Don’t want to be an OFW forever? Follow these 5 money tips
Working abroad can be really tempting, moreso when people consider living in the Philippines, where the minimum wage is low, taxes are high, and jobs are hard to come by.
It’s no surprise that a tenth of our population has chosen to walk the path of an overseas Filipino worker (OFW), despite the emotional toll of being away from their family.
But the OFW life is no shortcut to success. Despite the higher wage they get abroad, many OFWs come home empty-handed, some even poorer than before they left.
Poor financial literacy is usually the cause, according to Vince Rapisura, wealth expert and president of the Social Enterprise Development Partnerships, Inc.
Leaving without a proper financial plan, many OFWs tend to overspend and overstay abroad.
How can OFWs better manage their finances and reach their financial goals faster, thereby be able to come home sooner? Here are some tips from Vince:
Set your goals
According to Vince, economic migrants should make it a goal to be able to come back within 10 years.
OFWs should ideally go through the following migration process:
- Beginning stage (1-2 years) - For the first two years, the migrant should work on paying off the debts he/she incurred to be able to work abroad. (ie. money spent for plane tickets, processing fees, etc.)
- Medium term (2-3 years) - During the medium term, the migrant’s focus should be to provide for his/her family’s basic needs.
- Long term (3-5 years) - The migrant’s last years, meanwhile, should be spent for their financial goals like being able to buy a house, open a business, among others.
Before you start packing your bags, it’s also important that you and your family understand why you have to leave and what you are trying to achieve.
Just as important is being able to stick with your goals.
"When they go there, initially they say, 'I only want a tricycle as a business,' and send my children to school.' After 5 years and they've already attained that, the goal would shift somewhere else. Maybe the tricycle is now a jeepney, and sending the children to school is finished and now they want to put up a house," Vince explained.
Changing goals is not necessarily a bad thing, but having no definite end-goal contributes to OFWs overstaying abroad. (READ: 'Are you an OFW? Here are bad spending habits you need to break' )
Know where you are
The next step to financial success is knowing where you are.
Vince introduced a personal financial diagnostic test in his book entitled (L)earning Wealth: Successful Strategies in Money Management.
The test aims to describe a person’s financial practices and provide a rating scale to help you determine whether or not they are good practices.
According to Vince, this self-diagnostic test is not meant to extensively measure your financial status but gives an idea of which spectrum of personal practices you generally belong to – from very high personal finance practice to very poor. You may take the test here.
For a guideline, you may also follow the financial life stages explained by Vince here:
Budget your money
When it comes to budgeting your money, Vince suggests that OFWs follow the 5-15-20-60 budgeting rule, with 5% of income going to insurance premium, 15% to savings, 20% to investments, and 60% to expenses.
You can learn more about this formula here:
Filipinos also tend to mix financial decisions with emotions.
This is a problem because rationality is necessary when making these decisions – something we lack when we are in a highly emotional state.
One of these emotions that prevents us from making rational financial decisions is fear, specifically the fear of not being loved - a common distress for OFWs.
Many OFWs fear that their children or spouses would love them less if they fail to send remittances to buy the things they want. In some cases, some relatives threaten OFWs with emotional blackmail.
According to Vince, it’s important that we teach our family to be independent and make them understand that reaching their financial goals requires a collective effort.
Here’s how an OFW can make love and money work:
On helping others financially:
Clear your debts
Borrowing money is common among many Filipinos and OFWs are no exemptions. Many OFWs leave to be able to pay for their loans or borrow money in order to finance their move overseas. With loans hounding them, OFWs fail to save and often end up overextending their stay abroad.
As a guideline, Vince suggests you follow these cardinal rules on borrowing money:
- Borrow money only when you plan to use it for productive purposes. This means using the money to finance something that creates income.
- Income from this project should be greater than the interest you will pay.
- Installment amount should not exceed 20% of your regular income.
- Do not borrow to finance wants. To be able to buy the things you want, save for it or create an investment portfolio that will provide you with a passive income.
- Lastly, borrow only from formal financial sources. This way, you can take advantage of lower interest rates and establish your credit history.
Burdened by debts? No worries, it's still not the end of the road for you. Here's how you can get out of bad debts:
But not all debts are bad. If you do it right, loans may help you reach your financial goals faster. Watch this video to find out which debts are good and which are bad:
Invest! Invest! Invest!
Investing your money can help grow it even further and help you reach your financial goals even faster.
According to Vince, one thing that hinders many Filipinos from investing is the thinking that investing requires a big amount of money. This is not true.
You can start investing with small amounts by simply opening a savings account. As you get more money using your active income (salary, commission, etc), you gain the propensity to invest in other investment vehicles.
While many OFWs do invest, a lot also do not invest in the right places - often falling victim to investment scams.
The key is to be patient. Carefully research before investing your money. Watch this video for tips on avoiding investment scams:
To help even more OFWs and young professionals manage their finances better, Vince wrote a guide to financial literacy entitled (L)Earning Wealth: Successful Strategies in Money Management. Find out more about it here:
The bottom line: The n OFW life is not a sure recipe for fortune. Whether your sacrifices take you to success or not will depend not only on how hardworking you are but also on how smart you are in managing your money. Do it right and you'll finally be able to be with your family again without financial problems haunting you every day. – Rappler.com