Week Three: Managing Savings

Jose Jaime Guerrero FSGV

November is Financial Literacy Month and here at FSGV, we believe that all British Columbians should have access to tools and knowledge to feel empowered about finances.

The theme for Week Three is “Managing Savings” and to get some practical advice, we spoke to FSEAP Clinical Counsellor, Jose Jaime Guerrero.

Jose Jaime Guerrero received a designation as a Chartered Accountant in 1985. He has worked over 25 years in a senior financial and operational management capacity for multinational firms operating worldwide, including Samsung, Walmart, and Johnson & Johnson Mexico.

Jose integrated behavioural science studies into his career, first becoming a specialist in Rational Emotional Therapy from the Albert Ellis Institute NY, then obtaining his Masters of Arts in Counselling Psychology from the Adler University in 2006, and receiving his designation as a Registered Clinical Counsellor in BC that same year.

Since then, Jose has been blending the finance and psychology disciplines into the field of “Financial Therapy,” which focuses on the behavioural elements that determine peoples’ deep interaction with money.  Currently, he works as a Clinical Counsellor for FSEAP, facilitates money management workshops, and leads a private clinical counselling practice focused in anxiety, relationship and financial issues for individuals and couples.

Here’s what Jose has to say about managing savings, how to prepare for financial shocks and unexpected expenses, and how achieve your financial goals:

Is there an ideal ratio for savings to expenses in a household budget? How much should be available as a safety net?

According to experts, the ideal amount to save is a 20% of the net income. If this is not possible due to financial constraints, a minimum of 10% of the net income will be very helpful. In reality, it all depends in the particular situation and needs of each individual and family.

In the same line of thought, the minimum amount to save as a contingency fund to face emergencies is three months of the household expenses. This fund will help to afford unexpected illnesses, the loss of job, etc.

Are there realistic vs unrealistic goals for individuals and families in Metro Vancouver? How do you create a plan that can actually be achieved?

Any goal in which the main objective is to mitigate beliefs or feelings of “not being enough” will be unattainable. Similarly, when attaining a goal entails compromising the wellbeing of an individual, the goal becomes a coping mechanism to fulfill a compulsion rather than an enjoyable challenge.

A plan that balances the needs and wants of a person without overspending or compromising wellbeing is realistic and achievable.

What are some common financial shocks and how can you prepare for them?

The most common shocks are the loss of a job, unexpected illness, or a relationship crisis. The best way to get prepared for financial shocks it to have a contingency plan in place, as explained in question number one. Once the contingency plan is funded, the budget used to create it could then be re-directed towards investments that minimize or eventually eliminate unexpected events.

If you have debt, it may make no sense to save, especially if interest earned from savings is lower than the interest paid on debt. Once the debt is paid in full, that budget amount could be directed towards savings or investments, because it was already part of the cash flow of an individual or a family.

With inflation rates on the rise, how frequently should you revisit your budget and adjust for the new climate?

Overall, a budget needs to be followed on a monthly basis; otherwise, it will not reflect overspending tendencies or increases in prices that require adjustments. An ongoing review of a budget is one of the most effective tools to build a sense of capacity and the ability to take control of life. These practices build a sense of empowerment, which create new neuropaths of resilience and empowerment in the human brain.

Do you have any advice for families or individuals who don’t feel like they have enough left over to create savings?

The use of a budget is the most effective way to regain control of people’s finances and develop a sense of self-reliance.

The most pervasive myths that deter people to avoid or stop using a budget are:

  1. The fear of confronting the painful reality of monetary ongoing deficits and thus, increasing debt.
  2. The mistaken belief of “why bother budgeting if there is not enough,” which is actually false, because it is precisely when people have a tight income when they need to budget the most.

The simple reality about what to do when there is “not enough” money is:

  1. Either increase income, reduce expenses, or ideally both.
  2. Move out from a “scarcity” mindset, build mechanisms and use tools (budgets and balance sheets) that create a sense of capacity and self-reliance.

The FSGV Financial Empowerment program helps people gain confidence about their financial literacy, access government benefits, and make the most of their money.

Visit us online to learn more about our free workshops, tax filing clinics, and 1:1 coaching to take control of your financial situation and build a brighter future.