Let’s support one another in helping every Pinoy to be an effective steward of resources.
Over 2.5 Million Filipinos work abroad. Many of these Overseas Filipino Workers (OFWs) are employed in developed countries from nearby countries like Singapore to the farthest reaches of the west like Saskatoon.
The chances of encountering a Filipino overseas are pretty high. Before you think that they’re all living the high life abroad, think again. They’re just as prone to making the same money mistakes. Based on the BSP’s 2nd quarter Consumer Expectation Survey in 2015, only 49.7% of households surveyed put remittances into savings and only 6.7% put money into investments.
But what are the money mistakes OFWs make and how do they beat them?
1. Keeping up appearances
It’s common for people to want to project a prosperous life. This is referred to as the pasikat mentality, and one of the best examples is the grand homecoming of an OFW. One can spend a lot here because of the exchange rate, which means that they have more purchasing power here than abroad.
While you think that it isn’t making a dent, you’ll be surprised at how much your expenses have skyrocketed by the time your vacation is over. This could be due to your relatives asking for a treat.
Most OFWs work abroad in order to provide for their families. Social media may show that they’re living the high life. What it doesn’t show is that they are living in cramped apartments and living an unglamorous life.
A large part of their pay is sent back to their families, but most families do not account for their spending. This can result in a lack of savings, and as far as the OFW being broke upon retirement.
Some are the sole breadwinners, and not because they’re the only one capable but because there’s a lack of effort from other family members.
3. The lifestyle inflation trap
The common misconception is that lifestyle inflation only happens when you’ve gotten a pay raise. Lifestyle inflation can also happen when you’ve got access to items that were not available within reach at the Philippines. You’ve got access to so many items that would otherwise cost so much more back home. For example, shopping at malls in Hong Kong versus getting the same bag in the Philippines can get you Php2,000.00 – Php3,000.00 immediately.
This is the situation that makes it easier to say “I can afford it.” It’s even easier when you see that the money you paid doesn’t make a dent on your paycheck.
How to avoid it: Just because you can afford it, doesn’t mean you should buy it. Evaluate if you’d need to take money from your emergency fund before buying the item. Another trick is buying the item after you’ve put some money away for savings.
3. Disregarding insurance
While agencies are now required to provide insurance for their OFW recruits, those who didn’t go through an agency might not have insurance. They might see insurance as an additional expense when they’re barely scraping by.
In some countries, jobs come with the benefits of insurance, but not all. The fact does not change that you don’t know what could happen, and you might end up broke if you have to pay for sudden out-of-pocket medical expenses.
How to avoid it: Medical coverage or life insurance should be the first on your to-do list when you get your first paycheck. It will save you a lot of money in the long run, and ensure that you’re protected from the most unforeseen circumstances.
4. Having a singular investment
Most OFWs have the purchasing power to sink into real estate, which they believe is the best possible investment. Some sink their money into more than one property simply because they can handle the multiple high-priced amortizations.
Managing these will be difficult if you don’t have a partner you trust back home.
How to avoid it: Real estate is a worthy investment, but not the only one that you could use to create a comfortable retirement home. You can choose to take out investments in stocks, mutual funds, or other investment vehicles.
With only 49.7% of Filipino households saving the remittances they receive, it looks like building a retirement fund is the last thing on the mind of an OFW. Despite earning a lot, most OFWs do not focus on retirement. This negatively impacts their house prospects when the time comes.
How to avoid it: Your retirement should be a priority. If you’re working abroad with the goal of retiring in the Philippines, you need to look at possible ways to fund your retirement. Most employers abroad have a mandatory retirement fund program. In the US, it’s the 401k; in Hong Kong, it’s the Mandatory Provident Fund (MPF); and in Singapore, it’s the Central Provident Fund (CPF). Ask your employer for more details and get started ASAP.
Working abroad affords you high financial power which allows you to earn and save more. While some of these mistakes are harder to avoid, wise financial decisions will help temper the mistakes you make. Bulk up your investments and savings, and retire happier and wealthier than when you started out.