What is the sandwich generation? Basically it’s the people who are financially caring for their retired parents while they are also financially providing for their children. In other words, they are financially “sandwiched” between two generations that can’t provide for themselves. It’s a relatively new term, which just made its way to the Merriam-Webster Dictionary in 2006. Though the term originated in the US, it’s a common phenomenon here as well.

But how does this happen?

First, most retiring Filipinos aren’t financially independent. According to a recent study by Sun Life, 45% of retirees become a financial burden to their relatives, 30% are dependent on charity, and 22% continue to work even after retirement.

Our culture’s attitude doesn’t help either. We feel compelled to repay our “utang na loob” to our parents, even if it’s more than we can afford. It doesn’t stop at parents either - sometimes you will be socially pressured to help out your “less fortunate” relatives, even if some of them fell into misfortunes that they created for themselves (such as excessive gambling, lack of will to find employment, etc.)

At the same time, it’s you will have to provide for your own children. Everyone knows that raising children can be expensive, especially if you want to provide them with the best medical care or send them to the best schools.

Now, the sandwiched person may earn enough to pay for both the needs of their parents and their children, but there’s often a cost to this. Usually, they don’t earn enough to also set aside money for their own retirement. At this point, it becomes a cycle and their children are doomed to feel “sandwiched” too when they become adults.

Breaking the Cycle

Here’s the sad thing: I know that when I have children, I will be part of the sandwich generation. But I don’t want it to become a cycle. When they grow up, I want them to worry about their own needs and even have the money to enjoy themselves a little more. I do not want to burden them.

There’s little that a sandwiched person can do for their parents if they are already retired. Maybe you can improve their health care coverage and set up an emergency fund for them. But if they live long lives and have no money for retirement, they will be financially dependent on you for a decade or two.

As for your children, there are ways to prepare for them financially. My partner and I will be saving up a certain amount as a “children’s fund” for our future kids so that we can pay for all the financial emergencies that come up within the first two years of having children. These include visits to the doctor, immunization, diapers, clothes, and other needs.

There are also educational plans, insurance, and other available vehicles that will allow you to plan for your children better. By having the money for your children before they arrive, you’ll be saving yourself from debt and a whole lot of headaches.

In other words, the key is to make a financial plan before your parents retire and before your kids arrive. Create a spending plan and account for major expenses. This will put you in a better position that will equip you to handle expenses for both parties.

More importantly, you need to earn more. Only by increasing your income can you also set aside enough money for yourself when you retire. After all, who wants to have their children go through the same problems and unnecessary stress?

Are you part of the sandwich generation? Feel free to share your experiences with other readers in the comments.

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Which would you rather get - P3,000 in three days, or P5,000 in three months?

Think about it for a while.

If you answered the P3,000, this usually means you are financially impulsive, since you’d be turning down an interest rate that is much better than what banks and most investments offer.

In a study conducted by researchers from the University College of London, nearly half of their respondents preferred the lower (but sooner) sum - and that these people also showed impulsiveness in other areas of their life. From the article (emphasis mine):

“…researchers suggest money savings or financial behaviors are linked to a set of other personal behaviors, rather than personal knowledge and experience with money.

…[they] discovered impulsive behaviors such as overeating, smoking and infidelity are associated with financial gullibility.”

This means that even if you know a lot about money, investing, and business, it doesn’t guarantee that you’ll be financially secure. What guarantees your financial success is your behavior. If you are consciously planning for the future and spend time evaluating your impulsive desires, then you have better chances of being financially successful - even better chances than someone who had formal training in finances, but doesn’t exhibit those behaviors. Perhaps this is why even the smartest people we know make stupid decisions regarding their money.

How do we use this information to our advantage?

1. Acknowledge that you don’t have to know everything to start fixing your finances. One of the obstacles that most people face when it comes to fixing their finances is inaction. They think “Oh I have to read more about saving before I can actually save” or “I need to know more tips before I can start”. Being good with money is not always about facts - it’s also about behavior. While we need to study some things - especially when investing - we don’t need to know much to get started.
2. Realize that managing money well is a habit. It’s something you have to cultivate and practice regularly. There is no one-off solution, magical budgeting program, or miracle investment that will save you. It takes regular, continuous work.
3. Know that changing impulsive financial behavior may mean changing other aspects of your life as well. My mother was such an impulsive spender, but her impulsive behavior wasn’t limited to money. She was that way about almost everything. From her business endeavors to her anger. For those who are truly impulsive, it may be a more difficult journey to get your finances together - but it doesn’t mean you shouldn’t try.

