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OFW Money TrapsAnd How to Avoid Them

Overseas Filipinos send home billions of dollars in remittances every year but many of them make financial mistakes or fall for investment scams. Here are the seven most common ones and money advice from an expert By Excel V. Dyquiangco OFWs need to be careful. With the hard-earned money they get from working double time in a foreign country and away from their families, its all-too important to know where their money goes. Its not only about knowing how to save and where to invest anymore its about securing their future. Or else, things could go nasty. In the case of Henry Gapaz (not his real name), he was fuming. Working as an administrative assistant in Saudi Arabia for 27 years, he was taken by surprise when he found out that his wife lent a cash equivalent of $1,000 to a family friend. Since his wife trusted her with the promise that it will be returned in a months time, she gave the money which was supposed to be for the payment of their bank loan. All the while I was hoping my wife was paying the bank loan, Henry says. They kept me in the dark for so long and it was only six months later when I learned of the problem. The bank interest grew so huge that it became harder for us to pay it. I was furious because we will be paying for nothing. We became deprived of what we should be enjoying. It was my hard-earned money working abroad that turned into waste, which was good for the bank. This now looked as if I was earning a living, not for my family but for the bank. According to registered financial planner Bernard Sy, RFP, MSFIN, this is a typical problem for OFWs and their families. There comes a sense of moral hazard for the family and relatives not to pay back what they owe because they think they can get away with it This is all about the plan, he says. Its like driving a car without knowing where to go and have no map to guide you. Youll end up wasting fuel (time, money, effort) achieving nothing. Life cant be consistently a joy ride for fuel is expensive and time is lost forever. As the saying goes, fail to plan is the same as plan to fail So what makes OFWs fall into these kinds of traps? Their lack of financial education, says Bernard. Dave Ramsey says that personal finance is 80% behavior and 20% knowledge. My experience with my OFW clients is that they usually treat money easily, with the I deserve to enjoy mentality. OFW relatives and friends also treat the OFWs as cash cows, someone to go to or someone to bail them out when they are in need. Here are seven of the most common money traps that overseas Filipinos fall for and the corresponding financial advice and tips to help them save, remit, and invest their hard-earned money. MONEY TRAP #1: THEY LET THEIR SPOUSE HANDLE EVERYTHING. Henry admits that one of the financial mistakes during his stay as an OFW was that he and his wife did not discuss proper budgeting and that his main focus was only to send money and rely on his wife on what to pay. He did not save for himself. So after the incident, my wife and I finally discussed the cause of the problem with the bank manager, he says. The option made was reconstructing our bank loan. I had to issue monthly postdated checks in the amount of P10,000. As we paid, the principal also lessened. We have been paying the interest and then we discovered that banks have many options of paying the bank loan. This is typical of a Filipino household, where the primary breadwinner, usually the husband, simply hands over his earnings to his wife to manage. But if the spouse is not financially prepared, there will be trouble.

And this situation can get exacerbated in OFW families where either husband or wife works abroad while the other is left to take care of the children. WHAT THEY SHOULD DO: Bernard says Henry should have a serious money talk with his wife and both should promise not to get angry and be open to discussion. They should lay out their budgeting process and, most importantly, determine how much they can squeeze out of their monthly income (prioritization of the expenses is a must). Also, they should talk to a financial adviser who can continually educate them, give them sound advice, and function as a trusted and loyal friend. Bernard said Henry did the right thing of talking to the bank officers and telling them that they are willing to pay the loan. Other OFWs who find themselves in a similar situation should be just as truthful, he adds, telling the bank upfront the maximum amount that they can shell out per month. If possible, they should show them their financial plan. I assume the bank will be see [it as a sign of] goodwill to redesign the loan to accommodate a lower payment scheme, he says. The bank will always accommodate loan restructuring in the sense that they dont want loans to go sour and harm their books. After that, Bernard warns that they should strictly follow the plan. MONEY TRAP #2: THEY FOCUS TOO MUCH ON MAKING MORE MONEY AND NOT ENOUGH ON MANAGING IT. OFWs find themselves earning more than they ever made in their life. They invest a lot of time, effort, and sacrifice working abroad, and sending money home. But a lot of them do not invest in their financial knowledge. And that makes them prone to making money mistakes. WHAT THEY SHOULD DO: OFWs need to learn about the basics of personal finance. No one should be more concerned about their finances than themselves; therefore it is their responsibility to at least learn the basics of how to manage their hard-earned money. There are tons of information on the Net. They should also attend financial seminars, subscribe to financial magazines, and read books by respected personal finance authors. Bernard shares, My favorite author is Dave Ramsey and he is a no-nonsense, straight-talking financial expert who is unbiased. I do learn a lot from his advice. MONEY TRAP #3: THEY DONT ASK FOR THE RIGHT HELP. OFWs tend to just carry their financial burdens by themselves. Worse, they ask for the opinions and advice from the wrong people. And that could get them into trouble. Keep in mind that its not just seeking for help and advice; its seeking the right help and advice, especially when it comes to investing. Assuming that they have read tons of books on personal finance, they still need to seek the aid of a professional. WHAT THEY SHOULD DO: Seek a professional, but how would they know if they are talking to one? Here are some clues: He or she doesnt immediately present them with a product. A true professional finds out first about the clients background and needs to be able to give sound advice. A professional must also be knowledgeable (such as knowing the IRR or internal rate of return of the product he is selling) and is always concerned about the emergency fund, protection, and investments of the OFWs. Bernard says, A salesperson who sweet talks you without asking about your financial situation is just someone who wants to sell to you [for a commission]. And lastly, look for the one with a professional financial designation. Most of the financial people here in the Philippines are nothing but salesmen, and they dont know much about finance, only the products and commission that they will get from selling you their products, Bernard reveals. Therefore, finding the right adviser is not easy, but remember these hints, and youll do fine. MONEY TRAP #4: THEY ALLOW THEIR FAMILY TO TREAT THEM AS A HUMAN ATM. Sometimes, the family left behind thinks that their father/mother/child who is working overseas has enough money to last a lifetime. Vicente Cabral (not his real name), who works in Qatar, even remembers his wife being so extravagant and excessive that there was one time she even forged his signature on the authorization letter just so she could withdraw money from his savings account. It was a blow on my part, he says. I was really mad at my wife, and we just kept on fighting. Finally, we were able to resolve the issue by just talking to one another and asking for forgiveness. Often OFWs are partly to blame for spoiling their spouse and children to compensate for not being able to be with them. The root problem however is the lack of communication. WHAT THEY SHOULD DO: OFWs need to be open to their families, and it is very crucial for them to tell their families their situation, both the positive and the negative ones how much they have to work to

