May 2008 Archives

Do you listen to economists? They will have kilometric things to say about the 5.2 percent gross domestic product announced by the government yesterday. Listen closely and see if they sound like this hilarious interpretation of Alan Greenspan's latest comment on the economy by one of my favorite bloggers and Fortune columnist Stanley Bing.

“First we have Alan Greenspan whose further additions to his previously stated opinions about the situation is dutifully reported in the Financial Times and quoted in today’s Daily Briefing. Apparently we have a 50% chance of being in a recession... It seems, he says, that there is data indicating things are stabilizing, but it’s too early to tell. If we do have a recession, it won’t be that bad though, probably. He says. Unless, you know, a bunch of other stuff happens, in which case things could get worse.

Nyahaha. Sounds familiar? I get that a lot from many economists. (Not my favorite ones.) I used to think they walked one foot higher than mere mortals and aped their language. When you listen closely, you’ll realize most of them are not really sure of what they are saying. The title “economist” is used too loosely, ya know? In fact, while GDP is the most popular thermometer for economic growth as I wrote in a previous post, it doesn’t bother most hard-nosed businessmen who have lived through wars to tell their tales. The intellectuals…that’s another story. In a nutshell, here’s what you should know. Gross domestic product for the first quarter of the year was pretty depressing for most analysts and government officials at 5.2 percent, especially if you put it side by side with the 7.0 percent (adjusted from 7.4 percent) figure for the previous quarter. If you’re curious about the difference between GDP and GNP, it’s the net factor income from abroad, much of which come from money remitted by overseas Filipino workers. Looking at the figures closely will show that everything took a hit. Industrial output, farm output where most of the jobs still are, and even the ever-buoyant services sector slowed down. People are not spending as much. Government spending in fact contracted. If only this were true because people saved more. Imports, which fuel our exports, suffered badly. No surprise there. The official word is that GDP finally succumbed to higher oil and food prices and the problems of the US economy. If you live in Metro Manila, you probably knew this even before the figures came out and even if you aren’t an economist. Subic to Laguna accounts for an abnormally huge chunk of the Philippine economy. While malls are still full of people, make a quick count of the bright blue or green plastic bags in their hands and you will find out people are not really buying. So, should that make you lose appetite? Did the bad economy get you down? If you can find opportunities when everyone else sees problems, you’re made for life. Maybe this means we can slow down and enjoy life a little bit more because the economy is taking a breather, too!

MoneySmarts was invited to be a guest at Mornings@ANC last Monday to talk about budgeting and had a lot of fun! It was terrifying, to say the least. I only felt like there was a cyclone in my breast. Fortunately, all the American Idol episodes I watched helped me, hehe. You know, keeping an image of people in their underwear and all that stuff. *goes back to serious mode* I was asked to talk about budgeting and thought I would share with you some of the points we discussed. Here they are, in bullet points: • When people think about budgeting, they think about spreadsheets, about the need to meticulously jot down expenses, about walking away miserably from the things that they want to buy. It’s a painful thought -- which means it’s something that people don’t want to go through. It’s sort of like going to the dentist. A necessary evil. • If budgeting feels painful, people don’t stay glued to the budgets they create for themselves. In some instances, it can even become dangerous when not done properly, because it sets people up for binge spending. You know that feeling, when all hell breaks loose and you leave the mall with a big-screen LCD television that you don’t know how to pay for. • Of all the philosophies out there about budgeting, my favorite is the one about calling it a spending plan, instead of a budget. To me, this puts budgeting in the proper perspective, because budgeting is not all about the money, the numbers, or how successful you are about beancounting. It’s all about enjoying life and making sense of your blessings and respecting them, using them properly. It’s all about peace of mind. • Some financial planners would want their clients to jot down everything they are buying – even a piece of gum. They would put all your expenses for one month into a spreadsheet and wait for that moment when your eyes would go big and wide and you would say “I didn’t know I spend THAT much every month!” When you say that, they’ve got you right where they want you to be. Because you would feel miserable and helpless. • Some financial planners that I have worked with, though, do not just focus on the numbers but on the attitude. In the beginning, few people really know how they spend or even what they earn. That sets them up for a fall if and when they receive big windfalls, like Christmas bonuses. Let me ask you a question, do you know exactly where your Christmas windfalls last year went? • So let’s simplify how to create a winning spending plan. There are only three basic steps. One, find out how much you earn and how you spend it. Two, set goals. Three, track your spending. • If you’re the type whose heart goes flip flop over numbers, then it would be a good idea to use spreadsheets. Better yet, use programs like Quicken or Microsoft Money. Input some numbers and voila, these programs will make your budget for you. • Now, how many people do you know fall in this category? I don’t. I hate counting money. I like spending it. I am terrible about record-keeping. A lot of the people I work with also don’t fall in this category. ≈ • But, all is not lost. Here are some of the tips I have learned in the course of writing about personal finance and interviewing experts.