If impulsive spending and investing was one of your problems, take a look at your past behavior and see how you’ve changed since then. How have these changes affected your finances? How do you feel about the research I quoted above?

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Living without cash is an extreme idea, but Mark Boyle of The Freeconomy Community is doing it. In this article from The Guardian, he talks about his experiences and the reason behind his decision:

If we grew our own food, we wouldn’t waste a third of it as we do today. If we made our own tables and chairs, we wouldn’t throw them out the moment we changed the interior decor. If we had to clean our own drinking water, we probably wouldn’t contaminate it.

This article was controversial and received harsh criticism from some readers, which you can read if you scroll down to the comments section (Boyle responds to his critics here). As for my own opinion, while I don’t believe that everyone should (or can) do this, there are some important lessons we can take away from his experiment:

1) There are free or inexpensive solutions to most of our mundane problems, if we just get creative.

For example, here’s Boyle’s approach to getting free food:

There are four legs to the food-for-free table: foraging wild food, growing your own, bartering, and using waste grub, of which there is loads.

One of my goals in life is to grow at least 50% of what my family and pets eat. My garden right now isn’t successful enough to do that, but all I need is more research and practice. Bartering and foraging is something that Filipinos are good at, though foraging is harder in the suburbs. Still, I find the occasional wild malunggay, talbos ng kamote, and other vegetables growing in vacant lots.

As for using waste grub - the food that businesses and restaurants throw away - many Filipinos already do that. It’s called pangbabatchoy. Of course, they don’t do this by choice. They really have nothing else to eat, since they live on the streets. I saw a documentary about this a few years ago, and the only thing I can say is that I’m glad we don’t have as much food waste as they do in the UK (at least on the urban level, I don’t know about farm waste). Note that I’m not advocating this as an alternative.

So apart from bartering, foraging, and growing out own food, what other free solutions are out there?

• Set up a rain barrel system to harvest rainwater. You can use this rainwater to wash your car, water your plants, or even flush your toilet if you have plumbing skills. If you can get the barrel and pipes for free, that’s even better.
• Use kitchen and vegetable waste as compost. This will allow you to feed your garden at no cost. Warning: don’t compost dairy and meat products, manure, or plants that have been treated with chemicals.
• Pick up chopped branches and tree trunks and use as wood for furniture or decor. But only if you really want to do this, otherwise you’ll be spending hours suffering. I like doing this and actually made our Christmas tree. Even the shiny red ornaments I used were from a bag that my neighbors were gonna throw away (they were still good, I don’t know what they thought was wrong with them).

There are definitely more available solutions out there, more than I can cover in this post. The trick is to know how and where to look.

2) Let’s be conscious consumers.

Oftentimes the price of a product is rarely its sole price. For example, I found out that a certain company had union presidents murdered, and they continually commit human rights violations in their farms and factories all over the world. I can’t stand to bear that a single peso from my money would go to something like that, even if I used to enjoy some of their products in the past.

As Boyle pointed out in his article, there’s often this disconnect between us, the consumer, and the hands that make our products. While it’s impossible to find out all the practices of every company in the world, and our individual boycotts may not may much of a difference, being conscious consumers allows us to make purchases that align with our values.

What do you think of Mark Boyle’s cash-free life? Which aspects are applicable to your life? Which ones aren’t?

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When you say you want to be better at handling your money, what does that mean? The answer to this question depends on the person. It could mean early retirement, higher income, more savings, and a variety of other things. But is financial improvement merely a numbers  game? What do you aim for if you’re unclear about how a certain lifestyle will cost? Surely there must be other ways to measure improvement.

Because of this, I prefer to think of financial growth in stages. It doesn’t include a specific net worth amount, nor a minimum income level. After all, there’s no such thing as “one size fits all” when it comes to personal finance. What exists instead are different psychological and emotional stages, and the numbers corresponding to them vary from person to person. What I’m measuring in this case is one’s sense of comfort, freedom, and security which, frankly, is more telling than the numbers themselves.

