American Express and American Express corporate cards are pictured in Encinitas, California in this file photo taken October 17, 2011. -- Photo by Reuters
MANILA, Philippines - Personal finance guru Suze Orman on Wednesday offered some advice for Filipinos who can't control their urge to spend and end up with credit card debt that they can't pay.
Before buying anything, Orman said you should ask yourself this: Is it a need or is it a want?
"If it's a want, walk away. If it's a need, you buy it. If you live below your means... and purchasing only your needs and walking away from your wants, you will find money to save," she said in an interview with Karen Davila on ANC's Headstart.
According to Orman, the first law of money is "to live below your means, but within your needs." The best-selling author and motivational speaker said people should not make the mistake of thinking the goal of life is to buy things.
"The goal of money is for you to buy your needs to feed yourself, feed your children, buy a roof over your head that doesn't blow away... That's the goal, so you can sleep at night, not to buy five watches," she said.
How to get out of credit card debt
The most common "financial sin", Orman says, is credit card debt.
"Debt is bondage. You will never have financial freedom if you have bondage," she emphasized.
On ANC's Headstart, Orman took questions from Filipino callers. A Filipina asked the "money lady", who hosts CNBC's The Suze Orman Show, for advice on how to pay off her credit card debt.
"Before you save money, before you invest, your number one goal is to take whatever extra money you have and pay off that credit card debt because at 36% (interest), you are digging a hole deeper and deeper," she said.
But the more important question is how a person gets into credit card debt. Orman noted people who spend more than what they can afford are usually insecure.
"When you spend money you don't have, what does that say about you? It says you care about these things that money can buy more than you care about having money in a savings account," she noted.
"It means you care about these things and why do you care? So that other people will look at you, 'she has a lot of money,' 'look at his watch,' 'look at her clothes'. Whenever you see somebody with credit card debt, I already know it's a self-esteem issue. You can't fix a financial problem with money ever. You should first fix why a person spends more than they have. Until you fix that, they'll just get into credit card debt over and over again."
Save, save, save
Since the savings rate here is still quite low, Orman hopes to encourage Filipinos to save more. She noted one should save a minimum of 10% of one's salary, and have an emergency fund in case one gets sick or fired.
"You want to make sure you have a savings account that has at least 8 months of what it would cost you to live for your everyday needs," she said.
Orman said one should also start investing money every month on a mutual fund. "After you've done that, every month set aside a specific amount and invest in that fund... It's peso cost averaging, that way when the fund goes down, your pesos buy more shares. When the fund goes up, your pesos buy less shares but over time you've averaged the cost of the share with your pesos and you won't lose money," she said.
Dollar or peso?
Some Filipinos have a habit of saving their money in dollar accounts, instead of peso accounts. Orman said Filipinos should invest in pesos, especially if the peso continues to strengthen.
"At this point, I would be saving in pesos. If they save in dollars, and the peso continues to go up, they will lose money in the long run. You have to believe in your country. You have to invest in yourself. If you don't beleive in PH, in your own peso here, what does that say? I would be investing right here in this country. Forget the US," she said.
The best-selling author had high praise for the Philippine economy. "This is a country that is starting to grow. The economy is growing. The stock market is booming. So the whole country is doing great but its people are not doing great yet," she said.
Before leaving the show, Orman had this message for Filipinos: "Can you just learn to be safe with your savings? Can you want to be safe? Can you want to be secure? Can you put yourself first once and for all over the things that money can buy?"
For Karen Davila's full interview with Orman, click here.