Life for Sheldon, 26 and single, has never been this exciting. After a job as community educator for a property company, a few years as a marketing consultant, then a stint in several publications, he was hired by two Internet publishing companies to handle some of their projects. His income quadrupled almost overnight to P60,000 net of taxes. What would a 26-year old do with all that cash?
“I went crazy. I bought a P93,000 laptop and other techie gadgets. I bought a 350D camera and two lenses. I went out many times a week. I started traveling. Then I read MoneySmarts and I got very scared. I realize I was spending too much and I needed to be sober,” Sheldon said.
Sheldon doesn’t know it, but he is a financial planner’s dream client. He’s young and can therefore take advantage of the power of compounding, where interest on his money can earn more interest. He’s not lusting after designer clothes, fast cars and a condo of his own. He even bought a variable universal life insurance (VUL) for himself with a P1 million face amount – and that was before he started getting concerned about his finances.
His entertainment expenses are his biggest headaches, but even that may be solved with some nips and tucks. Financial planner Efren Ll. Cruz is not that worried. The important thing is, Sheldon wants to be sober and, unlike most of his generation, he is concerned about the future.
“This is very simple and you’ve heard this often, but it is still true. It’s not how much you make but how you spend it,” says Cruz.
Sheldon’s spending pattern is typical for a 26-year-old, but with some unique twists. He spends around P1,000 for “gimmick nights” four times a week on the average. He works at home, but blows around P5,600 every month on gas, maintenance and toll fees. He wants to budget around P20,000 this year for trips to Boracay, Bohol and Cebu.
The unique twist has to do with his credit card usage and contributions to home expenses. He has a P30,000 balance on his credit card that he is paying down monthly. And he has decided to put his card in deep freeze until he has paid it down. Sheldon also contributes P6,000 a month to home expenses for the maid and telephone bills.
For Money Makeover, Cruz said he would coach Sheldon how to come closer to his short-term financial objectives within a span of 12 months. When asked about what his financial objectives were, Sheldon gave his financial planner another pleasant surprise. Sheldon knew exactly what he wanted.
“I want to have P50,000 passive income every month and be able to save for a wedding in the next three years,” Sheldon said.
After the initial meeting, Cruz committed to creating a personal income statement for Sheldon and a strategy for reaching his goals. In the meantime, Sheldon was to track his spending rigourously for the next month. Off the cuff, Cruz said cutting entertainment expenses would immediately boost Sheldon’s savings by P16,000 a month. He also said Sheldon might be unduly scolding himself by mixing up his business and personal expenses.
“We will separate your business and personal needs like your laptop and cellphone expenses. We will also make a strategy so that you can have your emergency fund. After constructing your income statement, we will be able to see which are your discretionary expenses and we will focus on reducing that,” Cruz said.
(The next issues of Money Makeover, where volunteers are matched with financial planners who will coach them for one year so they can reach their financial goals, will talk about Sheldon’s personal income statement and Cruz’ recommended strategies. Through this series, MoneySmarts hopes to show how a good financial plan can change the course of people’s lives. People don’t need another Sermon on the Mount on financial planning. They need to see how financial planning can be done well. By the way, Sheldon is an alias to protect our volunteer’s identity.)
February 22nd, 2008 at 4:09 pm
Hi!
Too bad, I wasnt able to join this volunteer search for Money Makeover. Anyway. how much does financial planner like Mr. Efren Cruz charge if we want to have his services? How does consultation takes place? Is it a one-time visit, a regular visit, etc.
Thanks a lot!
July 13th, 2007 at 2:42 am
Thanks mzkukuro!
Am an avid reader in this thread… coz i wanna learn a lot
July 9th, 2007 at 1:30 pm
ang sarap nga sana na mag-invest sa biofuel industry kasi baby pa e. but no know-how talaga sa biz. haaay … hanggang pangarap na naman to.
@Ron, nakaka-touch naman story mo. Tsaka bata pa yung 32 no.
hehehe More power to you!
