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 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.