GUEST POST: Money and Math

(This post was written by Bianca, a MoneySmarts reader who was chosen among a long list of candidates to be part of our Money Makeover. In Money Makeover, we match financial planners with reader-volunteers and chronicle their one-year journey to their financial goals. Generali Pilipinas’ senior executive vice-president Augustus J.V. Ferreria has agreed to coach couple Bianca and Diego for 12 months pro-bono. In Money Makeover, we aim to show readers that finding financial freedom is really possible. Read previous Money Makeover articles here.)

I do not do math.

Addition

It started simple enough.  Joe wanted us to list all of our expenses every day forever.  He did not warn us that our hearts could suffer anxiety attacks because, for one, we were confronted by the fact that our expenses overshot our income by some P30,000 every month.  He also provided no explanation as to how we could have survived all this time – but our zero-balance savings, credit card debts, frequent lifeline calls to mom and dad could possibly provide a clue. It is a stressful exercise trying to figure out where our money went every day because with it comes the understanding that it went to excesses of the flesh and vanities. Want and need are becoming very delineated concepts at this time (but concepts all the same).

Subtraction

Joe had us make a list of our monthly expenses.  He then took out his scissors and cut away the expenses, which exceeded our monthly income. This included my gym membership (to which I signed up for one year minimum!), auto repairs (we have 7 and 14 year old cars!), clothing, movie trips, restaurant trips (the stuff life is made of) and altruistic pursuits (read: gifts). Joe said that if we wanted them, then we would have to reduce our spending for the items above the scissor line.  It would mean no aircon nights, commuting, and probably the househelp has to go.

Despite the pain, one important thing I learned from this exercise is that I should pay myself first.  That is, from the collective salary my husband and I receive every month, we should take 10 percent of it (the Japanese do 60 percent!) and put it away.  The key word is away – it should be where it is not in any danger of being spent.  It could be in a simple savings account, a high yielding deposit account or a time deposit account.  At the end of the year, Joe said we should have a definite plan on what to do with this money.  Joe does not believe that we should be misers.  Money, after all, is there to improve life.  (I breathe a sigh of relief here.)

Division

Joe divided our expenses between my husband and myself and assigned us specific bills to pay.  I found this extremely hard at the beginning because my husband usually surrenders (yes, it is the right word) all of his salary to me and I pay everything.  Doing it Joe’s way made me feel like I was losing control. Moreover (stress ball in hand), I have to remind my husband every time to pay his share of the bills, and he hates to be reminded (but needs to be reminded). We are still works in progress on this one.

Multiplication

This is the fun part.

Joe introduced us to the magic of stocks so that we can multiply our income a hundred-fold – well, that is the goal.

He gave me P1 million in virtual money to invest in the stock market for 30 days. The exercise had me looking at the waxing and the waning of the 10 stocks that I chose every day (okay, there were misses).  But in a day, I made P9,000, and then my profits were up to P30,000 in two weeks!  I sold all my stocks and narrowed down my choices to just five. At the end of the month, I found that I had an extra P170,000 in virtual money. I was in a world of infinite possibilities!  Oh, to what good use that P170,000 would have gone to!

Through Salve and Joe, we found ourselves in the place where it all happens - the grand arena of the Philippine Stock Exchange.  Leo Quinitio and Jay Penaflor of the PSE’s Market Education Department, Capital Markets Development Division were there to guide us and answer our every question. 

There, all of it came to life!  The board blinked at us, numbers turning sometimes green, sometimes red.  Traders were on the phone and on the computer, talking incessantly. The bell that signals the beginning and the end of trading was on one side, silent, bearing witness to the money that is being made and being lost.

Leo and Jay say that the PSE also has an online stock game that everyone can play (see www.pse.com.ph).  Like in Joe’s exercise, investors are given P1 million in virtual money to invest. In this one, though, the program even calculates the broker’s fees and the taxes so the feel is more real.  Leo and Jay also tell us that PSE offers securities courses to the Filipino investor, beginners and experts alike.  We hope to be part of it very soon. 

Money and math.  Interesting, heady, nerve-wracking, daunting, extremely satisfying.  In our own way, in our own time (well, hopefully by May 2008), we hope to have understood more, made more, put more meaning into our lives because we give more and worry less, and to finally put those two words – money smarts – down to pat.

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