Many Filpinos leave the country with hopes to find a better future. With that, we have this mindset that by being an overseas Filipino worker (OFW), you earn a lot, send more money for your family and become rich — WHICH IS VERY TRUE!
BUT… For many OFWs, instead of being able to save and invest money, they encounter critical problems which stems from poor money management. Why are there OFWs that work so long and hard abroad and yet they end up coming home broke? On this post, I will share very common OFW money mistakes. To that, I will also share solutions and ideas on how to correct and handle these mistakes.
#1 Many are Financially Illiterate
According to a survey by Standard & Poor, only 25% of Filipino Adults are Financially Literate. Majority of Filipinos never knew the basics of handling money wisely and intelligently like what Fil-Chinese millionaires are doing. Other than the ‘piggy bank’ strategy, we never learned anything about personal finance in school like the importance of saving, thrift values and basic investing.
How to Change It:
Read, learn and ACTIVELY APPLY as much as you can about managing your finances and money properly. Investing a bit money in a book that will teach you how to manage your finances is a good start to become financially literate. (Check Out My SHOP page for some of my book recommendations.) You can also read the tips and advice of some Filipino financial gurus which are often for free. OR You can also register and join the FREE Financial Planning Seminars being offered. By being financially literate, you also become informed on how to identify and avoid quick-rich-money-scams (eg Aman Futures) or questionable investments (eg Globe Asiatique).
#2 Many Incur Debts
…(Sometimes Even Before They Start Working Abroad) It is a sad reality that even before OFWs leave the Philippines or even started getting their first paycheck, they are already have a lot of debt. It is acceptable if it is debt incurred in preparing for overseas work. But, there are cases when OFWs (and their families) feel that they have the power to purchase the things they have wanted for so long. They start borrowing money just to buy stuff that bring instant gratification like furniture, appliances, computers and electronic gadgets with the premise that their soon-to-be-OFW will be earning a lot money and will be able to pay it at some point.
How To Avoid It:
If you have to borrow money, do so because it is necessary and important. Do not borrow to support extravagant spending. Follow and practice this mantra with your family: If you don’t have any money, you should not buy anything. OR You should not buy or spend on things when you don’t have the money.
#3 Many Splurge & Recklessly Spend
Earning in a first-world country increases your purchasing power. With that, more and more of our “kababayans” get overwhelmed easily and start recklessly spending. They begin to have this impulsive urge to display their earnings whether in the form shiny gadgets like smartphones and computers, new cars, house and lot. They lavishly give cash or send balikbayan boxes to their family/relatives filled with imported chocolates, canned goods, apparel, and other items bought by overseas workers during their stay there. When they come home to the Philippines, some OFWs become one-day millionaires. They tend to go overboard and blow their budget on a lot of unnecessary things: nightly parties, weekend getaways, shopping galore, gambling, and so much more.
How To Avoid It:
Just because you can afford something, doesn’t mean you should buy it. Always exercise restraint. Before splurging, make sure you can truly afford it. Don’t spend more because you earn more. Instead, SAVE MORE, when you earn more. Increase the amount you’re saving first, and then you can use the rest for your needs (or wants!).
#4 Many Don’t Save at All
Despite earning more, many OFWs have a strong tendency to spend more rather than to save more. You can say: “I’ve worked hard for my money so I feel justified in splurging and treating myself to better things.” I call this ‘lifestyle inflation.’ Lifestyle inflation simply refers to an increase in spending in response to an increase in income. Whenever a person starts bringing home more money, they start spending more by buying a new gadget, a expensive bag, a nicer car, and so on, they’re undergoing lifestyle inflation.
How to Avoid It:
Take time to plan your expenses and savings. Budget! The first question you should ask yourself is “How much should I save?” NOT “How much should I spend?” Savings should be a top priority. Remember you will have to stop working some time. Are you going to be an OFW forever? Apparently not. You should learn to save and invest for the future. Commit to save a part of your income through your bank. Open a separate savings account just for your savings fund. You can enroll your accounts into an auto-debit arrangement to help force you into saving regularly.
#5 Many Allow Themselves to be ATMs to their Families
Typical OFWs put all their faith to their families back home by sending most of their salary back home and live on what’s left. Since OFWs earn more, some friends and distant relatives won’t hesitate to designate you as the go-to person for emergency or non-emergency cash.
How to Avoid It:
Sending your money back home is okay, as long as you put all the necessary controls and if your family back home knows how to manage money responsibly. Teach your spouse or your family proper money habits. It’s also good to have a funds for special requests – like an emergency fund, special occasions fund or a lending fund. For example, when an emergency arises, such as a medical emergency you can reach into your emergency fund. OR When a family or a friend asks to borrow money, you can use your lending fund. But, remember to lend what you can afford to lose. Don’t feel guilty when you set a limit to what you can offer as help. If you would like to help your family members, give them opportunities to earn such as setting up a sari-sari store or a franchise booth. This way you slowly teach them to be financially independent.
#6 Many Place Their Money on Unproductive Assets
For a typical OFW, investing means buying items that will include any or all of the following: a house and lot, appliances, furniture, computers, electronic gadgets, car, motorcycle and jewelry. While some of these are valuable, many are unproductive assets – meaning they decrease in value over time and they do not provide additional income. In fact, some of these unproductive assets will make you spend more. For example, when you purchase a car, expect to spend on fuel, maintenance and insurance. Buying unproductive items like these is clearly a waste of your money.
How to Avoid It:
Invest in productive assets aka items that appreciate in value over time. Besides highly tangible assets like real estate and a car used for business, invest in assets like mutual funds, investment-linked insurance policies, UITFs and stocks and get your money working for you.
#7 Many Do Not Invest
Many OFWs hesitate when talking about investment. They’d rather put their money in savings in banks, which is a really bad idea. The bank is the worst place to put money, except for emergency needs. The reason: inflation. Your PhP 1000 will buy less a year from now. So the only best alternative for you is to grow your money by investing it.
How to Avoid It:
Start investing, no matter how small. Depending on your investment goals, risk tolerance, and time frame, you can start with pooled funds like mutual funds and UITFs. They are simple (and cheaper) to start with and fairly easy to understand. Later on, when you get a better cash flow, you can get into more complex investments like real estate, which is a great option for Filipinos looking for a passive income. Starting a business can also be feasible provided that you understand the business you’re getting into and know and trust competent people who will run the business in your absence.
Working overseas gives you an amazing opportunity to meet your goals and realize the dreams that you have for yourself and your family. While it is great, it is nevertheless not forever. That’s why it’s important to plan for the future.
I hope you have learned something.