April 2007 Archives

Have you seen some credit card advertisements lately? Charge your monthly expenses…no need to worry…you can pay only five percent of the total…and we will still consider you a good client. Isn’t that just great? *one eyebrow going up* Just paying the minimum amount will make you vulnerable to a compounding sinkhole that will suck in your money with the force of a hurricane. There is a personal finance advice that says: Pay as much of your credit card balance as you can, if not the total amount. Let’s put this to the test to find just how much it can save you. Assumptions: P100,000 debt (and no additional charge) Interest: 3.5 percent monthly or 42 percent annually Minimum monthly payment: five percent Results: If you are 20 years old at the time you swiped the P100,000 credit card debt, you will still have debt when you retire by age 65. The interest that you would pay by age 65 is more than double your original credit card debt at P233,266.72 and even after paying all that interest, your principal payment has only reached P99,971.45. Hopefully, you will bump your head (literal Filipino translation for “mauuntog ka sa katotohanan”) and pay your entire balance when it reaches P1,000. That will still take you 25 years to fully retire your debt. Isn’t that just great? Augustus J.V. Ferreria, EVP and chief marketing officer of Generali Pilipinas, who provided the excel worksheet for this computation, pointed out that if you contrast this with paying 10 percent of the original loan every month or 10 percent of the credit limit, you will have: Total months needed to pay the debt: 13 months Total interest paid: P25,087.25 What a difference! Paying off just the minimum amount is really a compounding sinkhole. But the neat thing is, with a little bit of guidance, we can all avoid it. “It just takes a little education to put right the financial mess people make in their lives,” Ferreria said. For Efren L.l. Cruz, author of Pwede Na: The Pinoy Guide to Personal Finance, the minimum amount due is not really bad per se. “It’s a facility credit card companies give to their cardholders to help with liquidity problems. But don’t make a habit of paying only the minimum amount,” Cruz said. Filipinos owe P99.619 billion to credit cards as of December 2006, P16.337 billion of that is past due, figures from the Bangko Sentral ng Pilipinas, Manila’s central bank, show. That’s way too much money to owe to the financial system. I don’t even want to think what will happen if the borrowers of that P16-billion debt pay only the minimum amount every month.

SPENDING the weekend in Tagaytay didn't seem to be a good idea at first. Vacations, even short and simple ones, cost money. Money Smarts was just a little bit cranky, adding up the cost of gas, accommodations and food in her mind. :) But as our little family car left behind the hustle and bustle of the city, the swaying coconut leaves and gentle rolling hills of Tagaytay slowly lifted our spirits, willing our city-tired muscles and tense nerves to relax. This trip got me thinking about times when it's best not to hold back on spending. Money Smarts is all about discipline, restraint and, well, being money-smart of course, but there are times when holding the purse strings too tightly may not be a good idea. EDUCATION: Ateneo de Manila recently documented how some public school students in Marikina City beat their counterparts in private schools in Math and English. I kid you not. They did. The researchers discovered this was because of hard work, discipline, sacrifice and good priorities. The children told of how their parents would make sure they weren't hungry when they were taking tests. This is significant because the parents had to skip meals themselves to feed the children well. These parents really get it. They know their priorities. Don't scrimp on education. The dividends from a good education cannot be matched by any investment instrument in the world. INSURANCE: After paying debts and saving for an emergency fund, insurance should be the next priority -- especially with kids in the picture. Most Filipinos avoid insurance agents, or buy the smallest coverage just to get the agent out of their hair. My insurance agent didn't have to sell the product to me -- I bought it from her. I knew that was the most responsible thing I could do for my children. When you buy insurance, get the best coverage your budget can afford. HEALTHCARE: Hang out for a few minutes in a drugstore and you'll see people "diluting" their prescriptions. They will take three days' worth of antibiotics, for example, instead of one week. That's very, very harmful. Sorry for the cliché but health IS wealth -- no amount of money can buy it. VACATION: if I were to choose between toys and vacation, I'd go for beach walks, mountain climbing, even simple and short trips once a year. I would even choose this over a few thousand pesos more in the bank. Why? Some would say this is a luxury. To me, good memories matter especially to children. For most parents who try their best but still can hardly spend 100 percent of weekends with their family, I recommended adding an annual vacation in the family budget. This is the time to do nothing but sing silly songs, play hopscotch, watch sights together, swim till after dark. Don't bring your laptop. Chuck the manila folder full of office documents. Spend a few romantic nights with the wife, too! (Wink) Of course, it goes without saying that this should not be an excuse to max out your credit card to get a dream vacation. I would keep it simple if that is what the budget could allow, but I would definitely make financial space for it. Trade expensive Christmas and birthday toys and gifts for an annual vacation to free up some cash if needed.

What if someone told you back in 1996 that stocks would fall drastically the coming year? What if he told you that stocks would recover in 2003 and from then on continue moving up? Will you believe him if he says this uptrend will extend until 2009? What year, then, would you be aggressively buying stocks? What year would you sell? Sounds out of this world, but some believe the method to this, err, magic is a well known tool called technical analysis. Technical analysts like to believe that charts can tell, for example, when bulls or bears will rule the market. A bull run simply means the market is stable, the economy is the pink of health and thus companies are earning more. It’s the kind of period when even monkeys can make money in the stock market. The only thing you need to remember about bulls and bears are that they are antonyms; yin and yang. The common sentiment is money can be made in both markets, but a bear market separates the boys from the men. The fantastic return of the Phisix last year made more people believe we are having a bull run in the markets. Before that year, it sounded more like a Malacañang gimmick. This time around, more people are taking notice. The common question then is, if you haven’t invested yet, have you missed the bull run? Elizabeth Sanchez-Lacson’s story published in Philippine Daily Inquirer today says, “No, its not yet too late.” Experts say the bull run is expected to stretch to 2009. (Read the article here) Association of Securities Analysts of the Philippines (ASAP) president Francisco Liboro said there are still profits to be made. Stocks are not yet overpriced, and the economic outlook still looks good, explained Karen Roa, president and CEO of Philam Asset Management Inc. (PAMI). Although Roa has a self-confessed fondness for fundamental analysis over technical, she said charts did indicate that the economy has been moving in six to 10-year cycles. Is this something that’s cast in stone? Definitely not. The other thing about bulls and bears is that the more people believe there’s a bull market, the more it becomes a self-fulfilling prophecy. Same with bears. The four letter word that describes this is...hype. However, knowing bears and bulls is important because you can never get rid of them. They are a fact of investing life. Use your knowledge of bear and bull periods to measure a fund manager’s performance if you’re thinking of putting your money in a mutual fund or unit investment trust fund. Your understanding can also help analyze which sectors can survive such market turning points. For example, Liboro said banks and real estate companies could survive an expected turning point in 2009. Banks do well even when the economy is down while the real estate property will continue to benefit from surges in OFW money. There’s a cute saying in investing: “Bulls make money, bears make money, but pigs get slaughtered!” Pigs are high-risk investors who buy on hot tips without due diligence. Now, what type of investor would you like to be?

