5 Financial Trolls That Will Surely Put You in Debt

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Financial mishaps have a snowball effect. It starts really small and then when it slowly goes down the hill, it gets bigger, next thing you know, your bank account is drained. Financial literacy is not really common in the Philippines. This is why a lot of us Pinoys are living with serious financial troubles.

According to recent statistics by the National Statistics Office, 1 out of every 5 Filipino families is considered poor. Though we have Economics taught during high school, is this sufficient become finance savvy? In fact, it is obvious how a lot of people are still not money savvy. So what are the most common financial mishaps that Pinoys get to experience? Here’s our list of financial trolls that you want to avoid.

5-6 System

It is common to have debt. However, in a setting where credit score is somewhat an alien word, most opt to borrow money from loan sharks, specifically a practice called 5-6. 5-6 lending system means that for every 5 peso loan, you have to return 6 pesos. The amount is really small, right? Of course, if you are only borrowing a small amount, this doesn’t seem bad at all. However, keep in mind that this is 20% interest.

Though this type of micro financing has helped a number of small entrepreneurs who wouldn’t have the money, if not for the usurious practices of those in the lending business, this still created a number of problems for a lot of people. According to one study, 5-6 money lenders differ in sizes and shapes. There are those big time lenders that also operate other types of businesses such as selling jewelries on installments.

Why is this a bad practice? It is a bad practice because of the high interest rate. Also, since not everyone uses it for highly profitable businesses, small entrepreneurs end up using a huge chunk of their profit for paying the loan’s interest.

The problem with usury is that the one who is being charged with exorbitant interest is not really willing to file any charges knowing he or she won’t have the ability to borrow money from banks and other legitimate sources.

Alternative Solution: Build credibility by opening a savings account. Gradually build credit by applying for a credit card and use the cash advance to support planned expenditures.

Health Care Don’t Care

Out of pocket costs without the proper health insurance gives insane numbers. For example, a premium of 2000-3000 pesos a month (24 – 36,000 pesos / year) can take care of about P150,000 worth of medical expenses in a year, that’s as much as 84% savings. A night in a hospital will already cost thousands of pesos, not to mention the fee for the doctor, the diagnostic procedures and other things that are part of your treatment.

Thinking of going to a Public hospital? Bad news, the Philippine government has neglected public health care so bad that long lines and lousy equipment are existent, there are a few exceptions – few. Convenient and top of the pact health care costs money, as simple as that.

Fortunately though, there is an alternative. HMOs and insurance can be purchased from a health insurance agent and it is available when you need to be covered. HMOs are cheaper the more people are joining the plan, might as well include the family when getting one.

Solution to this Fiasco: Although prevention is better than cure, it is much better to avail a small health insurance enough to cover for a major accident, it doesn’t cost much, the price is equivalent to four Starbucks coffees per month.

Stingy Companies

One of the things that employees or at least everyone is concerned is the level of their compensation, it is always not enough but the more important issue is being compensated correctly. Many employees just jump into the workforce without getting the right pay, it is a common mistake made by fresh graduates and even those who are already seasoned in their jobs.

Instances are graduate nurses who fall prey to the volunteer for work experience scheme by a number of hospitals. And a college education is worth? Exactly!

Solution when you fell in this trap: Ask your boss to give you a raise or if that is not possible, considering quitting and look for a new one. Unless you want to do two jobs or invest money through bonds, stocks and funds.

Emergency Schmergency

“Carpe Diem” or “Live For the Moment” or in Tagalog, the “Bahala Na!” mentality runs rampant across different ages. This type of thinking leads to financial mistakes, Filipinos are so fond of doing it, you hear every day from normal conversations with friends, overheard from a radio or TV or even to people you just see in the streets. Do you ever wonder why Filipinos go to the nearest friends and relatives to borrow money? Or perhaps, they’d sell some things that they own. It is because of the fact that they don’t have an emergency fund.

How much is the ideal emergency fund? According to finance experts, the ideal emergency fund should equal roughly 6 months of your income. The main purpose of an emergency fund is to help you during certain rainy days. If you have an unstable job, or a gig with no job permanency, then perhaps, the more that you want to have this just in case something unexpected happens.

There is no other solution but to start saving now! It’s super easy to save at least P500 a month.

Relentless Will to Shop

If you have the money, take control. It is common to enjoy the perks of someone’s purchasing power, enjoying it so much that it becomes too much that incurring debt is the effect. This is common in different scenarios. For instance, OFWs spending without their means, working abroad for a long time and then coming back to the Philippines with nothing. Purchasing the newest gadgets, and spending on things that depreciate in value fast are some of the most common habits that are needed to eradicate.

So what is the rule of thumb when purchasing? It is important to evaluate if it is a want or a need. If it is a need, then perhaps is there a cheaper alternative? If it is a want, then maybe you want to evaluate harder. Financial mishaps can be hard to recover from. With this list, you’ll be able to identify some of the most common practices that make Filipinos prone to money problems. If you believe in the adage prevention is better than cure, it is better that you avoid these things.

Solution: Just stay at home and as much as possible avoid shopping malls.


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