July 8th, 2007 at 9:47 pm
pinoy investor:
actually, i have the same observation too, but since i’m new to this kind of things (mutual funds), i had to hear it from someone who’s been “through the times”.
July 2nd, 2007 at 9:15 pm
Hi Honey Bunny! May I just give u the link to one of my earlier posts (also in MoneySmarts) in reply to a question similar to yours:
http://www.inquirerbloggers.net/moneysmarts/2007/05/15/buy-term-insurance-invest-the-difference/#comment-2013
If you find it too long, just go directly to 7th paragraph.
July 1st, 2007 at 12:41 pm
hi hachiko!
funny, i have that same dream. i work for an engineering design firm and i am hearing that a fuel company (we’ll i don’t exactly know the details since i’m just hearing bits and pieces from our lead engineers) is planning to source ethanol from sugarcane (old news). where to plat the crop? they are eyeing Isabela, up north.
with that idle land… libre naman mangarap di ba?
cheers to all!
by the way, i just helped a friend with her monthly budget! whew. hirap din pala. but common sense and a little problem solving skill really helps.
June 30th, 2007 at 6:35 am
thanks Angie. It seems that a lot of factors should be considered in allocating your savings/investments.
On an entirely different note, how much is the average fee of a financial planner? I have this impression that they only cater to high net worth individuals.
June 30th, 2007 at 2:21 am
hachiko. yes, i have been visiting http://www.uitf.com.ph and comparing prices, fees, and performance. but havent done on research yet.
pinoy investor. yeah, i have heard of that call center seat biz. i thought it was a scam. how does it work? well ok, i’ll google it and see what comes up.
nina. unfortunately, there’s no pag-ibig ofc where am at. at the moment, i am having second thoughts in building a house first. though i will still have my pag-ibig membership updated when i get home.
June 29th, 2007 at 5:47 pm
Hi Honey Bunny!
The answer wud depend on many other factors like…
1. How much do you expect to attain & when?
2. For how long will u be able to put in that amt yearly?
3. For what purpose are u alloting this investment?
4. Is this money categorized as serious money (money u cannot afford to lose), or is it money you can “gamble” with?
5. What type of investments have u done in the past, what were the outcome, & how was ur reaction to the outcome?
6. How much do you know about your own risk appetite, different investment instruments, marked-to-market valuation, stock trading, running or starting a business, etc?
7. Have u set up ur contingency fund?
8. How did u know 2.5M life insurance coverage is adequate for ur current situation?
9. And perhaps more info about that company stock?
10. etc…
If you are serious about getting a serious & careful answer to ur query, it is really best to approach it using a financial planner’s approach, & that really involves asking a lot of questions like those above.
Remember, what was best for Pedro may not be best for Juan.
June 29th, 2007 at 6:32 am
Hi,
How would you allocate a 150-200K annual savings given the ff factors..
A. 10% of salary already goes to company stock
B. Life Insurance covered (2.5M)
C. No Debt
June 27th, 2007 at 1:23 am
hi mzkukuro, which country are you based now? There is Pag-ibig overseas Program specifically for OFWs. There might be a Pag-ibig Office there. If you pay 24 contributions in advance, you can take a housing loan, But honestly, the rates for housing loan are high and dollar is really low right now.
http://www.pagibigfund.gov.ph
June 26th, 2007 at 1:29 pm
mzkuro:
The return on real estate leasing is low. My house for rent is giving me just 5% return. You could earn more in time deposit. A hot business today is call center. My friend who was absolutely clueless in that business put up a 10-seat call center for 1M pesos in 2004. Now he has 360 seats. Each seat is earning $100 per day. You do the math on how much is the return.
June 26th, 2007 at 8:51 am
hi mzkukuro, i get to compare BDO funds w/ BPI and Metrobank from chats w/ friends and historical data in http://www.uitf.com.ph , we all noticed BDO has done very well, take our word or verify it from the data. And I just bought into BDO Balfunds yesterday June 25
Zero entry fees, P 10,000 minimum, it’s definitely worth a shot.
