For When the Sun Doesn’t Shine: Financially Preparing for the Worst While It’s Good

There’s a common understanding among older people that we, young people, are reckless, headstrong and courageous to a certain degree. We are willing to do and try things no one has done before, and we feel like we can do literally anything we want to with our whole lives ahead of us. At this stage in our lives, we feel invincible. Well, at least that WAS the case for me as well before this entire situation happened. I’ve had friends leave this world too soon and titos and titas who’ve left children behind without parents. I’ve seen businesses fine one day and completely bankrupt and struggling just a month later. Who wouldn’t be changed by all of this happening around them?

Now, I look at our age with a certain amount of nuance, realizing the fragility and volatility of our lives. When in the past, I’d dive into deep waters without a second thought, nowadays I think I’d rather stay in the shallows. This more cautious way of thinking about things has also leaked into the way I think about finances. More often than not, whenever I find myself in a talk about financial literacy and freedom, all I hear are terms about budgeting, or credit, or growing your assets and beating inflation, but I rarely hear any words going more into depth about preparedness for an emergency or for unfortunate circumstances. So this is what I’d like to talk about today, a sort of introduction to investments of sorts you should make as early as now to be better prepared for the days ahead.

Firstly, let’s talk about insurance. Now what do cars, houses, businesses, and you yourself all have in common? That’s right, they can all be insured. Insurance is basically protection for any asset you may have. What if you import your goods and lose them all at sea? You can mitigate your losses if you insured your business. If your house burns down because of an irresponsible neighbor? Don’t worry, you won’t end up saddled with a mortgage and homeless if your house is insured. With these two examples, I think I’ve made my point clear. With insurance, you pay for protection and peace of mind. With this protection and peace of mind you pay for, you’re able to take on certain risks you didn’t want to before. Going back to the inventory example. If it’s typhoon season and you have a huge order from a client, you might have had to reject it because the cost to acquire the inventory is too big of a risk, but add extra to insure that inventory and you’d be more willing to take on that order.

Now you might ask, well why should I get insurance now? Insurance may seem like a very “adult” thing to do! Well firstly, we are indeed “young adults” who already fit that perception. What’s more, is that the earlier you acquire policies, the more likely it is that you’re able to get cheaper premiums. Premiums are the regular payments you make to your insurer for the policy. The way insurance companies calculate premiums can vary and are kept pretty secret, but they take a lot of factors into account like your age, medical history, family history, lifestyle, etc. which are all quantified and inserted into an equation to determine the risk they take on by insuring you.

What they’re trying to calculate is whether or not they have good odds of never paying out insurance since it’s unlikely something bad will happen, or that they’ll be able to grow your money for enough time to offset the amount they’ll most likely have to pay out. Given that age is a critical factor and we’re all still relatively healthy, it’s important to get insurance as early as now to have an easier time making those payments. Normally, companies take this into consideration and include health insurance as a part of their employment benefits. While this is all great, it’s still recommended to have your own personal insurance policies, since the insurance your employer offers acts as a sort of shackle to keep you working for the company to secure your insurance. If you ever leave the company for whatever reason, you’re left out in the cold with no insurance to speak of and you’ll have to get your own policies at a later point in life.

Not so fast though, if insurance is protection, then why not just get every policy out there? Well, because protection costs a lot of money. Sure you can get 5 life insurance policies, and yes, if you get them now there’s a high chance you get a significantly lower amount as opposed to a 50-year old, but that’s also 5 significant recurring payments you’ll have to make in order to keep your policy alive. If you miss on too many payments you could lose all of those policies and you’ll have spent all that money and time for nothing. With insurance, it’s important to do your research, read the policies being offered thoroughly, and conduct an analysis of the limits of what you’re willing to pay to be protected, and what you’re willing to not be protected against since there’s a good chance you won’t need it (There are some online calculators like this one which can help you out, albeit they might be based for international users) . For example, one might opt not to get insurance for smaller imports of inventory to save on costs, or one might opt not to get the policy for cancer as they don’t have a family history and they live healthily. TLDR , get insurance early to get it cheaper, but make sure the policies are the right ones for you.

If you’re having trouble where to start, a good place would be to make your SSS contributions, your Philhealth contributions, as well as PAG-IBIG contributions. Philhealth basically allows public hospitals and clinics to treat you for free (assuming the funds aren’t stolen of course). On the other hand, PAG-IBIG contributions give you the benefit of loaning from the PAG-IBIG fund at a relatively lower rate. Lastly SSS contributions (or GSIS, its counterpart for government agencies) give you access to friendly loans, retirement benefits and pension, sickness and maternity benefits, a death benefit to be given to your surviving family, and a multitude of other direct benefits. Indirectly, your SSS contributions are also considered by some banks when you apply for loans. Normally, your contributions are withheld from your salary automatically once you’re employed, however even as early as now you can start making voluntary contributions so you can avail of the benefits from the SSS as early as possible. What if, say you’re not the breadwinner of the family, or you’ve decided to be self-employed? You can do what’s called “Voluntary Contributions” in order to make sure you’ll still have access to the benefits as an SSS member even though you’re no longer officially employed.

While you invest in riskier assets to enjoy life later on, having a stable pension when you’re retired gives you more peace of mind that you’ll live without worry later on. If you’re looking to access a good pension fund for your retirement, you can even avail of the Personal Equity and Retirement Account (PERA) fund, which is basically the Philippine version of the 401k. Each deposit into the account is tax deductible, meaning you can exclude contributions to it when you calculate your income tax, and once you start getting your payout, it’s all completely tax-free.

While earlier we talked about insurance that benefits yourself more directly, what about indirectly? This is where things like education funds and life insurance come into play. This is security for your family. Education is expensive, wherever you go, especially higher education. If by chance your children go to college in the middle of a recession and your business isn’t doing too well, you might be faced with one of the most difficult decisions a parent can make, whether to have their children stop their schooling. With an education plan however, you can take advantage of the good times, and pay out on a regular basis in order to secure your children’s education in the future. As for life insurance, if by any chance you meet misfortune and die, you can at least rest assured that when you die, your family will receive a significant amount of money to pay off any debt and live comfortably for a while before they can get back on their feet.

In conclusion, while it is true that saving in banks is not enough to be truly smart with your money, it’s also not wise to put the rest of your money and time into risky investments. Being prepared for the worst simply can’t be covered by an emergency fund, so having the ability to buy security and peace of mind in the form of insurance policies and life planning products is especially important to consider.