Applying the Financial Quotient Daily


Financial milestones have to be set and monitored to ensure that we are able to track progress.


What gets measured gets done. Life is full of metrics. One popular measure of intelligence is called the intelligence quotient or IQ. It gauges one’s reasoning ability against an average for the person’s age. Another measure is the emotional quotient or EQ. It assesses a person’s capability in managing emotions.

In the context of personal finance, there is a measure called the Financial Quotient or FQ. One popular model was developed by Cindy Yu and Hong Zhang where six relevant categories are utilized to measure how well people manage money. Within the context of daily Filipino life, it would be interesting to note that the decisions we make, whether short-term or long-term, help determine how high our FQ will be.

The first category is Spending. This must be based on a personal financial goal and a monthly budget. Spending must always be within what income can provide. We need to learn the difference between needs and wants. Needs are essentials, and common examples would be those related to food, shelter and clothing. Many wants are nonessentials. Spending on needs can be optimized. Spending on wants can be optimized and maybe even removed especially for luxuries. The real key to spending is control.

The second category is Credit and Debt. The need for debt happens when spending levels exceed income streams. Sticking to a budget can help avoid debt. We need to learn the difference between bad debt and good debt. Good debt is the type of debt that hopefully yields positive financial returns in the future. When faced with debt, proper management should be done for payment. One common approach is to pay the smaller debt amounts first. Another approach is to pay the debt with the high interest rates first.

The third category is Career and Income. The chosen career must be aligned with a person’s purpose in life. Each one of us has a unique path. Building a good legacy will make our existence worthwhile. On the aspect of income, one must continuously invest in education and responsibility so that human capital value appreciates over time. Developing multiple streams of income through a good combination of active income and passive income can help support the personal financial goals and monthly budgets we set.

The fourth category is Investing. Saving money in the bank is important and good for liquidity purposes, but the problem is that the interest rates in banks are usually below the inflation rate. Therefore, we need to invest. Where should we invest? The answer is based on the goal, time horizon and risk profile. Financial assets, real-estate assets and business investments are common examples of investments. Due diligence is important and investment options can be chosen based on track record and market-growth outlook.

The fifth category is Financial Planning. A plan is a vehicle to achieve a goal. Key priorities in achieving the goal determine the composition of the plan. Financial planning means being able to balance the liquidity needs of the present with the wealth-creation needs of the future. A plan is only as good as its execution. Therefore, financial milestones have to be set and monitored to ensure that we are able to track progress.

The sixth category is Risk and Protection. The only thing certain in life is that the future is uncertain. Having an adequate emergency fund will prepare us well in case adverse events occur. Getting life insurance for ourselves and also nonlife insurance for the valuable assets we own help generate better peace of mind.

Having a high FQ score implies having a well-balanced financial life. The major and minor decisions we make on a daily basis help determine the type of financial future we shall have. Hopefully, the daily conscious desire to achieve a higher level of financial intelligence will pave the way for financial freedom.

Gemmy Lontoc is a Registered Financial Planner of RFP Philippines.


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