods to steal by tricking you into providing your bank access, making you buy fake goods, taking illegal deals, or investing in bad businesses.

Don’t become a victim! Keep yourself updated on the latest fraud techniques. Follow your bank’s official social media accounts for the latest reminders and warnings.

More financial journeys ahead

Life is a journey, so the saying goes, and that means you need to adapt. As long as you build the appropriate financial habits, you can have the confidence to live the life you choose and pursue the right financial goals.

Remember: Financial education has many paths. You can always pursue other goals based on the lifestyle you want. It’s all up to you on how you want to achieve them.

This article is part of a collection of stories and practical financial tips that are published to help people learn from the experiences of others, and to pick out lessons on personal finance and sound money habits beyond the pandemic.