It’s not something that people get from a sneezing commuter, but probably just as virulent, if not more. And if you talk to players in the stock market, they’ll say a lot of equities investors are already capitulating to it. I’m talking about the bug that’s currently causing an IPO fever among equities investors. This year’s IPO fever seems to be growing more intense as an increasing number of companies turn to the stock market to raise funds and as more investors get bored with low returns of fixed-income instruments. Or in some cases, things like time deposit. I wrote about this earlier today (read the article here) and was I relieved to find that at the senior management level, the exuberance about IPOs was a bit tempered and more palatable – at least to me. I like how Jenny F. Ting Jr., senior manager at BPI Asset Management, in fact discouraged flippers – those who buy IPO shares only to unload in a few days so they can ride the initial run-up in prices. Definitely, this is not the kind of advice you will hear from brokers. “Don’t buy blindly. Get a prospectus and read it. Analyze the company, the industry where it belongs, and compare it with its competitors,” Ting said. Buy into an IPO not because it’s hot, but because you think the company is a good one and that it’s priced fairly. In fact, that’s a value investor’s reason for buying any stock -- IPO or not. Companies that have announced plans to hold an IPO include Northwind Power Development Co., which operates a wind farm in the northern province of Ilocos Norte; ethanol fuel producer San Carlos Bionenergy Inc., based in Negros Occidental province; PNOC Alternative Fuels Corp., a biofuel unit of state-owned Philippine National Oil Co.; and Enerfuse Holdings Inc., also a biofuel producer, Davao-based oil firm Phoenix Petroleum Philippines Inc., high-rise housing developer Anchor Land Holdings Inc., McDonald’s master franchise holder Golden Arches, Asia Brewery, Cebu Pacific in 2009 and Aboitiz Power Corp., a unit of Aboitiz Equity. National Reinsurance Corp. of the Philippines, which will hold its market debut tomorrow, has a P3.80 per share initial price offering. PCCI Securities Brokers Corp. president Francisco M. Liboro said National Re would likely hit its ceiling price of P5.70 on Friday. “National Re is a good company to include in one’s portfolio. It’s not exciting, it’s an insurance company, but it has good prospects,” he said at the Good News Kapihan this morning. Demand for the stock was high enough that there has already been over the counter trading at P5 per share. In OTC trading, the shares trade hands on an honesty-based system where your shares are bought in someone else’s name. Let’s say I’m a broker and I have an allocation of P200,000 but I don’t have money. You can buy those shares but they will be bought in my name. A seasoned investor told me OTC trading is tricky, but it could work if you really trust your broker. If you bought half a million National Re shares at P3.80, your P1.9 million will grow to P2.85 million in a single trading day. Pretty good, huh. But let’s say 60 percent of those who bought National Re unload the shares tomorrow or Monday, what will happen to the stock price? Flippers can, in fact, cause a perfectly good IPO to turn into a dud. Some think IPOs are for first-timers. Nothing can be further from the truth. In fact, in most advanced markets, a good broker would most likely think twice about selling to someone they don’t know. Brokers save their IPOs for favored clients. If they start pushing IPOs to anybody they ran across, I would be suspicious. That might mean you are getting stocks the “favored clients” didn’t like. It would be best to pick a strong broker, establish a working relationship with him, and look for someone who takes the time to understand your risk tolerance. When its time to choose which IPO to invest in, don’t drag your feet in poring over the prospectus. That’s where the information on a company’s financial status is disclosed. Find out where they are going to use the proceeds of the IPO. Investopedia.com says it is a bad sign if a company will use the IPO to pay their loans. If the money is intended for marketing, expanding to other markets, or research and development, that shows a much better prospect for the company. But don’t put your faith in the prospectus alone. Do your own research. Study the management. Make sure you read the accounting figures well because naturally, there’s risk the company will be too bullish with their forecast. The problem with an IPO is that information on the company is hard to get, compared with companies that are already listed and open to anyone’s scrutiny. There is money to be made in IPOs, but approach them with a healthy dose of skepticism and a willingness to do the extra work of understanding the company behind them. This IPO fever can end this year or last for many more years until, as Liboro says, the next flop happens.

Only a few months to go before the wedding season begins to heat up. By this time, I can imagine a lot of prospective brides and grooms starting to feel that white-hot feeling of panic as expenses start coming in and as the reality of the entire things sinks in. A lot of marriages are destroyed by poor financial management, so this is not the time to enter that holy agreement all wide-eyed and unprepared. Love can do a lot of things to finances – both good and bad. Reader Jay, for example, emailed us asking for advice on how to make his money grow more. He intends to get married and settle down in the Philippines in two years. Jay says he understands the concept of high risk/high return, and wonders what options are available after deposits, stocks and mutual funds. Let me pick up this portion of Noet Ravalo’s advice:

The cash flow requirements of a single person and a married person are worlds apart. This is not just a minor tweak here and there of your portfolio. In my view, providing for yourself, your wife and your children not only changes the pressures on your finances, but also changes the priorities and the dynamics of your investments.

Read the rest here: I think this is one of those things that we all know, but somehow cannot wrap our minds around unless someone really drums it into us. You know, those moments when something so obvious only becomes clear at a certain defining moment. Once you put that ring on her finger, boy your life is surely going to change and finances had better be one of the first things couples should adjust. Noet advised Jay, who has a P5 million portfolio in deposits, stocks and mutual funds to consider lending his existing securities to other parties over short periods – although he stresses out that Jay should completely understand first the risks and returns of this option and get a professional to advise him. Noet also recommended bonds and structured notes. I notice that these days, people are hardly looking at bonds – stocks are the current darling of the market. However, no run-up in the stock market will continue forever. If you are talking about long-term finance, definitely, well-picked bonds should be part of a good portfolio. Buy bonds through banks, but don’t ask your average teller. Get in touch with private banking groups, asset management departments, and trust departments. The government claims that its small-denominated bonds should allow small investors to put in a minimum of P5,000 in bonds, but sorry to say that this has not really happened. So be prepared to plunk in much, much more than P5,000.