1. Skim from the top to pay yourself first. When you get your paycheck, set aside immediately the amount of money for savings. Treat it the way you would treat your Meralco bill. Then whatever happens, don’t touch it. You wouldn’t ask Meralco to give you back some of your money cause you went broke right? I learned this from Pascual M. Garcia III, president of Philippine Savings Bank.
2. Power up this tip by automating your savings. If your bank can’t do this for you, transfer to another one.
3. Do the envelope thing if you don’t like spreadsheets. Immediately after that, set aside in different envelopes the money for utilities, wet market, baon, parking space etc.
4. There is a sophisticated equivalent for envelope budgeting. Start by setting up a no-touchie savings account. Then an investment account and an expense account. Transfer money immediately after you get your paycheck. If, at a certain point in the week, the money in your expense account goes down to a red-flag level, you know you’re in trouble even if you don’t do serious accounting stuff. This removes fancy accounting footwork. I learned this from Joe and Nanette Ferreria.
5. Give yourself fun money. This let’s you enjoy life without breaking the bank. Sets a limit on what you want to spend on.

Marieton Pacheco and Ron Cruz, at one point in the program, were very interested in finding out what’s a good figure that should be set aside every month for savings. Some experts say it’s 10.0 percent. Some say that’s too low. I tend to listen more to experts who have worked a lot with people, not those who have just read about personal finance and know these things in their heads. Real practitioners tell the people they work with not to get hung up on the exact figure. It can start with 5.0 percent, or 10.0 percent. I also told them about loyal MoneySmart readers like femaad who have lived on single income even if the family actually has double income! The key is to START as soon as possible, then do it consistently and developing the discipline, and setting a goal so that this starting level increases over time. Again, it’s not all about the numbers. It’s about the attitude and the discipline. This way, when big money comes your way, you’re less likely to be a one-day millionaire Times are hard and people are feeling the pinch. It’s imperative to start budgeting carefully but don’t forget, fun shouldn’t stop when the budgeting monkey arrives. It’s just about to begin Thanks again to Mornings@ANC for the opportunity.

(This piece is written by Bianca, one of the readers of MoneySmarts who has been chosen for the one-year Money Makeover challenge by INQUIRER.net. Bianca’s real identity is confidential, so that MoneySmarts can share her family’s financials and the lessons she has learned with the rest of the world. Read more about Money Makeover here.) I am stumped. I had been meaning to write about our recent family trip to Hongkong and Macau. As a matter of fact, my computer bears the digital imprints of so many lines and pages written. But for the life of me, I could not strike the “send” key. It struck me why one night. I never could justify – even to myself – why we did it. A family undergoing financial overhaul simply does not go on trips. What example would I be? What message would I send? The shudders would not stop (even as I grin at the memories). But, hey, we did it. And it, oh, set us back a few months. But there were valuable lessons we learned along the way. Joe and Salve knew about the trip. I was shaking when I told them – partly because of wanting, partly because of fear, partly because I thought I would have to defend myself, partly because I was wracked by the guilt that is the genetic imprint of my mother. But, lo. Joe and Salve said we could turn the trip into a challenge. They asked what budget I wanted to set. Eyes blinking, I said P30,000, all in, for a family of three. I was almost sure that I will make it, having done it the year before during our trip to Malaysia and Singapore, a welcome retreat after the grueling bar exams. Of course, I overshot the target. When that Canon 400D at a small Hongkong shop with an over-attentive salesman flashed those power lenses at my husband, that P30,000 budget went up in smoke. He had to buy it. For business (I chimed, miserably, in my head). With the camera, which catapulted us toward the edge and beyond, we spent P70,000. But hey, it included a trip to Disneyland and Macau and several authentic Chinese meals, some in quaint little hideaways after climbing rows upon rows of escalators upon elevators, and, as my daughter said, priceless time of running hot baths, walking hand in hand, using chopsticks and twirling in Dumbo’s cups (okay, this is Disneyland talk). Our daughter actually expects that we will do it again this year. Oddly enough, I am unperturbed. Shaken, defensive, yes, but unperturbed. After all, theories must be tested in the bed of reality, lessons must be learned and burn deep, so that it will linger and be remembered. Until the next time.