Do give thought about PinoyInv’s enterpreneurship suggestions, be on the lookout for such opportunities, as I said a little of every good idea here (diversification) always helps! One nice idea in my dreams is acquiring idle land and growing biofuels in it, it’s a promising growth industry, less imported oil and less CO2 in the air as well! Keep dreaming…
Back to Sheldon, I hope he’s learning something from our posts here… good luck, man!
June 25th, 2007 at 11:22 pm
hachiko. yeah, i have thought of getting another mf for my child’s college education instead of getting a plan. its an option that i am also considering. i will have someone checkout bdo as you recommended coz there’s very little info on their website. for the house, well yeah, as i said, am really concerned that it will eat a big portion (or all) of what i have earned. i dont know if pag-ibig will let me loan anymore. i’m not even sure if my membership is active as i left in a hurry last year. certainly, i will look into pag-ibig as well. thanks!
pinoy investor. unfortunately, i am absolutely clueless with regards to business. i do plan to have an apartment for rent type of biz (or something like it), but i havent started any planning or study (even budgeting) for that at the moment. its just in the dream state.
June 25th, 2007 at 3:35 pm
hachiko, mzkuro:
First thing I did was to build a house. But that was early 1990s during the real estate boom. The value tripled in 5 yrs. Today, I’d rather start a business. All successful entrepreneurs I know started in their 20s. When you’re young, you can afford to lose and try again. Btw, I don’t know any successful entrepreneur who did not fail.
A retirement fund is like having a big fish. It will feed you many meals. A stable job is like having a fishing rod. It will feed you for as long as you keep it. A business is like having a fish pond. It will feed you, your children, and your children’s children. It’s not just food, it’s legacy. If you ask me, it’s worth all the trouble.
June 25th, 2007 at 9:11 am
Hi mzkukuro, Here r my own ideas, Salve & others may have better things to say, though.
Skip (b) educ plans! substitute it w/ bond funds (safe) or balanced funds (more aggressive), build it up for next 10 yrs or so, and keep it till your child gets to college. I recommend BDO to friends for UITF, and so far so good. Same strategy to get used to saving in UITF for other purposes e.g. retirement.
For (a) house F Colayco’s book suggests budgeting for 150% of your estimated costs, so you don’t get caught unprepared for those nasty expense overruns! Good you’re conservative, given that OFW income is uncertain, finance your house w/ savings plus however much Pag-ibig is willing to loan you.
Better ideas, anyone?
June 24th, 2007 at 7:48 pm
Hi AngieV, the typical illustration of guaranteed 12% compound interest for 40 yrs, and labeling it “compounded”, is really a creation of the human mind rather than reality. In the real world there is no certainty in investing. Stock and bond prices could fall, 10% bond coupons can be reinvested at just 3%, new taxes are proposed, governments collapse, etc. Compounding simply means rolling over past interest or capital gains and hoping for the best in the future! Your “specific goals” comments makes perfect sense, though.
One other good trait common to fin indep people: the willingness to understand and take risks in pursuit of better returns.
June 23rd, 2007 at 1:59 pm
hachiko. i’m an OCW since last year earning $5k net per month. future plans: a.build a house; b.get educational plan for my child; c.get a healthcare plan; d.buy a duplex real estate for rent (or something like that).
i dont have debts, but do have some amortization payments for lot and an insurance. i have started some investing: in mf and coop capital. i want to venture in stocks trading (but need to study on it first).
the problem i see is that i really want to accomplish building a house, but that will deplete my savings, which is what worries me coz as a contract worker, i’m not sure when my next contract will be or if i will ever get another contract. should i borrow money for the house? and invest my money instead?
help help! what do i have to do so i can accomplish my plans?