Talk is cheap. Cash is not. We can talk till we’re blue in the face about taking the plunge, going after our dreams to start or expand our own business, or making our money work for us by being our own boss. Unless we walk the talk, however, all that planning will not count for anything. Margie Quimpo-Espino, one of Inquirer’s business editors asked me pointblank during an interview, “So, have you started your own business? Hey, you have to walk the talk!” Ouch. To be fair to myself, I had been part of some start-ups – some successful and some that didn’t fly. But can I actually create a business from ground up and turn it into the next big thing? This had me tossing and turning for the next couple of days… A few days after, I was having dinner with a classmate from RFP class. Joy asked me the same thing! She told me to list down things that keep me from making the first move and do something each day to take them out of the list one by one. Cash was the first thing that came to my mind. A lot of people have magnificent business ideas, but you can measure how serious they are by how many phone calls they will actually make to find out how they can turn that idea into a business venture. Now, people normally think of banks as the first source of cash for either starting a business or expanding. Banks are an option, but not the only one. In an article today, Citibank recommended three options to a reader who was asking for advice where to find more cash to expedite the construction of new apartments they are hoping to rent out.

1. Get a partner. You can look for a business partner who can put up money for the cost of construction. You can then put up a partnership to handle the business aspect of building and renting out the apartments. This may be a good option since you can also ask your partner to be more involved in the business and oversee the construction of your properties while you are out of the country. In looking for a partner, make sure you deal with a like-minded person who has the same objectives and values as yours. 2. Take out a loan from your life insurance policy. If you have taken out a life insurance policy and have been paying diligently for a number of years, you may be eligible to take out a loan from the insurance company at a low interest rate. Review your policy and talk to your insurance agent or broker to find out the exact details of how to go about this. 3. Take out a loan from the Social Security System, Government Service Insurance System, or Pag-Ibig. Housing loans from these entities may also be of help to you.

Read more of the article here: A word on taking on a partner. Tread very, very carefully. Money is a great blood thinner. Sometimes, even relatives can turn on you when there’s money involved. PDI’s Michael Lim-Ubac also wrote that there would be P34 billion available for lending to MSMEs this year. Should be good news for small business owners. State-run Small Business Corp. will oversee the credit facility. The article says:

Small industries can avail themselves of P1 million to P50 million and medium-scale industries can borrow more than P50 million, “with no cap but governed by the equity ratio,” which at most would be 80:20 after the loan, Remonde said. For franchisees, the ratio is 70:30.

Read more here: Now don’t ask me whether this money will reach the intended recipients. I can only guess how many Filipinos will talk about it and where it will go, how many talk show hosts will pound on the table and demand for accountability and transparency. But guess how many Chinese businessmen and serious Filipino entrepreneurs will actually inquire how they can access those funds. Talk is cheap. Cash and walking the talk, are not.

Summer and scams – what bonds them together? Raul J. Palabrica, SEC commissioner and former Reader’s Advocate of the Philippine Daily Inquirer says con artists are more aggressive in the summer. He wrote:

What is it about summer that encourages con artists to come out and try to bilk unwitting Filipinos of their hard-earned money? Perhaps, the hot weather has a way of making people drop their guard and become prey to glib talkers. The relaxed atmosphere may have something to do with it. With school over and the children on vacation, most parents (especially those who do not suffer from financial problems) are in a giddy emotional state.

Read the rest of his column here: Whatever the season and the reason, scams suck. It is especially heartbreaking to see con artists going after those who can hardly pay for their children’s tuition. Palabrica wrote about several types of scams that have been victimizing a lot of Filipinos lately, but I’m particularly incensed about recruitment scams that not only separate victims from money they don’t have yet (borrowed funds), but also kill their self-esteem, hope for the future and turn them into slaves of debt. You would be surprised how recruiters would go to far flung provinces to lure public school teachers, construction workers, nurses and others into paying placement fees of P100,000 to P200,000 for a job overseas and empty promises of prosperity. It’s sad to see victims borrowing money to pay such amounts as they grasp at straws to improve their lives. And this happens even with repeated warnings from the government. Somehow, the reasoning is always: “Not this one. This is different.” Sometimes, the recruitment agency IS accredited and in good standing. But why in the world would Filipinos agree to pay a huge placement fee, give half of their entire salary every month to the recruiter and pay for their ticket to go back home? Getting a good job is part of good personal financial planning. Graduating from a job into becoming a shrewd businessman is one of the routes used by others to have a financially rewarding life. Working overseas has become a reality for most Filipinos. I personally find nothing wrong with that. The world’s boundaries have thinned and sometimes the learning, at a certain season in our lives, takes us to other countries. Hopefully, however, Filipinos will know better than to grab any offer without studying it first. There are many scams out there. As Mr. Palabrica says at the end of his column:

Ignore [them]! There are enough suckers born in our world every minute.

Sonny (not his real name) worked as a janitor in one of the offices in Makati City with a P7,000 a month salary. He lived very simply with his wife and one daughter in a one-room affair and bought a bicycle to avoid spending for transportation daily. Despite his meager income, Sonny saved P2,000 a month like clockwork. By December, he would have P24,000 in savings just in time for Christmas. So, Sonny would bring his wife and kids to Landmark and go shopping for useful gifts – good-quality clothes, bags for school, shoes. Then they would have Christmas dinner in Saisaki. Just imagine that – a janitor and his small family. Would you call Sonny poor? Contrast this with someone from the same office who took home P1 million annual salary for that year and spent P1.1 million. Which one is rich? Which is one is poor? By the way, these are real stories as told to me by Augustus J.V. Ferreria, executive vice-president of Generali Pilipinas, the insurance partner of the SM Group. You often hear the expression, “It is not what you earn, but how much you spend.” People usually nod at me slowly when I say that, as if they are listening. But their glassy-eyed look and iPod-fidgeting-hands tell me their minds had quickly moved on to some other thought. They say Filipinos are poor. Most of us live on $1 a day. I have seen poverty at close range. I know its musty smell of hopelessness first-hand. However, it might not be a good idea to judge quickly who is poor and who is rich. As one reader wrote in Vox Populi, another blog INQUIRER.net has recently launched, someone in the province can have less than P50 in his pocket but will not be worse for wear, because he had chicken in his backyard and dahon ng sili that he could easily pick near his front door. A nilagang manok is not hard to imagine for lunch. I asked Joe Ferreria where Sonny is now. He says Sonny is still a janitor, but he always comes to work with a big smile on his face. Food for thought, eh?