So what are the different stages of personal finance?

Stage Zero: Ignorance

Why start with zero and not the number 1? Well, because zero is what’s going on here. The idea of handling money hardly makes a blip on your radar. Not to sound too harsh, but stage zero is the stage where you are ignorant about money. That’s okay, everyone starts here.

While you may know about saving or investing, you’re not really doing them. You feel like you should save or at least do something about your money, but this thought soon disappears as you go back to your daily life. You don’t know how much your monthly expenses are, either. If you’re unlucky, you’re already in financial trouble but are vaguely aware of it. If you’re lucky enough to avoid trouble, this is mostly because of chance. Any minor event such as a toothache or “therapeutic shopping”  is bound to rock your financial boat.

Stage One: Awareness and Action

Finally, you’ve realized that it’s time to take control of your finances! You start asking around, reading books, and learning all you can about how to do things right. Then, you actually do something with this new information.

If you have debt, you’re creating plans to reduce or eliminate it. At this point you are also forming new habits such as getting your spending under control and managing your money. If a lot of damage has already been done, you may be far from financial stability - but at least you’re taking steps towards it.

Stage Two: Stability

By this time your actions have paid off and you’re taking consistent measures to keep it that way. You have no debt, or if you do, it’s completely under your control. You have an emergency fund that is suited to your needs, and you’re on track when saving or investing for retirement. Your income is also consistent and you spend less than you earn. You may even be sleeping easier.

Stage Three: Freedom

In this stage, you’re earning passive income that’s equal to or greater than your living expenses. You don’t have to rely on your job to live. Where are you getting this passive income? It could be from a business that you’ve invested in but don’t personally run, stock dividends, or the sale of information products (such as ebooks). The only downside is that because of the high level of knowledge, time, or capital needed for this stage, not everyone ends up here.

What stage of personal finance are you in right now? What stage do you hope to be in by the end of the year?

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Without further ado, here are my financial goals for 2010:

Emergency Fund. In yesterday’s update I talked about how all I have left is a 4-month emergency fund because of the many financial emergencies I experienced last year. My goal for 2010 is to save up for a 7-month emergency fund (meaning have 7 months’ worth of living expenses tucked away). My “big” goal is to get it up to a year’s worth, but it’s not as necessary anymore since I’ll have less dependents this year.

Retirement Fund. Basically add PXX,XXX to it over this year. After that, I’ll be making an effort to move it to investment vehicles with better returns.

Insurance. I need medical insurance, so does my partner. This year I’ll make sure that we both have it so we can minimize medical expenses.

Legal paperwork. I need to finalize my last will and testament, as well as a power of attorney for my partner. This may sound morbid, but anyone with assets should do this, no matter how young you are. This is especially true if you want your assets to go to other people apart from the default legal choice (your children, spouse, or parents).

Launch graphic design studio. I’ve been planning and organizing a graphic design/illustration studio with some friends for almost two years now and it’s time to jumpstart it from months of stagnation.

Improve returns from passive income stream. This basically means to spend a few hours for testing and research. Doesn’t sound exactly passive, I know, but if it means better returns then hopefully it’ll be worth it.

If time and opportunity permits it, launch another passive income stream. Not a must-do, but if I find the time and don’t have other unexpected projects, I’d love to do this. I have a few options right now but I’ll need more information/research.

Looking at these goals, I see a unifying theme: I’m laying the foundations. It looks like I’ll be spending this year ensuring stability for me and my family. I’m putting safety nets in place (bigger emergency fund, retirement fund,legal paperwork) while setting up systems that will allow me to protect myself and earn more income (insurance, additional income streams).

How about you, what are your financial goals for 2010? How do you hope to achieve them?

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1) My Income Goal

I didn’t disclose the figure, but I wasn’t able to meet my income goal consistently. I earned more in 2009 if I compare it with the previous year, so it’s not necessarily a bad thing. Also, it’s been taking me much longer to launch my other income streams, so it’s taking a while for my additional income to make a difference.