June 23rd, 2007 at 1:57 am
I am so happy for those people who can reture young because they started saving early on. For most of my working life, I have supported my family, paid off huge debts incurrent by dad who had a penchanbt of accumulating real estate in the provinces. Hence I only started saving when I was 32. I am 34 na… so 2 years ko pa lang na enjoy money ko and yet here I am a worry-wart for my future…. True there are whisps of regret in my statements but I am just thankful I am over paying all the debts and my family can now support themselves. Brother is now working and mom has a small stores which I put up for her… NOW it’s me time….
Since i was introduced to mutual funds, I have religiously invested… allloting strictly 20% of my net income. So far, I am very happy wirh the return.
I am just taking baby steps I know there a re a lot who are in the same boat as I am.
I guess the key is the desire to start, the nudge to go on and the courage to persist..
Ron
June 22nd, 2007 at 3:19 pm
edsmaya:
when i bought the index fund in 2004, psei was at 1700. the fund manager asked me, are you sure you want to buy? NAV is low and you’re the only one buying. i said i know that’s why i’m buying.
he said you know when the index was high, everybody was buying and they were all singing praises. now they’re all cursing us. i said don’t mind them, they’re just grouchy coz they lost their savings.
now the index is high and everybody’s singing praises again. i hope they won’t curse the poor fund manager.
June 22nd, 2007 at 12:04 pm
fun reading this thread.
i have a question. what do you think of the mutual fund price nowadays? would you say they’re expensive.
i’m planning to put some of my savings in my mutual fund now but i am not sure whether i’m buying high if i do it now.
advice anyone?
June 21st, 2007 at 1:01 am
Hi Hachiko!
“…it’s now worth a cool P 1.52M, and still compounding!”
Personally, I still believe that Mutual Funds shouldn’t be an illustration for compound interest because one could incur losses on his principal. I hope your MF investing is directed by a specific goal…not merely to see your money double or triple or get a tenfold return. W/o a specific goal & a plan, one wouldn’t know when to hold & when to sell & how much.
June 20th, 2007 at 9:12 pm
starter boy, hahaha! Gettin rich in showbiz is like a lottery. The chance comes to you and not the other way around. At sa hilig nilang magpatalbugan, aynaku, they don’t stay rich
My fund’s up again to P 1.54M (market’s doin real great!) and it must be more than what the rest get to save in their long careers!
I’d like to believe there are many ways to attain fin independence (just like skinnin’ a cat), one just needs to acquire a little of the many good skills and qualities bloggers have shared here! Lucrative jobs or businesses you have a passion for for active income. Financial acumen to tap mutual funds for passive income and to track where your money goes. And live within your means, of course!
mzkukuro, can you be more specific w/ details pls? work, income, future plans…
June 20th, 2007 at 8:30 pm
Ur right Pinoy Investor. That’s why i asked what Ryan meant by retiring at 40. I hope he didn’t mean totally not working at all coz it’s also not healthy. Well, maybe not anymore the kind of work one used to have when he had no choice but work real hard to earn a living…but working to keep one healthy & still useful or productive. I hope retirement to us is when we can already have a source of PASSIVE INCOME & not be forced to work anymore.
Just the other day, I reminded my 20’s client that his collective investment funds (VUL & MF) is only a way to make his money grow. Come retirement, he cannot fully rely on these same instruments as these would not necessarily bring him regular passive income. I introduced to him diversification through different asset classes & gave him some homework to now set specific goals & plans on how he could have passive income at retirement. For ex., he cud target a certain amt thru his equity funds so he cud have a 4-door apartment w/c cud then provide him rental income. He became excited so I told him I’d assist him in this exercise like do the maths for him. I said it’s not enuf for him to just want to make his money grow the best it cud…investing w/o a specific goal is dead, as well as having a goal w/o a plan.