A reader wrote: I bought some stocks online in 1997 as a long-term investment while I was in Malaysia from ACE (Asian Capital Equities) but unfortunately, the company closed in late 2003. My AC shares originally were 7,200 plus 1,440, a 20 percent stock dividend given in May 2004 was not added anymore and my PCOR shares were 15,000. With the revised allocation, my AC became 859 only and the PCOR became 255. Until now, I was only paid half of what I should have received. When my stocks where transferred to my new broker, all the shares were in order except for my Ayala Corp. stocks which became 17 shares only from the revised allocation of 859 shares. What should I do now? RFP Speaks yesterday tackled this question from Cheryl Duenas-Sperling, who is currently working in Saudi Arabia. We all hear about the Philippine Deposit Insurance Corp. and a lot of us are soothed (mistakenly, I believe) by the fact that deposits are guaranteed by PDIC up to P250,000. What about investors in the stock market? Our reader’s appeal kinda makes my protective shield go up. “I saved money to invest in stocks and now I end up with nothing.” Joseph James Lago, assistant vice-president of Westlink Global Equities told Cheryl to liquidate claims with the Securities Investors Protection Fund (SIPF), which entitles investors to recover up to P100,000 of capital. Read the rest of his reply here. This brings to fore what mechanisms are in place in the Philippine Stock Exchange to protect small investors. I gotta dig deeper on this, but although there has to be mechanisms in place, my sense is the best protection should be for investors to do their due diligence extensively.

Asia’s richest woman has left her wealth – she was worth $4.2 billion – to her fortune-teller, Agence France-Presse reported today. I bet my future millions in savings (optimistic, eh? :-)) that relatives of the astute, albeit quirky, businesswoman are right this moment chafing at the bit, ready to storm the poor lawyer who will execute her will. The article says:

Nina Wang, who died aged 69 earlier this month and had no children, left a legacy estimated as worth at least $4.2 billion after transforming her company Chinachem into a real estate empire. A day after her lavish funeral Wednesday, two wills she allegedly wrote in 2002 and 2006 were published separately in Next Magazine and its sister Apple Daily publication. The 2002 document said Wang's fortune would go to her charitable trust. But the later version named her personal fortune teller, Chan Chun Chuen, as the beneficiary.

Read the rest of the article here: Filipinos don’t like talking about death, unless it’s the death of someone they absolutely hate. Heck, we don’t even like to talk of illnesses. The first time I told my husband that we needed to get a good insurance plan, he asked me if I wanted to kill him. But good financial management requires us to think about death, risks, and a lot of ‘what ifs’. Wills are not just for the wealthy. To me, one of its most important purposes is to determine who will be the children’s guardians if we die. Wills can be simple documents – but they have to be in written format. Make sure you get legal advice – this is not for do-it-yourselfers. I found this very helpful website for the Philippine setting. It has a form to help you start (click here), but be sure to contact a lawyer. Wills must be dated, should be signed and witnessed. Don’t assume that your best friend or aunt perhaps will agree to be an executor or guardian for your children. Ask first, and prepare back-ups. Wills are an important part of your financial plan that could have the greatest long-term impact on your family. You may not know how well it will work – because surprise – you won’t be there to see it! That is why it is so important to do this part right.

Which is safer and better: unit investment trust funds (UITFs) or mutual funds? What a hot, burning question this is for many of us right now. Filipinos are very interesting. I know many who can’t sleep at the thought of not being able to withdraw their money anytime they want. On the other hand, many have only one reaction when told of a new investment prospect or business: magkano kita? (How much is the return?). Both questions show flaws in the Filipino’s financial psyche, as tales of the Multitel scam illustrate. I am thrilled that many are graduating from payday-to-payday existence to being creative and more aggressive savers. I am also pleased that we are beginning to understand the value of extensively studying something first, before going with the herd. This is true with UITFs and mutual funds, stocks and bonds, real estate and business ventures and all other kinds of invesments. Just looking at the returns is not enough. When I blogged about the 2006 mutual fund industry awards and listed the returns, it opened discussion on what people thought about the awards and the returns – just as I had hoped it would. I hope no one thought I was promoting going into mutual funds just because the returns are high. I am a journalist and not a financial agent of any bank or financial services firm; I don’t sell anything. That means I have the freedom of saying what I want because there is no conflict of interest. I give you the facts, and you decide for yourself, hopefully with the assistance of someone qualified. What you read and see here, you have to weigh against your own preferences and risk tolerance and patience in taking the time to understand every detail of your investment. There's nothing wrong with finally deciding that something is too complicated that you would like to put your money in a pig business instead! At least, you can sleep well. Nothing in personal finance will fit everyone everywhere – except the need to prepare. Ok back to the question you all want answered :-D. Which is better and safer: UITFs or mutual funds? Do not look for a simple yes or no answer. Whoever gives you that kind of answer probably knows nothing about both instruments. Noet Ravalo talked about this in his column today and here is the least that you should get from his piece.

Mutual funds and UITFs, for example, are covered by different regulations, which means they have different expected returns and different risks. Identifying the risks is the essential first step.

Once the risks are identified, make sure you remember this:

Let the returns be the consequence of the risks you take rather than the sole basis of choosing investments.

Noet answered reader Martin’s questions on whether he should shift his investments to mutual funds or UITFs? Martin hopes to cover his family’s monthly expenses with returns from these investments, as he had done in the past when his money was in government bonds. Bond returns are now low, so Martin needs to look for other options. Noet took pains to take the long road so Martin can look at the forest and not just the trees. This kind of customization is the reason why we all need professional advice, face to face, from someone who is qualified and has the experience. That doesn’t mean we shouldn’t do our own due diligence. Let's keep on reading and not be afraid to ask questions.