2) Emergency Fund

My goal for my emergency fund was to save up for 1 year’s worth of living expenses. Sadly, I wasn’t able to reach this goal. So many emergencies happened this year - someone close to me needed an operation, I got sick a few times, etc. Even with my discipline to save and my existing emergency fund, I couldn’t really keep up with those emergency expenses. I still have 4 months worth of an emergency fund, but that’s less than what I started with in 2009.

3) Retirement fund.

In my post last year, this is what I said:

My retirement fund is doing okay, but every year I have a goal of how much I should set aside for retirement.  Note that my definition of retirement is the time when I am no longer physically or mentally able to work.  I love my work, and I want to do it for as long as I can.  Also, since I don’t have a corporate job, my definition of retirement is different from the traditional definition.

With that in mind, I shifted the bulk of my retirement savings for my house savings (to build that farm house in the province). I still have money for retirement tucked away, and I plan to add more to it this year.

4) Provincial House

I’m on track with this goal. This is the goal that is not allowed to die.

5) Will

I did prepare a will, but I did not have it notarized yet. My partner and I will be speaking with a lawyer to see our options and alternatives to see what we can do to protect our relationship legally and financially.

6) Donations

I was able to donate more money this year, especially during Ondoy. This also extended to donations in kind, not just cash.

7) Passive Income Stream

I established an online passive income stream mid 2009, but my income from it is minimal for now. In the coming year I hope to make improvements to it so that I can earn more.

Summary: 2009 was a mixed bag for me financially, but it was mostly positive. There’s still a lot of room for improvement, and tomorrow I’ll be posting about my financial goals for 2010.

How about you? Were you able to reach your 2009 financial goals?

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Here’s the thing, I used to watch TV idly as a way to relax. I’d turn it on and watch whatever was mildly interesting. Since I had a cable TV subscription, something was always on.

Then, I noticed something about myself. I would watch a show I didn’t even like. Even reruns. I called this “mindless entertainment”. After all, I was only unwinding. But the way TV sucks you in to watch one show after another, I found that I watched at least 3 hours each night. This amounted to at least 15 hours of TV per weekday. Even more hours were spent watching TV during weekends.

I realized that I had a problem when I was watching an episode of The OC for the third time. And I actually hated the show!

If I wanted to be more productive and have more free time, clearly I had to cut back on TV and find other ways to relax.

Now, I still have a TV but I rarely use it. When I was cutting back on expenses, I canceled my cable TV subscription. I have cable TV again because of someone who lives with me, but when she leaves I’m going to have it disconnected again.

Because I don’t really watch TV. And you know what, I think I owe at least some part of my financial stability to that. Here’s why:

• If you watch less TV you won’t be as prone to tempting ads. Don’t get me wrong, everyone is prone to being convinced by advertising, but at least by cutting back on TV you have less exposure. Also, ads take up around 1/4 of a show’s air time, and life’s too short to be spent watching random ads.
• You can do something more productive or restful for your downtime. This includes bonding with friends and family, reading, working on a side business, managing your money, or even sleeping.
• Foreign shows, news, and other forms of entertainment can be found for free online. You just need to know where to look. No need to pay a premium for subscriptions, and no need to wait a certain time/day for your favorite show. In other words, you get to choose carefully which shows you’ll invest your time in.

One disadvantage is that my friends give me crap about how I don’t know Kim Chiu, or who the latest matinee idol is, or how I’m a “loser” for not watching Pinoy Big Brother. But come on - as far as disadvantages go, who cares? I’m never the one who complains about not having enough time for sleep/hobbies/family.

Try it. Disconnect your cable TV subscription, if you have it. Turn off the TV set. You’ll be surprised at what you could accomplish. Why not add that to your list of goals for the new year?

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Happy New Year! Thank you for supporting and reading Frugal Pinoy. I hope that you continue to find this site useful in 2010. Most of all, may you have a healthy, happy, and productive year ahead of you!

Now before we leap into 2010, let’s take this opportunity to review Frugal Pinoy’s top 10 most informative articles for the year.

Does Frugal Pinoy apply to you?

At the start of 2009, I wanted readers to ask themselves if the articles I  post here are relevant to them. This was my response to some comments from both friends and strangers that the site was not applicable to them.

A Different Way of Looking at Income

Do you judge or measure your income per month? If so, you may not be earning as much as you think. This article explores the reasons why we should measure our income by the hour instead.