He has been investing 1/3 of his income thru me for the past 2 yrs but I am guessing that after we do that execrise, he wud be investing a bigger chunk. What wud now be really fulfilling for him is not just seeing how his money had doubled or tripled…but seeing the fulfillment of specific life goals, one at a time…
June 20th, 2007 at 5:40 pm
hey guys, you seem to know a lot in personal finance… maybe you can help me out … ?
June 20th, 2007 at 5:29 pm
pinoy investor: pwede rin yumaman pag nag-artista ka! diba showbiz c hachiko? hehehe
June 20th, 2007 at 9:21 am
ryan, salve:
A piece of advice. Retirement is not synonymous to financial independence. You can be retired and poor. You’re more likely to be financially independent when working and earning. So continue working or start a business.
Investing is not a good way to financial independence unless investing is your business. I don’t know anybody who became rich by passively investing in mutual funds and off the shelf products. Those who make big money in stocks are professionals who trade stocks for a living, and big investors who put in huge sums and hold for a long time. But then if you have a huge sum, you’re financially independent to begin with.
Retirement is for the old and rich. Even professional investors and entrepreneurs are working, sometimes harder than employees. Of course the best strategy for financial independence is to get a wealthy spouse (di bale nang maganda basta mayaman)
June 20th, 2007 at 12:29 am
RYAN–
Hi! Retirement planning is a 2-phase program. The 1st phase is the cash accumulation phase & the 2nd one is the pay-out or pension phase. Just curious…what do u mean by retiring at 40 & cud u pls share w/ us how u plan to achieve this, i.e., what are ur accumulation & pay-out goals, & what steps have u taken or are now doing in order to reach those targets.
I had talked to some people like you who planned in retiring early & who believed thay had sizable investments but when I showed them the maths…one was shocked upon realizing that he would already be broke upon reaching age 60; another would have to delay his retirement by a few more years; one had to increase his annual investment; etc.
June 19th, 2007 at 9:40 pm
hi salve. yeah, thats the thing am not quite comfortable with: that is, that all of the financial adivisers that I do meet (and know of personally) are affiliated with certain companies … so in effect, they are not objective in their advise. also, they tend to push the products they favor, which will give them the most incentive. ultimately, they give advise that further their interests, not mine.
June 19th, 2007 at 9:02 pm
Hey Sheldon age 26 is nice perfect time to sober up and plan for a bright future! Do give yuppies the allowance to splurge at first, you won’t realize the folly of wasting 200 grand until, well, you actually waste 200 grand. If you’re already 60 and you haven’t sobered up a la Sheldon, now that’s a real problem!
My story isn’t perfect, either (below): I remember nice big paycheck went in part to shopping in Hong Kong, clothes, videocam and geeky gadgets that went obsolete in just a year. Thank God I found a good mutual fund for my P 300k savings, and the rest is history. BTW it’s now worth a cool P 1.52M, and still compounding!
http://www.inquirerbloggers.net/moneysmarts/2007/05/31/economy-on-a-roll/#comment-2436
http://www.inquirerbloggers.net/moneysmarts/2007/05/31/economy-on-a-roll/#comment-2458
http://www.inquirerbloggers.net/moneysmarts/2007/05/29/are-all-pre-need-products-worthless/#comment-2405
Hope my investment tips above give you an idea or two. Hmm, we’re about the same age, Sheldon, Ryan et moi, so Salve’s our ate hehehe
BTW Salve how’s the first money makeover couple w/ the negative cashflows - any improvements so far?
Ryan hmm is retirement at forty optional for you? Or is it to get out of the stresses of the rat race? Have enough savings myself to take it easy from now on, but why retire early if work is also going excellently? It’s much more fun planning things out and investing like I did if you’re more flexible about your future plans. Thanks.
