Financial Planning for Overseas Filipino Workers

by Bea Bongat, on category "Personal Finance"

June 16, 2016


Financial Planning for Overseas Filipino Workers
Working overseas is a goal for many Filipinos. In 2015, the number of overseas Filipino workers (OFWs) was estimated at 2.4 million while remittances reached USD 22 billion in November 2015. The primary reason Filipinos aim to work abroad is the higher pay which enables them to provide a better life for their families, whether in the Philippines or abroad. For OFWs working in developed countries such as the USA, the UAE, and Singapore to name a few, they are earning in stronger currencies which allow them to buy (and save) more pesos.
However, a 2011 study done by Social Enterprise Development Partnerships Inc. shows alarming results. One out of ten OFWs remains financially broke while 80% return to the Philippines without savings. Despite their higher earning power, why are they moving back to their home country without any savings or investments?
It’s not how much you earn; it’s how much you save. Financial planning is not only about increasing your income. It’s multi-faceted and comprised of different factors. To help you out, below is a guide for financial planning for overseas Filipino workers:

Earning

Don’t be blinded by the X amount of dollars you’re being offered. It may seem like a treasure chest when you convert it into pesos, but it may be insufficient abroad. There’s a reason why more developed countries pay higher wages; it’s because the cost of living is much higher in these places. A lunch out can cost twice or thrice what you would pay for in the Philippines. In Hong Kong, a box-like, studio-type apartment can amount to Php 50,000 per month – and that’s not in the city centers even.
Things to do:

  • Research beforehand how much you expect to spend on essentials such as rent, groceries, transportation, etc. This will give you an idea if the salary you’re being offered is sufficient.
  • If you’re a star performer, don’t be afraid to negotiate for a higher salary if you know you deserve it.
  • If your employment contract and time permits, you can look for freelancing jobs such as being a nanny or tutor on the weekends.

Budgeting

Budgets are lifesavers. They can be used as a guide to keep you updated on whether you’re overspending on certain categories. It’s one thing to have a vague definition of how much you spend on rent, shopping, food, etc., but it’s another thing to have it clearly written down and tallied up. You may think that a Php 300 lunch out is not much but that adds up to Php 6,600 a month (22 days) just on lunch. By having a budget, you’ll build a stronger willpower to say ‘no’ to extra expenses.
Things to do:

  • Download an expense tracking app such as Expense Manager, You Need a Budget, or Mint. You can categorize your expenses for a more detailed overview.
  • Build the habit of inputting your expenses on a daily basis. There are days you may forget or feel lazy to track your expenses, so it’s important to build the habit so it becomes natural.
  • After three months of tracking expenses, go over the app. Now that you have 3 months’ worth of data, you can create a budget plan that is realistic to your spending patterns.

Remittances

Remittances are a major part of a person’s budget, but it needs to be separated from ‘Budgeting’ because it deserves its own section. Some OFWs send almost half (or more) of their incomes to their families in the Philippines. It’s natural to want to provide them with the best, but you don’t want to come home only to find out that the money you’ve been sending back to build a house was used to buy material things that are bad investments.
Things to do:

  • Know the monthly expenses of your household. That’s how much you should remit.
  • Don’t remit more than your monthly budget unless it’s for emergencies (e.g. medical). Tuition fees are not emergency expenses because they should be budgeted beforehand.
  • Find the remittance center that offers the best rates. You can find this out by talking to your fellow OFWs who have been in the country longer than you have.

Saving

As mentioned above, it’s not how much you earn but it’s how much you save. OFWs may suddenly be blinded by their higher salaries. For those living in a foreign country, it’s somewhat like another chance at the single life. This means not having to talk to one’s partner for that new pair of shoes or buying a round (or more) of drinks. Depending on how big or small your family is, you’re not the only one dependent on your income. Even if you’re single and have no responsibilities, you’re future you is still dependent on your income. Working, be it overseas or locally, is not forever, and retirement is a matter of ‘when’ not ‘if’. This means that you must maximize working overseas by earning and saving as much as you can.
Things to do:

  • Write down your financial goals, be it buying a house or retiring permanently in the Philippines.
  • Now that you have concrete goals, you know how much or the percentage of your salary you would need to save to reach your goals. Your budget has to have a category for savings.
  • The moment you receive your salary, deposit your money into your savings account from your payroll account. Then, you can spend what is left. As legendary investor Warren Buffet said, “Do not save what is left after spending, but spend what is left after saving.”

Insurance

It’s tempting to forego insurance. You’re earning in a foreign currency, and you want to make the most of it, not use it to pay for health insurance you don’t see yourself using. However, insurance is important because it serves as a barrier of protection. As mentioned above, the cost of living in developed countries is more expensive than in the Philippines, so if you get into an accident, you’ll shell out much more than you would have if you were back home. This is the reason why OFWs who live in neighboring countries such Hong Kong and Singapore fly back to the Philippines for medical and/or dental services. It’s cheaper to fly back and have a check-up or a dental operation in the Philippines. It’s tempting not to spend on insurance, but you may end up spending more without one.
Things to do:

  • If your employer doesn’t provide medical insurance, you have to get one for yourself. Research and compare different policies and providers.
  • Before you work overseas and if you have dependents, you should’ve had applied for life insurance already. OFWs are mostly the breadwinners of their families, so it’s best to provide their dependents from life’s risk through insurance.
  • Apply for non-life insurance, such as car and home insurance, if you have the following assets. In the event that you need to have your car repaired or your home renovated without insurance, you’ll end up spending more than your annual premium.

Investments

When it comes to investments, real estate is the favorite of Filipinos. Some OFWs even buy real estate without ever checking out the property first. Magic words such as ’15 minutes to the CBD’ or ‘Right beside the expressway’ are music to OFW ears; however, without first checking out the property, they learn that ’15 minutes to the CBD’ becomes ‘1.5 hours due to traffic’ and ‘Right beside the expressway’ means having to go through a two-lane side road before reaching said expressway. Real estate is a good investment – only if you do your research. With real estate, there are multiple ways to earn an income, be it through renting, flipping, and long-term investing. However, real estate isn’t the only investment; there are bonds, stocks, and investment funds such as UITFs and mutual funds to consider.
Things to do:

  • Never invest in something you do not know. Before you invest in real estate, stocks, or what have you, educate yourself first. You can read books, watch webinars, and attend investment conferences and seminars.
  • Invest money you can afford to lose. Since investments aren’t guaranteed, don’t invest the only money you have left in the hopes of an easy way out of financial difficulty. Investments are meant to be long-term and not quick-fix solutions.
  • Know the reason why you are investing. It just can’t be because you want to earn money. Why do you want to earn more money? Is it because you’re saving up for a house? Is it because you want to save for retirement? Or you just want to beat inflation? Knowing your ‘why’ will enlighten you on where you should invest your money.

OFWs are considered modern-day heroes. They sacrifice spending time with their families to be able to provide a better life. Behind the pictures and the social media posts lie the truth – that being an OFW isn’t easy. OFWs move their lives to settle into a country they know little about; it’s a whole new culture, language, and a whole new set of traditions and people. For those challenges, OFWs benefit from the trade-off of earning a lot, and the best thing to do is to maximize their earning capacity. This means saving and investing what they earn, so when the time comes, they can go back home to the Philippines, wealthy both in finances and experiences.

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