earn their living and what their family should do with the money given to them. Letting their families know about their circumstances, particularly the sacrifices they have to go through but also the joys of seeing their work bear fruit will help them understand what is going on and will also inspire them to be more fiscally responsible. MONEY TRAP #5: THEY TEND TO GIVE TO THEIR FAMILY MORE THAN WHAT THEY NEED. OFWs usually spend on material and expensive things such as cars or watches not only for themselves but for their family as well. And that they also tend to be impulsive buyers, especially when their income increases over the years. Of course there is nothing wrong with this unless such expenses spiral out of hand. WHAT THEY SHOULD DO: They should curb their expenses by creating a spending plan to monitor what they spend per week or per month. When they send money to their families here, they should also control and limit the funds as well. That way, the family is forced to live with what they have. And they are also able to set priorities on their needs and not their wants. Lastly, they should learn not to depend on their OFW parent/child for everything and do their part to contribute to household expenses. MONEY TRAP #6: THEY GO INTO A DEBT SPIRAL. When his son Richard got sick in the country, Efren Perez decided to borrow money from his friends in Abu Dhabi. In order to pay back what he owed, he again borrowed money from someone else, and then borrowed money again so he could pay the interest on his first two debts. So when his debts all added up per month, the money he sent to his family became less and less, and became irregular. His surmounting situation even came a point that he needed to hide from his creditors when pay day rolled around. In due time, he was able to pay all his debts through careful budgeting. WHAT THEY SHOULD DO: To tackle his debt snowballing, he must be honest, Bernard says. Its hard to pay when youre under pressure, but as a creditor, we need trust its the only asset you have if youre broke. I think they have to start with frugality, live on the basics, and have a debt reduction plan, a budget forecast that shows the income, expenses and how much will go to debt payments. He adds that having a plan to show to the creditor is something unheard of, but through this, the creditor will see the sincerity and his willingness to pay even if the current situation is a bit tight. An emotional excuse may work at first, but its better to really show their objective in tackling the debt by having a plan. Creditors only want the assurance that they will get paid. MONEY TRAP #7: THEY GET INTO THE WRONG BUSINESS OR INVESTMENTAND BET THE HOUSE. Sharon Mendoza and her family went into bankruptcy when she and her family decided to venture into an Australian networking company, where they had to invest in vitamins. At first, the income returns were very promising. Her husband in the country then obtained a huge amount of inventory, hoping that their returns would be realized immediately. But then their down lines steadily decreased. To make up for their loss, they sold their house and lot to invest some more into the business. Unfortunately, their returns were never regained. Their bank debts increased as well, and their house and lot was auctioned off. Right now, Sharon and her family are just renting an apartment. WHAT THEY SHOULD DO: This is a common business mistake, says Bernard. They overshoot their forecast and most people think of the returns they will make, but fail to see the downside or the risk of it. This happens to almost all neophyte investors (business or investments), and chances are they will learn the hard way. For me, this is a big no-no to use your home as collateral for loan its just too risky. One way to finance the business without collateral is to pool or partner with people who understand the risk or share their passions. And in case the business fails, theres no one to blame. It is also not advisable to borrow from close relatives, which could ruin the relationship if they find it hard to make repayments. OFWs should look intensely at a company before plunging into a business or investment. Hearing rave feedback and positive words from friends or relatives who have tried out the business or made an investment is not enough they should do their homework too. Also they should never put all their eggs in one basket.