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.)
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.