Before I die, I want to see a polar bear in its real environment, play with penguins, explore Scotland, stand on the spot where Jesus likely gave his sermon on Beatitudes, experience backpacking across Europe with my only daughter and intimately know the beauty of the Philippines’ unexplored beaches, mountains and waterfalls. You all have a sacred list of what you want to do before you hit the bucket. Have you figured out how much money you need to save so that you can retire well and do everything on that list? Andrew Ferrer, a Fil-Am living in the US with his wife, is planning to retire in the Philippines to maximize their dollar savings. He asks:

How much income do you think we need to have per month for us to survive a pretty decent lifestyle?”

I suspect Andrew is around 50 years old. He says he has around 10 to 15 years to go before retirement. Read Citibank’s answer to him here. Citibank points out that “a pretty decent” lifestyle is something only Andrew can define. What’s luxurious for some may be average for others. So how do you arrive at a figure that you are comfortable with?

Start by assessing your current lifestyle. What are the things you would like to continue doing in retirement (e.g., golf)? What do you consider as necessities? What are the expenses you may do without once you have retired (e.g., children’s education)? What do you foresee you will spend more on in the future (e.g., health care)? If you are happy with your present lifestyle, tally how much it costs for you to maintain that today, then deduct any expenses you foresee you may not need to incur in the future, and add any future expenses foreseen. You may arrive at a dollar figure, which you can convert to Philippine pesos. Then factor in inflation for the next 15 years.”

A simpler way is to look at your current gross income, then ask yourself how much income you would likely have before retirement. Let’s say you are earning P50,000 now and you have 20 years before retirement. Assuming that your salary will grow 5% per year until you are 65. You will earn P140,000 a month by the time you retire. That’s around P1.7 million per year. A rule of thumb says you will likely need 70% to 80% of that per year to live comfortably when you retire. Multiply that by 25 and voila, that’s the kind of nest egg you hopefully will not outlive. There are many different ways to compute how big that retirement kitty should be. That figure will change from time to time. For some of us, that round figure can help us get started. It can inspire us to be a creative saver. But don’t get too hooked on it – it is just a moving target. I certainly hope you don’t get depressed by the very high figure you most likely will arrive at. After all, lifestyle can always adjust. At the end of the day, if we prepare our finances well enough, we can confidently focus on what I always say, are the things that matter most – family, friends, and enjoying the fruits of our labor.

These are White Tree Nymphs common to the Philippines (Photo taken from Agence France Presse). Look at them with their frail antennae holding up a twig that probably weighs much more than them. We are all frail creatures hoping to elevate ourselves and our nation into a higher plane. We can only do that if we help each other out. We can’t do that if we begin calling each other names. This blog is my space that I opened to everyone wanting and needing to know about how to improve their personal finances. Through the foresight and genius of INQUIRER.net, we have been given a forum to share information and give our little contribution to a better life for fellow Filipinos. When you get invited to someone's personal space, you try to respect that space and use your best manners. Isn’t it true that we can all benefit if there is open discussion – different opinions and all – without name-calling? When we start doing that, our messages, the points that we want others to understand, do not get the attention they deserve. The gems of understanding get hidden under the murk of offensive words. There is a Filipino word that cannot be accurately translated in English: sayang. Let’s drop the name-calling. You are free to post your opinion but we don’t have to force them on others. From now on, posts that do not bring us closer to this goal will not be approved. Now that’s clear, let’s all get on with the business of learning more, empowering ourselves to improve our personal finances and sharing our knowledge.

It was amusing and a bit surreal to see all – or at least most – of the country’s fund managers all in one room. As I went inside the Taipan Chinese restaurant at the Tower Club (where the food is always impeccably prepared by the way), I could sense a lot of tension and saw very little socializing. Could be because fund managers are competitive. They have to be, being in an industry where your entire performance can be summarized by three figures and a percentage sign! But last night, members of the Investment Capital Association of the Philippines (ICAP) kept friendly competition at bay to award the best mutual funds in 2006. (I was about to say sheath their claws, but that’s overly dramatic hehe). Grepalife Asset Management Corp. senior vice-president and general manager Efren Cruz said the awards night was the organization’s first but he hopes that it becomes an annual activity. ICAP is trying to strengthen its ranks to boost the industry’s credibility to investors. After all, it will only take one big blooper to destroy everyone, the way the pension fund industry is suffering now. Here’s the list of the awardees with the corresponding performance. If you are looking for a place to park your money, make sure that you check their prospectus, understand the risks and the nature of this investment, and how each fund makes investment decisions. Analyze the stability of the fund, its compatibility with your investment goals and look at performance over the long-term. Don’t skip the part where loads and commissions of each fund are explained. EQUITY FUNDS 10-year return 1st: Philequity Fund, Inc. (18.23%) 5-year return 1st: Philequity Fund Inc. (24.03%) 2nd: Philam Strategic Growth and Income Fund, Inc. (20.48%) 3rd: Sun Life Prosperity Phil Equity Fund, Inc. (17.22%) 3-year return 1st: Philequity Fund Inc. (31.20%) 2nd: Philippine Stock Index Fund Corp. (27.40%) 3rd: Philam Strategic Growth and Income Fund, Inc. (26.76%) 1-year return 1st: First Metro Save & Learn Equity Fund, Inc. (67.48%) 2nd: Philequity Fund Inc. (52.36%) 3rd: ATR Kim Eng Equity Opportunity Fund, Inc. (46.02%) BALANCED FUNDS 10-year return 1st: Philam Fund, Inc. (7.38%) 5-year return 1st: Philam Fund, Inc. (19.06%) 2nd: The Mutual Fund Company of the Phils. (16.61%) 3rd: Sun Life Prosperity Balanced Fund, Inc. (15.07%) 3-year return 1st: Philam Fund, Inc. (22.70%) 2nd: The Mutual Fund Company of the Phils. (21.68%) 3rd: Sun Life Prosperity Balanced Fund, Inc. (20.71%) 1-year return 1st: GSIS Mutual Fund, Inc. (43.00%) 2nd: The Mutual Fund Company of the Phils. (37.96%) 3rd: Philam Fund, Inc. (36.91%) BOND FUNDS (Peso-denominated) 5-year return 1st: Philam Bond Fund, Inc. (10.77%) 2nd: Sun Life Prosperity Bond Fund, Inc. (9.53%) 3rd: ALFM Peso Bond Fund, Inc. (8.87%) 3-year return 1st: Philam Bond Fund, Inc. (11.56%) 2nd: Sun Life Prosperity Bond Fund, Inc. (10.29%) 3rd: ALFM Peso Bond Fund, Inc. (9.70%) 1-year return 1st: Ekklesia Mutual Fund, Inc. (18.78%) 2nd: First Metro Save & Learn Fixed Income Fund, Inc. (14.85%) 3rd: Philam Bond Fund, Inc. (14.48%) BOND FUNDS (Foreign currency-denominated) 5-year return 1st: Philam Dollar Bond Fund, Inc. (6.79%) 3-year return 1st: Philam Dollar Bond Fund, Inc. (7.25%) 2nd: ALFM Dollar Bond Fund, Inc. (4.68%) 1-year return 1st: Grepalife Fixed Income Fund Corp. (10.07%) 2nd: Philam Dollar Bond Fund, Inc. (8.62%) 3rd: MAA Privilege Dollar Fixed Income Fund, Inc. Special Citations 1. Biggest Family of Funds in terms of number of funds – Sun Life Prosperity Funds 2. Biggest Family of Funds in terms of NAV of funds – ALFM Family of Funds 3. Most Innovative – Grepalife Fixed Income Fund, Corp. 4. Most Innovative – Philam Managed Income Fund., Inc. 5. Corporate Social Responsibility Award – First Metro Asset Management Inc. 6. Fund Manager of the Decade – Roberto Z. Lorayes and Wilson Sy for their stewardship of Philequity Fund 7. The biggest mutual fund in the country – ALFM Peso Bond Fund, Inc. 8. Award honoring Adelbert A. Legasto for his significant contribution in the development and growth of the industry. ICAP Board of Trustees Chairman Ignacio B. Jimenez announced that the mutual fund industry now has 123,000 investors and P83 billion assets under management. In an interview, I asked Mr. Jimenez a lot of tough questions, some of which were raised by Oda through this blog. He turned to me and said: You asked all the right questions, iha.

