Having a family nowadays almost always requires both parents to be working and earning. The costs of child rearing are pretty hefty and would be difficult to manage if living only on one spouse’s income. When I gave birth to Uri, Turo and I decided it was best for me to take a break from work and spend more time instead in taking care of our children. This was a very bold move, given the financial implications, but it was an “investment” that we wanted to make during our children’s formative years.
In the book The Two Income Trap, the authors argue that sending both parents to the workforce does not guarantee financial security. While two income families certainly make more than a one income family, by the time the basic expenses are paid, and the costs of joining the workforce are paid, the family actually have less money at the end of the month to show for it. Families that are maxed out living on a two income lifestyle are in a heap of trouble when one spouse loses his or her job.
I can’t say this was the case for us. Maybe because even when I left full-time employment, I always found ways to earn extra income on the side. Or maybe because I never earned much to begin with. LOL. But this is not to say that it was financially easy for us.
Every quarter I update our household budget and I am faced with the glaring reality of the increasing costs of child-rearing over time. Heck, we’re a small family living a simple lifestyle and we take conscious effort to cut back on costs and only spend for the basics and maybe a little beyond the basics, but it’s still financially difficult. I can’t imagine those families who earn less than we do but manage to go malling regularly and follow the latest fashion trends. I always wonder what costs they cut back on, when there’s hardly anything we can cut back on (mystery # 1).
Tonight I thought of revisiting our monthly budget after staring at our grocery receipt for half an hour wondering how we spent P5,000 over the stuff that we regularly buy. And this is just for two weeks (mystery # 2). Besides, we also need to come up with a drastic savings generation plan because Turo’s quitting his job by the end of this year to set up his farm. Boy, do we hate employment.
From our combined income (with me earning much less because I only work part-time), at least 72% goes to the regular expenses. With regular expenses I mean those shown in the chart below.
The rest of our income are divided into savings, investments and irregular expenses, such as travel, parties and events (we just love hosting parties), and sporadic shopping for shoes and clothing.
Naturally, food is the biggest expense. But living allowances and childcare costs are considerable expenses as well. Taking the Two Income Trap perspective, these are costs that we can actually cut back on had one of us been staying at home. Unfortunately, we just work harder so we can pay for these additional costs. Employment is a vicious cycle, but we become a statistic if we’re unemployed (mystery # 3).
So what do we do when we’re stretched too thin and life gets harder by the day? Here are my four P’s to financial moderation.
PLAN. Set your short-term expenses and long-term financial goals. Plan your short-term expenses and strictly make your payments and purchases based on your list of expenses. Work your budget and make a savings plan so you can achieve your long-term financial goals. And if you can’t seem to stick to your budget or your goals, plan for a more realistic budget and limit your goals to what your income minus expenses can afford. Says John Stuart Mill,“I have learnt to seek my happiness in limiting my desires, rather than attempting to satisfy them.”
PAY UP YOUR DEBTS. Despite the papers I have written on financial literacy, Turo and I have not yet emerged from the debt trap. I think it was a couple of years ago when we got into the habit of maxing out our credit limit because we were careless about our spending. It was a tough lesson learned and until now, were still paying up interest from our previous purchases. I know, we should pay up our debt first, rather than keep savings sitting in the bank, that’s what we teach in financial literacy, but it’s just too dramatically difficult to let go of lumpsums just to pay for debt and not for something tangible like an LCD TV. But this happened to us, don’t let it happen to you too.
POOL YOUR RESOURCES and EXPENSES. The ability to combine your income is one of the benefits of marriage. When you combine your income and share on the expenses, you end up with more savings rather than dividing your expenses and your savings as well. We follow a semi-pooling of resources. Regular expenses are assigned to Turo and irregular (in terms of timing) expenses are assigned to me, mainly because the timing of my salary varies. But we keep combined savings in a joint account, although we can still add to our individual accounts on our personal capacity.
PLEASE SAVE. Filipinos are so unbelievably resilient that we never got into the habit of saving. But savings is very, very important, specially if you have kids who will go to school in a few years or if there’s a real estate property that you want to acquire. The savings standard is set to at least 10% of your income. That’s at least. This is where you start, but your savings percentage is expected to go up as you get into the savings habit. Another must is to keep an emergency fund of 3 months worth of your living expenses. This is for unforeseen cases of being laid off from work or being unable to report for work in case of sickness or accidents.
There are a lot of other ways like investing or getting insurance or looking for discounts on your purchases, but these four P’s are for me the core principles of family financial management. It will take time to unlearn bad financial habits, and even more time to learn sound financial practices, but we have to start somewhere. Like paying up credit card debt.