5 mistaken beliefs about money
by Efren Ll. Cruz, RFP®
Question: Are there any money beliefs that we should note as we start our life as husband and wife?
Answer: In the many years that I have been in the financial services industry, I have come across many mistaken beliefs on managing personal finances. Here are 5 of the most common mistaken beliefs about money.
Belief#1: Buy one, take one is always a great deal.
Our mind is hardwired to think that getting freebies is a great deal. In fact, we tend to act somewhat irrationally on the fear of missing out on such a deal. This belief is not necessarily wrong because at times it can also lead to a lot of savings. It is when it is applied blindly to all situations that things begin to go haywire.
Here is an example. I found a suitcase selling in a Quezon City mall for Php2,800 on a buy one, take one promotion. A week earlier, I saw the exact same suitcase selling at a Taguig City mall for Php1,400 each.
Belief#2: Don’t scrimp on spending on food.
If you eat to live, the above rule should be fine. But if you live to eat, you will only lose money fast and accumulate lots of fat. Even essential food is good only up to a certain point. Even water can be fatal to the human body when taken in excess amounts. To avoid taking in too much, try eating slowly to allow your body to digest the food. In time, your stomach will tell your brain that it has had enough. Your eyes, nose, and even tongue may only tell you that you want and not need more food.
Belief#3: If you can pay your balance in full, go ahead and charge purchases to your credit card.
Credit card revolvers are people who do not pay their credit card balances in full and get slapped the high interest rate. Credit card “transactors” pay their balances in full.
Still, because many merchants pass on the fee (i.e. merchant’s discount) they pay to credit card companies for purchases at their store, paying with cash is often still cheaper. Moreover, credit cards are the anesthesia to spending pain as you do not feel any immediate loss of cash. As such, you will tend to spend more. Pay in cash as much as possible.
Please also note that with some establishments, especially the smaller ones, even paying with debit cards comes out to be more expensive. If the store cannot provide the required maintaining savings account balance with the bank that runs the credit card operations, that store will need to pay a fee to allow the use of credit cards in its establishments. And you know very well who ends up paying for that fee.
Belief#4: It is easy to earn the coverage that insurance policies promise.
The moment you pay your first insurance premium, the amount that you want your family to get in case of your untimely death is already guaranteed. Can you say that with your first pay or the investment you hope to enter to boost your earnings? You will probably need a good number of years before you can save and earn (from investing) to match the death benefit that insurance policies guarantee. So do not fool yourself. Go buy life insurance. The younger you are in acquiring life insurance, the cheaper the premiums get.
To make it easier for you, think of buying insurance this way. In investing, you take the risk in generating returns on your money. Nothing is guaranteed. But here, it is the life insurance company that takes the risk that you will live a long and healthy life. They will need that period to grow your premium payments large enough to pay for the promised benefit payouts and generate profits for themselves. And if you are called from this life early, life insurance companies have strong capitalization and reinsurance practices which allow them to release your benefit payouts early.
Life insurance even turns gambling on its head. The chances of winning in gambling are always stacked against the player. But everybody wins with life insurance because man’s mortal nature will always lead to the release of benefit payouts.
Belief#5: Instead of renting, just buy your forever home through a loan.
Newlyweds are rushed to buy their forever home instead of renting. They not only get to call the place they live in their own but also avoid throwing money away through rent payments. Financially however, it will be more costly to service a loan because of 1) the loan amortization that will be higher than the rent for the same home (even on a 30-year mortgage) and 2) the hefty down payment.
While some may argue that the appreciation of the value of the property accrues to the owner and not to the renter, the appreciation of the value of a forever home should not matter because there will be no intention of selling the home anyway. And if an expensive home is viewed as inheritance for children, know that providing the best (formal and informal) education to children that parents can afford is the greatest inheritance that can be given. Anything else is icing on the cake.
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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.
For more money advice in marriage, you can check out the column For Richer Or Poorer on Inspirations.ph every Saturday or send questions directly to yaman@personalfinance.ph.
Copyright 2023 Efren Ll. Cruz, RFP®. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without the prior written consent of the author.