I had fun taking this wealth test by the late Larry Waschka (author of The Complete Idiot’s Guide to Getting Rich). I’m sure it’s not a "scientific" test but it could give you a picture of where you are right now and what adjustments you need to take. It could tell you if you have what it takes to be a millionaire and if you already are, to be a gazillionaire :-) Here ya go. Tweaked it a bit to give a hint of Filipino flavor. Do you enjoy your work? Do you often visualize yourself achieving something bigger than what you are currently doing? Do you save money every month? Do you make an effort to understand an investment before putting in money? Do you shop before you buy, especially for big-ticket items? Do you take care of your home or apartment and perform regular maintenance? Do you perform regular maintenance on your car and other expensive items? Do you pay off the full balance on your credit cards each month? Are you comfortable buying used big-ticket items such as cars and appliances? Have you ever started your own business? (Even selling peanuts counts.) Have you ever estimated how much money you would need in a portfolio to produce enough income to cover your current living expenses? Do you measure the performance results of your portfolio at least each quarter? Is your mortgage payment (or rent) less than 20 percent of your total gross household income? Do you spend less than you make? Have you ever read a book about building wealth or an autobiography about someone who was wealthy? Do you have your own business now that produces a positive net income? Have you ever worked all night or more than 24 hours on a project? For each question that you answered “yes”, give yourself a point. Add them up then compare to the scale below. Score 1-5 Low probability of getting rich 6-10 Average 11-15 Very likely You are on your way!

Emerson Abraham has a stable job, his own house, a lifestyle that some would call spartan, and no credit card debts. He knows that saving money is important but he and his wife set aside some funds when there’s extra and spend some when they feel they should. In his own words, “it was not a priority.” Then his children got sick with something that their health cards did not cover. His stay-at-home wife, worn-out with taking care of the children, also got sick. Then he got sick. Emerson’s savings were depleted and things were pretty rough for some time. The family has since recovered. Emerson now places great importance in saving part of his income regularly. There’s a rule of thumb that says people should set aside 10% of their income regularly. Let’s put this rule under the microscope. Honestly, the word “regularly” is what I find most appealing about this advice. There’s no financial or economic basis for the 10% figure and just like most rules of thumb, this one has been repeated too many times that it has taken on a life of its own. But I wouldn’t belittle the value of that word. Heck, at least you start with something and 10 percent is better than five percent. Maybe in more advanced economies, 10 percent is pitiful but in the Philippine context it’s a good start. Done regularly over the long-term, it can do a great deal of good. Having said that, I certainly wouldn’t tell Emerson to use this rule of thumb as the basis for his retirement plan. Once the saving habit is formed, it is important to move far beyond the regular 10% savings and think about what will help a financial plan beat inflation, health, financial and family crises. Let’s say Emerson is 25 years old and earns 30,000 net monthly. For ease of computation, let’s assume that he will have a uniform three percent salary increase every year until he turns 60. If he constantly sets aside 10% of his income until he drops off from the work force, he will have at least P2.2 million in his savings. This could grow to anywhere between P50 million to P60 million if he can make compounding interest of, say two to five percent, work for him, but adjust that for inflation of let’s say six percent, and he’s back to close to the original amount. This scenario however uses several dangerous assumptions. It assumes that Emerson will never lose his job, will always have salary increases, and that his savings will always benefit from interest, however small. Unfortunately, life is full of “interesting moments” and sometimes we find ourselves on a roller coaster rather than a consistently uneventful ride. MoneySmarts’ findings: use this rule of thumb if you need something to give you a nudge in the right direction, but once you have established the habit, go full speed ahead on saving more aggressively.

