Pinoy Investor asked a very incisive question:
We used to have funds for education, retirement and cost of living. But I used them up for our businesses. They became fixed assets, inventories and working capital. Our personal and business assets got mixed. Good or bad?
In one of my interviews with a financial planner, I learned that a common problem among Filipino entrepreneurs is a tendency to mix business and personal finances. Meaning, once a business takes off, the owner dips into the business moneybag to spend for personal stuff. By this time, his lifestyle has of course changed and he needs more grease to fuel his spending and for a time, he will feel like everything is going okay.
It’s like putting a parasite inside the business, and pretty soon the business will suffer but the parasite grows. In extreme situations, when he needs to scale down or close shop, his lifestyle no longer adjusts.
Pinoy Investor, on the other hand, cites a totally different situation. He has plowed personal money into the business, not the other way around. Funds for education, retirement and cost of living have become fixed assets (perhaps used to pay for more equipment?), inventories and working capital.
If I’m reading the situation right, instead of investing elsewhere where the returns may not be that good, why not plow the money into the business? Hitting two birds with one stone.
There are two things wrong with the picture. We are always told to avoid putting our eggs in one basket. The different risks from different kinds of instruments and the different returns, all told, will help us gain a better portfolio than just putting the money in one investment with an expected above-average return. And it helps us manage risks, too.
There’s also the issue of money and emotions. By keeping separate funds for education, retirement and cost of living, we can insulate our personal lives from anything that may happen in our business.
We have to admit that by going into business, we can make it big. But we can also lose big. Keeping business and personal separate is being prudent and very wise. 
Thanks for sharing, Pinoy Investor.
July 27th, 2007 at 11:14 pm
There is also the issue of asset protection. Remember that we run the risk of losing properties & businesses when we fail to employ proper asset protection measures. I recommend this book about Phil. Asset Protection Law–”How To Protect Your Property and Business From Law Suits” by J.V.Lopez
July 27th, 2007 at 12:20 pm
salve, thanks for the good advice. For me, the most useful concept in investing is risk & return. By shifting from mutual funds to businesses, I moved from low risk/low return to high risk/high return. That could be good or bad if you’re a risk taker or risk averse.
Betting the house may not be prudent but some people just couldn’t resist the temptation. I hope I’m not one of them.
July 26th, 2007 at 5:34 pm
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