Money Myths: Frugality Means Sacrificing Fun

In this article, I attempt to debunk the myth that a frugal life is a hard and boring life.

6 Signs That You’re Living Beyond Your Means

Don’t know how much you’re spending each month? Feeling guilty about using that credit card? Watch out. You might be spending more than you earn.

My Investment Strategy

In this short post I talk about my decision-making process behind my investments. Hint: it has nothing to do with the hot stock tips.

Getting Out of Debt vs. Saving: Which Should You Prioritize?

When you’re trying to make ends meet as well as paying off debt, you might feel like you’re being spread too thinly. How do you choose between saving for emergencies and being debt-free?

When Listening to Experts Use Your Brain

Researchers found that when people are presented with an expert, they drop all attempts at decision-making - even if the expert is fake. Is it possible to make independent financial decisions despite all the “expert” advice we receive?

Money Myths: Can Money Buy Happiness?

Scientists learned that having enough money for necessities can buy a feeling of peace and security - but anything else beyond that is up to you.

The Hard Truth: 30 Money Questions You Should Ask Yourself

A no-BS list of questions to help you face the truth of your financial situation.

Free Download: Frugal Pinoy Budgeting Spreadsheet

I made a free downloadable budgeting spreadsheet for Frugal Pinoy readers. There’s a video tutorial to help guide you through it.

Also, let’s not forget that nearing the end of 2009, I launched the 25  Days to Healthier Finances series. In that series, I posted one article per day with an actionable task that readers (and I) can do to make our financial lives better.

That’s it from me for today. Again, I’d like to thank all the Frugal Pinoy readers (even the newcomers) for supporting and reading the blog this year.

All the best,

Celine

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Today’s Task: Make a financial plan for your future

Your ability to succeed financially for the rest of your life will partly fall on your ability to mitigate large, life-defining expenses. The more aware you are of your possible expenses while you’re still young, the better prepared you’ll be for them. Once you’re debt free and have reached your goals for your emergency fund, it’s time to think of the following things:

• Wedding. This is for the unmarried Frugal Pinoy readers out there. Even if you think you’re not going to get married or that you’re going to have the simplest wedding in the history of the Philippines, you can’t know this for sure. This is especially true if you aren’t even engaged yet. Saving up for it is better than spending your honeymoon worried about debt before your marriage has even really begun.
• House. Most Filipinos dream of owning a home. If you think this is for you, start researching ballpark figures of houses that are similar to the one you want. You don’t have to save up for the complete amount, either (though it’s ideal). At the very least, start planning for the down payment.
• Vehicle.
• Travel. If I only knew how much I wanted to travel I would’ve saved up for it more, especially since I prefer 2-week trips to weekend getaways. Having a travel fund - even if you have to replenish it regularly - allows you to take advantage of discount fares and accommodations as the opportunity arises. This way, you can enjoy your trips without worrying about money, and you’ll have more options available to you.
• Additional education. Want to take up a second degree or pursue higher education? If you’re planning to do this within the next 3 years, then save up for it now - especially if you’re planning to study abroad, where the cost of living is generally more expensive.
• Supplementary income source. These could include investments, businesses, or rental properties. Ventures like these require capital upfront. This is especially important since it relates to your income, and you won’t have to be dependent on your paycheck.
• Children. I’m lucky enough to be in the position to plan for a child (my partner and I will adopt) so there are no “surprises” along the way. I’ve observed firsthand how expensive having children can be, even if they eat very little for the first few years of their lives. Baby formula is expensive, so are medical expenses, clothes, and education. Speaking of education, it’s smart to start planning for that even before your children are born.
• Retirement. A bank teller once laughed at me for having a retirement at the age of 24. It’s not a laughing matter if you consider compounding interest. The younger you are, the more important it is to start your retirement fund no matter how small. Even P500 per month can starting now can become hundreds of thousands of pesos down the road. Use this compound interest calculator to try it yourself (don’t mind the dollar sign and don’t forget to take inflation into account by subtracting it from your interest rates).

Now, if you’re not yet debt free or if you’re still waiting to complete your emergency fund it doesn’t mean you shouldn’t prepare yourself for the above expenses. It might help to work on your financial plan for at least one of the above items as well.