We stayed home this year instead of going to our favorite spot in Boracay so that we don’t burst the seams of our financial plan :-p. My husband and I had overspent quite a bit early this year when we decided to – ehem – celebrate our 14th wedding anniversary with a renewal of vows. Our “second wedding” was limited to family and very good friends. It was simple enough that we were able to customize invitations and placecards and save a lot of money that way, as well as have loads of fun being the control freak persons that we are. Still, it was not in our budget, but hey, I’m not complaining and neither is the hubby. We still have that warm, fuzzy feeling whenever we think about it, that tells us it was worth it. Point is, although frugality is something all students of personal finance come to love and enjoy, we all have weaknesses that even images of a perfect retirement unsullied by financial woes cannot cure. I have several :-). 1. Children’s books with colorful illustrations (and they are mine, not the children’s!) 2. I have a long line of spices for cooking that I hardly use! (When do I use Spanish Paprika and Cumin Powder? Smile. I don’t know why I keep buying them.) 3. Personal finance books. I have several that I haven’t read yet but I’m such a PF junkie so I keep collecting them. 4. Specialty paper that I keep planning to use for scrapbooking or just creating nice little notes for whoever. You can say I have paper fetish so when I know I’m itchin to buy paper, I keep myself away from National Bookstore. 5. Gourmet kitchen stuff like a fondue set that I hardly use. Accepting weaknesses and being able to laugh at them is an important way of keeping them at bay. I personally think it’s helpful to give in from time to time! Good financial management will allow us to enjoy the future but we have to strike a balance between the future and enjoying today – responsibly. The hubby is fond of saying: know thy enemy. In the area of personal finance, it's healthy, too. I know my “enemies”. Do you know yours?

Business papers burp with all sorts of economic indicators almost every day. Inflation, trade reports, Treasury bill rates, gross international reserves – those are just some of the staples within the business section. Take inflation, for example. Reports last Monday showed that annual inflation slumped to a 20-year low of 2.2 percent in March. If you’re watching personal finance closely, this is probably one of the most important figures you have to follow because impacts savings, investments and personal expenditures. I remember struggling to make this story more understandable to ordinary Filipinos. Rushing back to the newsroom after interviews at the NEDA one day, I started talking to the taxi driver who deftly wove in and out of traffic as he drove me back to the office. Oh, he had a clear grasp of what it was, it didn’t take me more than a minute to explain that it was all about the rise in consumer prices. He said something like: “Di ko naman yan nararamdaman eh. Dati sa isandaang piso ang dami mo nang mabibili, ngayon ilang galunggong na lang yan.” (I don’t feel that. Before, P100 can already buy a lot, but now that’s just a few pieces of fish.) Photo credit: AFP Doubt. That’s usually how most people react to big bold headlines that say “20-year low.” Former NSO Administrator Tomas Africa told me how painstakingly the NEDA-attached agency arrives at the figure. NSO sends out hundreds of its people to go to wet markets and grocery stores across the country every month to check prices. This army of number-crunchers look for consumer items included in a basket of goods used by those nearest the poverty threshold – which is around half of the Philippine’s entire population. Check prices, go back to the office, punch the numbers in a computer and they arrive at a consumer price index. The increase in this index month-on-month and year-on-year, meaning compared with the prior month or the prior year, is called inflation. Business papers highlight annual inflation over monthly inflation. Even Former Socioeconomic Planning Secretary Solita Monsod who is never squeamish about criticizing government told me once that she did not doubt inflation data. So why can’t we feel this low inflation in our wallets? Curiously, people I talk to assume that if there’s low inflation, prices should stay more or less the same. Inflation is the rise in prices, so naturally our P100 now will never be able to buy the same amount next year as long as there is inflation. Second, the basket of goods captured by inflation measurement is most likely not the same basket of goods that you and I consume (and don’t capture the same brands). NSO does not have a separate inflation figure for middle-income groups and expats– that’s too expensive to do. As far as savings and investments are concerned, you all know that because inflation shrinks every peso you save, you have to beat it. Malaya Laraya, RFP said it much more eloquently: say your P100 today can buy a Big Mac. Next year the same amount will most likely not be enough to buy the same thing. That means if you go for super safe savings for the long-term that only gives 2% return, you lose to inflation the moment you deposited money. It’s best said in Filipino: lugi. It’s like paying the bank to keep your money for you. When you get your money back, you get an amount that’s much smaller in value. Every serious investor tries to beat inflation. Look for something within your comfort zone that will grow your money much faster than the rate by which inflation shrinks your savings. If you’re an economist or an experienced investor, you probably got bored just now. Here’s where you come in, which investments allowed you to beat inflation? T-bills and bonds are also extremely low these days. Last Monday, the benchmark 91-day T-bill rate fell to a new record low of 2.86 percent. Banks have been trying to push short-term rates up but National Treasurer Omar Cruz knows them too well. He is threatening to stop issuing short-term government securities. I expect that investors will be scrambling for better alternatives these days, and these could push funds into stocks and real estate, both of which had a great year in 2006. Dr. Noet Ravalo advised a newbie investor in his column this week how to choose the right mutual fund, saying mutual funds are not one-size-fits-all instruments. You have to find the one that suits you, hopefully to a T, he says. Citibank’s personal finance series also helped a reader understand if she and her husband should give up on their dream home, because their savings have not grown as much as they expected. Reuters came up with a very interesting story on economic indicators in Asia. “Asia's economic sleuths hunt for clues in odd places” read:

“The truth is out there -- but economists in Asia have to look in some strange places to find it. Faced with irregular, sometimes dodgy economic data, analysts turn to cement sales, fast food, newspaper sizes or just about anything that helps them understand the fast-growing and often volatile region.”

In the Philippines, some economists have turned to fast food sales to gauge economic activity:

“In the Philippines, whether you are the president or the dispatch boy, Jollibee is part of your life," said Song, an Asia economist for more than two decades.”

Making sense of business news is not as hard as many people think it is. :-)

An Inquirer.net reader wrote a stinging open letter to Banco De Oro Credit Cards:

To Whom It May Concern,

It has come to my attention that recently delivered credit cards to your clients will be declined due to your "Systems Upgrade" activities which will last until April 16, 2007. I have already suffered major inconveniences and embarrassment today and I sympathize with others who will surely suffer the same inconvenience. Clients who do not know about this will put gas in their cars, check into hotels and line up at the groceries and supermarkets in preparation for the Holy Week break. If they are not informed they will surely experience stress and embarrassment because of this and this will not look good on a company that takes pride in "finding ways." I was told that I was informed about it but for the record, I have not received any email, text, email or any written notification whatsoever. I paid for my bill in full in preparation for the Holy Week break only to find out that I would not be able to use my available credit until April 16, 2007 long after the Holy Week break which I have painstakingly saved for. Numerous cardholders will find themselves in similar or probably even worse predicaments when they have their transactions declined while out of town. I now feel lucky that this happened to me while in Manila. It frightens me to think about what would have happened if the card was declined in a hotel after a few days stay. Now, that would be very stressful, traumatic and embarrassing. Please find it in your corporate heart of hearts to "find ways" in informing your clients about this. Sincerely yours, BOBBY BERNAS