June 19th, 2007 at 3:21 pm
mzkukuro: most financial planners in the Philippines are affiliated with banks, insurance companies, accounting firms, and mutual fund companies. Financial advisory is part of their services, so they earn commissions from the products that you buy from them. If you want fee-based financial planning, I suggest you ask around for referrals because there are individuals who are already doing this. The fees vary, so the only way to find out is to interview a prospective financial planner. At the Registered Financial Planner (Phils.) Institute, the Code of Ethics is strong on the need to disclose exactly how the client is going to be charged, so if you are talking to a real professional, you will know from the way he discloses how he will earn from his services. Sorry, I cannot recommend particular planners that I know. Advertising is not allowed in this blog
June 19th, 2007 at 3:10 pm
ryan, i suspect you had to do some aggressive investing there buddy. Do share your story :-). I really want to hear from people who have successfully retired early and how they did it.
June 19th, 2007 at 3:09 pm
qwerty, we made sure you wont be able to trace our volunteers hehe.
June 19th, 2007 at 2:04 pm
Hi Salve, how much will I pay for a financial planner/adviser?
June 19th, 2007 at 12:17 am
Salve, I’m 28 this year and I have 12 years to go before I hit 40. I really want to retire soon so wish me luck.
June 16th, 2007 at 2:43 pm
@salve: wow. thank God for anonymity in the internet! hahahahaha…
June 15th, 2007 at 4:57 pm
FeLi, I’m very excited with this portion of MoneySmarts too. We will be following their progress monthly. The first-month check-up is coming soon!
June 15th, 2007 at 4:48 pm
qwerty, i live with a geek as a hubby so i’m printing out your comment because when its about gadgets, he doesn’t listen to me hahaha.
June 15th, 2007 at 4:47 pm
SCUD, i totally agree. That is why you should interview your financial planner well, and approach one only if he is very well recommended by someone you trust. On Suze Orman, I’m camera-shy… hahaha.
June 15th, 2007 at 4:22 pm
ryan, he thinks so, too. But Efren Cruz believes the digicam (he’s also a photographer) and laptop are part of his expenses at work. As for you, if you’re saving, investing, increasing your salary with business activities and keeping your spending low, there’s more likelihood you will have a good retirement. But retirement at 40? That’s quite an aggressive goal, but not impossible for some. How many years do you still have before hitting the magic figure?
June 15th, 2007 at 2:40 pm
can people in the province also volunteer for this MoneyMakeover thing? may i ask how? what about if they are not what you call a “financial planner’s dream client”?
June 15th, 2007 at 12:05 pm
i think it’s always smart to stay away from the wants.
by the way, hi salve. finally i started the blog. i only have two entries though. but i’m trying to populate it as soon as i have the chance.
kudos to you all!
June 14th, 2007 at 1:22 pm
I’d like to see how this turns out =) Pinoys should start doing this kind of thing before it is too late.
June 14th, 2007 at 12:48 pm
i’ve written this here before and i’ll write it again: gadgets are the worst things you can throw your money at. those things depreciate faster than a lot of other assets.
for those who intend to get one because they actually need it, define what you actually need from the product, (programming, graphics, games, office work, etc.) i keep on saying this especially to people who ask me for advise on what laptop to buy given a tight budget. i cringe at the sight of people going for state of the art goodies just for the heck of it because they end up paying for something which they will most probably not be using at all.
when you ask yourself what you intend to use the notebook for, you are in effect defining the specifications you will actually be needing, (i.e. more memory, more disk space, better graphics, faster processor speed, etc.) all other brand comparisons, (warranty, user feedback, etc.,) should then follow.
June 14th, 2007 at 7:37 am
The problem these days is finding a good financial planner/adviser. Get a bad haircut and it grows out in a few weeks; go to a bad financial advisor and your life could be ugly for a long time.
Salve, you could be a Suze Orman of the Philippines (naks!) . I agree with them, publish your own books or have your own TV show about Money Matters. I’m sure mas marami kang matutulungan.
June 14th, 2007 at 4:27 am
Wow Sheldon’s living the luxurious life. Eventhough my net pay is three times higher than his but I don’t even have a laptop, digicam and other gadgets. Though I look forward to retire in my 40’s. Wish me luck!