How to Make Your Financial Plan

Drafting your financial plan can take a few minutes to a few hours, depending on how detailed you want to be. Among the items listed above, I’m going to pick “House” to use as an example. Here are the steps I’d take to plan buying a house:

1) Find out how much it costs, total. For the house, this includes the house and lot itself, fees for the real estate agent (if necessary), moving expenses, and other relevant fees. If you want to buy an existing house, factor in what repairs and maintenance costs you could possibly have - but only if you already have a specific house in mind and can compute these things accurately. In the house example, let’s pretend that the total costs are P900,000 (I know it’s cheap for a Metro Manila home, but it’s just an example).

2) Know the month and year when you hope to finish saving up for it and make this your deadline. Let’s say I want to have a house by January 2013. Having a deadline like this will allow me to factor in inflation, as well as any changes in my regular income or expenses.

3) Compute how much you need to set aside each month to save up for the complete amount by the deadline. Since I want the house by January 2013, I need to set aside around P25,000/month to have the complete amount by then.

4) Figure out if your monthly budget allows for it. If it does, great! You’re all set. If not, then you need to take a cold hard look at your income and expenses to see where you can cut spending or increase your earnings. Investing your money, engaging in part-time work, or starting a business may help you with the earning part. After all, there are only so few expenses you can cut back on, especially if you’re frugal to begin with. Just remember that normally, if you’re saving up for something you want to have/do within the next 3 years, you should pick more conservative investments. But with things you’ll need 10 or 20 years down the road (such as retirement), you can be more aggressive.

What major expenses are coming your way within the next few years? How are you preparing for them?

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In the income and expenses spreadsheet I use (which I also refer to as my budgeting spreadsheet, though that’s inaccurate), I include an extra sheet titled “Ideal”. This sheet contains my ideal expenses and income. While you don’t need to use a spreadsheet, I think it’s important that we all have a written record of our ideal income and expenses somewhere.

Today’s Task: Write down your ideal income and expenses.

The first thing to do is to grab a sheet of paper (or create a new document in your computer) and write down your ideal income. It’s not enough to write the amount itself, also note where the money will be coming from. How much will come from your job? A side business? Investments?

Then, it’s time to come up with your ideal expenses. First, trim down your expenses on the things you don’t care or need to spend on. For me, that’s cable TV, transportation (I work from home), and dining out. Then, add the expenses that you do want. For example, I want to travel more next year, so I’ll increase the monthly amount I’ll put in my travel fund. I also want to save up early for the holidays in 2010 so I’ll add that as well.

Now, the problem with this “Ideal Income and Expenses” exercise is that many people might have unrealistic expectations of where their finances can go. Here are some guidelines to keeping it real:

• Only include ideal income from things you can control. Winning the lottery, projected returns from stocks and mutual funds, or receiving inheritance do not count. These things come from external forces you can’t control so don’t expect any sure income from them.
• If you have recorded your expenses and income consistently for at least three months, you’ll be able to make more realistic projections because you know your habits, needs, and wants better.

Now, why is this exercise important?

• You have a firm goal to aspire to. “Making more money” and “spending less on unnecessary things” are no longer abstract goals. You know exactly what they mean.
• Working backwards is more specific. By listing your final goal in this way, you’ll know exactly what you want and can work backwards to get it. You’ll also know how much money you need exactly for your ideal lifestyle. This can help you make the right choices when it comes to getting additional income.
• By preparing both your ideal expenses and income, you’re working with both ends of the spectrum. Most people just have goals for one aspect of their financial lives. For example, they want a specific income each month (”Sana P400,000 per month ang sweldo ko”) or they want specific lifestyle changes (”I wish I could afford to travel more” or “Sana may mas naitatabi ako for savings each month”). By noting both your ideal income and expenses, you know that these two work hand in hand. Without additional income, you might not reach your ideal lifestyle. Also, without taking a closer look at your expenses, you won’t know if you already have the means to reach your ideal lifestyle.

So this is what I’ll be doing today - preparing my ideal income and expenses for 2010. I hope you try it too.

What changes do you want to make when it comes to your ideal income and expenses? How specific are these changes?

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