I spoke with Mr. Bernas to make sure this wasn’t a nuisance email nor a prank. I cannot disclose to you exactly what he told me, but he had some very strong proof that this really happened to him. All the guy wants to do is to warn fellow cardholders. I then called up Banco De Oro to give them a chance to comment. Visited their website to see if they at least informed their clients. Nada. In fairness, they fixed Mr. Bernas’ problem early this week so he could still enjoy his vacation, but only after he refused to talk to BDO’s call center and took it upon himself to pound on the doors of bank officers handling credit cards. Lesson of the day: know your consumer rights. As a credit card holder, you are paying quite a huge sum of moolah in the form of annual fees and you deserve to be heard when you have complaints. But know who is answering you on the other line. Make sure you are talking to the right person. Be calm but firm. Customer service still has a long way to go in this country and it is weird that Filipinos just take this sitting down. Want to be a good Christian? Let the company know what they are doing wrong so they can improve. Have a good Lenten break.

If there’s anything I have learned from writing about personal finance, it is this: pay debt as soon as possible. Do not be held hostage to it. It can cripple you and your family because as J. Reuben Clark says:

Interest never sleeps. It never gets sick. It works on Sundays and never goes on holidays.

But what of those who are seriously trying to clean up their act? Which one should come first? Pay debt or save money? Do both at the same time? What is the best strategy? Our Money Myth Buster today is: pay debt first. Even experts are divided on what should be done. Some say do both, some say pay debt first. Others say it’s a no-brainer, pay debt first. On closer look, however, the answer is not immediately obvious. Consider this. A couple I know is trying to pay for a second-hand car. They both decided that they needed it; they have a growing family. They responsibly went for a humble model. But cash flow became a problem, what with several illnesses in the family. To cope with their cash flow problems, they first turned to their company cooperative. Then a credit card became very convenient. Swipe, swipe, swipe, and a hasty postscript while signing the charge slip. “We’ll pay the amount when the bill arrives.” But somehow, despite good intentions, they never do. The couple is not trying to burn their credit card with purchases of Kellog’s and Hershey bars and Dove soap. They understand the risk of not saving enough and buying too much. They ask: We have a P50,000 bonus coming in. Should we use this to add to our savings for emergency, our pension plan and insurance plan or pay off our debt first? MoneySmarts says separate the good debt versus bad debt, and without hesitation, pay bad debt as soon as possible. “Not all debts are bad. Some are good, like a car loan. You can buy it on credit and treat monthly amortizations like rental. After all, cars depreciate. But if it were me, I would pay the credit card debt 100 percent first. The interest is just too high,” Henry Ong, president of RFP (Phils) Institute, says. Pay-debt-first strategy works, but it has to be finetuned. Separate the good debt from the bad debt. Then pay off the bad debt with the highest interest first. As much as possible, keep socking away some amount for your emergency fund so that you don’t have to rely on credit cards again in times of emergencies. Most credit card companies, for example, charge 3.5 percent interest monthly. Credit card interest rates here never go down, at least in my lifetime they haven’t. Interest just keeps going higher. At 3.5 percent, that’s a hefty 42 percent interest per annum. If you are investing in an instrument that gives an eight percent return per annum, for example, you know that the interest you’re paying for consumer loans will just eat up your earnings. Unfortunately, credit card debt is not the only trouble spot here in the Philippines. There are worse things – like paluwagan, 5-6 and other kinds of loans with astronomically high rates. Believe me, they still exist and sadly, those who are victimized are the ones who really can’t afford the interest. Other kinds of debt, like a home mortgage, car loan, even a student loan, have a time and place in everyone’s lives. Done in accordance with a long-term financial plan, they can empower and strengthen financial foundations. But any debt based on overspending and boosting self-esteem with goodies is like dead weight that will pull down any serious investor.

Until you know how to manage debt, it's almost impossible to save and invest. Until your debt is in control and part of your life plan, you will not achieve financial freedom.

Suze Orman said that. I agree. A good quote, especially for Filipinos.

How would you like to hear a 9-year old kid talk about marketing strategies, loan agreements, supplies, wages, taxes and...uh...thinking out of the box? Henry Ong, president of RFP (Phils) Institute has cooked up another project -- this time to teach children how to be entrepreneurs. No, they won’t be asked to listen to lectures or even interactive classroom discussions. They will actually be asked to think of a business and run it for a day. Cool, huh? Read all about it here. Before I even mention something in MoneySmarts, I go through it, test it, see if it works. There’s too much at stake and no, I am not being paid to advertise it. So there. Nothing can be more precious than integrity. Entrepreneurship is what this nation needs and we have got to teach our children to be fearless, to jump not with their eyes closed but with senses fully alert and with loads of research and analysis on their back. We have to show them that there are tools they can use to start a good business, to sustain it and even to close it gracefully, if needed, so they can start a new one. Shrug. I personally think failure in one business is not a reason to stop trying! Since this bootcamp is the first of its kind, however, I have no objective analysis yet if it is really effective. My basis is the program's list of activities and the qualification of their speakers. Day 1 is like this:

“There will be activities that [will teach kids] that they can do almost anything they set their minds to...”

They will begin thinking of a business plan! Talk about getting your feet wet on the first day :-) Day 2 will have them discovering the costs of running a business such as marketing, supplies, wages and taxes. Big words for our little businessmen, I’m sure!

“Campers will learn that just because they may own their own business, it does not mean that they will become rich automatically.”

On day 3, campers will really get into the thick of things with more big words like “loan agreement” and be taught that the more they borrow, the more they have to pay back. They will make posters, flyers and business cards after they secure financing for their "business." Day 4 is THE day. They get to run their business for a day. They find out if their strategies work, network with “business contacts” and try to make good calls under pressure. They will present their business plan and do a marketing pitch. I can imagine young faces scrunched up with the hard decisions they have to make, but before the day is done, they will still have to analyze their performance. Day 5 is tough. Guest entrepreneurs will tell them what they did great or point out mistakes. Toughest part is the party at the end and getting their certificates, hehe. Memories of my peanut-selling days when I was in elementary school still make me smile. I learned the values of hard work, diligence, and the strength to get up even if I fell smack on my face many, many times. (You guessed right, I burned a lot of peanuts haha!)