Financial Rules of Thumb


Financial goals: while rules of thumb may say set aside 20 percent, this may not hold true.

Income minus savings equals expense.

That is the dictum that we always read and hear on personal finance. Some would even recommend setting aside a certain percentage for different purposes: 20 percent on savings, 10 percent for tithing, 10 percent on self-development, etc. While these may be good for those that are just starting on their financial journey, it may not hold true for everyone forever.

Because each one is unique and have their own financial resources, goals, and even financial responsibilities. That is why I do not personally subscribe to financial rules of thumb: it ignores the distinctiveness of each person’s finances and thus, being sensitive to each and every need.

Take, for instance, financial goals: while rules of thumb may say set aside 20 percent, this may not hold true.


What if the person has so many goals in life that it does not take just 20 percent of his income? What if it takes 30 percent or even 40 percent just to make those dreams come true? Going by such rule of thumb will not only severely under fund his goals, they would be severely downgraded, if not undermined. Many financial goals require many savings and investment to be set aside. That is the reason why personal finance is termed as such. It is personal. And going by rules of thumb is like going for free size t-shirts, whereas what you want is something that is custom-fit and tailored for you.

One usual question from clients is where should they invest. I feel they come to me looking for answers as if I can pull it out of my pocket easily. But I do not work like that. Instead, I sit down and discuss—in great length and in great depth—their current financial resources. How did they get there? What are their life goals? Why do they have such life goals and priorities? I even delve out their current family relationships: parents, brothers and sisters—not just theirs but their spouses as well—to map out potential responsibilities that can give them financial shocks.

With this approach, I gain a holistic and 360-degree view of my client’s finances. I believe that personal finance is just not about the numbers: it is not just the quantitative but the qualitative aspects as well because the latter usually drive the quantitative aspect.

Take for instance parental relationship: close ties to a retiree parent with limited pension and no insurance may mean expense shock in the future by way of hospital and death expenses, not to mention the continuous living expenses to be provided for. Haphazardly investing without regard to future financial shocks such as these may force a client to withdraw funds intended for some goal. Such can be avoided by already including in the budget a memorial plan or maybe insurance which, in turn could be shared among siblings so as to be easy on the client’s pocket and thus still leave room for their other financial goals.

I cannot overemphasize customizing and tailor-fitting financial advice through a meaningful and extensive dialogue, listening to the clients, exploring financial concerns and issues that can otherwise escape their attention. It is the job of the financial planner to think deep—and sometimes, even for the client—as he provides sound and prudent advice that leaves nothing to chance.

Rienzie Biolena is a Registered Financial Planner of RFP Philippines. He is a Senior Financial Advisor at asset management company, and Columnist of The Manila Times.

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