I am a martial law baby and have shouted my share of chants at rallies and demonstrations as a student, but what I know of Crispin Beltran are only what I read in the papers. Today I find myself deep in thought at the life of the lawmaker who fell yesterday to his death while repairing his roof, with merely P50,000 to his name and two barong tagalog, a pair of eyeglasses, cabinet shelves and t-shirts listed as personal assets. Was Crispin Beltran poor? What does it mean to be poor? There are times in life when you find yourself and your whole value system challenged by a thought, an act, a single event. Ka Bel’s death challenged what I know about being poor. In personal finance, we talk endlessly about being frugal and saving coins in a jar. We hem and haw about where to put our P20,000 windfall and whether we can grow that into P1 million … eventually ☺. We debate with ourselves whether the rollercoaster ride in the stock market is worth the headaches. At the end of the day, is it just about how much we make and how much we keep? Or is it about how we live our lives, using whatever we have? I came from a poor family but strangely enough, I didn’t feel poor until I became a moody teenager. I know of another person who, because of poverty, hoarded food in her cupboards even as a successful businesswoman because she was scared of the painful pangs of hunger. Those who had gone through much financial suffering are marked by that experience for life. But take a look at this paragraph in The Philippine Daily Inquirer article on Ka Beltran:

“Despite millions of pesos available to him as a lawmaker, Beltran lived a simple life.”

We all know about “those millions”. In my mind, choosing to be poor that way is noble. In our lives, we will probably come across those kinds of crossroads. Hopefully when it’s my turn, I will have the moral courage to take the path he chose. There are other kinds of choices that can help us live fully and nobly while reducing the chances of suffering financially. The choice to be responsible with debt. To live simply and save more grandiosely. To delay gratification. To check this blog from time to time. (heh) Kidding aside, at the end of the day, better money management can also help us do more, serve more, laugh more, and spend more time with family and friends. I do not know everything about Ka Beltran and his life. But assuming everything that was written about him in the end are true, then he knows something about being poor and being rich that many in this world don’t. I'm inclined to think his was the better choice.

Business columnist Margie Grey fired off a very interesting question at bestselling personal finance author Efren Cruz during a radio interview last Monday at DZAR Sonshine Radio (1026). She asked

"Is it really possible for a minimum wage earner or someone who makes just enough for a living to become a millionaire?"

I’ve been thinking a lot about that lately. Someone who takes home P382 per day (which includes the P20 scheduled minimum wage hike in the National Capital Region announced last week) gets P7,640 on a monthly basis on a 5-day week, gross. I can’t even imagine what that paycheck looks like after social security deductions. Saying the amount doesn’t look like much is the understatement of all time. Efren Cruz believes it is possible to be a millionaire from this starting point. But it will take more than lotto tickets and candy-colored dreams. In many cases, it will involve getting a second job or extra work on the side and cutting down on expenses (most definitely vices like cigarette, alcohol and tong-its if you ask me). It will take discipline and commitment. Our personal finance article today "What will it take to become a millionaire?" lists down seven rules that self-made millionaires live by. On their own, they may turn us into better persons although not necessarily millionaires. Together, they can bring us closer to that first million, and we all know the first million is the toughest.

1. Treat money as something to save and invest. The minute you receive your paycheck or a windfall (example, an inheritance or a bonus), think of how much you can put away as savings.
2. Assume some risk when investing. When you play safe in investing, you’ll get safe (but low) returns as well. Millionaires have gone out on a limb putting up businesses which they hoped would earn — nothing is guaranteed. But it is in taking calculated risks that they are rewarded.
3. Live simply. Some millionaires have lived in the same homes they have had for the past 30-40 years. Or they live in the homes they inherited. You can also take a cue from the way millionaires live: not all party every night, nor do they buy every new car model that’s released. Instead, you’ll find these millionaires working at their desks at 8 a.m. and having just two cars in the garage.
4. Have a goal. By being specific, you will be more motivated to reach your goal. For instance, make it your goal to have your own home by the time you are 35 or 40. It may be a studio condo unit or a three-bedroom home in a subdivision—it will depend on your income and how you save over the years. Having a goal will help you focus your efforts well.
5. Choose good debt over bad debt. Take out a loan only when the loan proceeds will be used to earn you more money. For instance, apply for a bank loan to expand a business that’s feasible.
6. Share your blessings. There seems to be a unique mathematical formula at work: The more you give, the more you are blessed back in return.
7. Train children to handle money well.

Read more here. There is nothing on the list that says it will be easy. But it has been done. There are more millionaires around us than we think, and interestingly enough they are the ones who have simple clothes, eat in simple places and drive cars that are not flashy.

Based on our poll last week, MoneySmart readers who responded paid P1,179.79 per person per month for electricity. It appears that I am paying less than most of you at P850 per person, but my dears, I wouldn't complain if my electric bill goes even lower! So I searched the Internet and found myself cross-eyed at all the power-saving tips out there. Thing is, am I serious enough to follow through on those tips? Are you? For example, I have been meaning to replace our 13-year old refrigerator with a newer one that’s more energy efficient but have been dragging my foot because I didn't want to shell out cash. Silly, I know. Some cash outlay in the short-term, but more savings in the long-term! But isn’t it true we lose money everyday on unreasonable and silly things? One day drags into weeks, and my dillydallying may allow my refrigerator to live for yet another year. As with many personal finance issues, action speaks louder than words. When I traded my old PC for a laptop, I reduced my electricity bill by more than P500 a month. Information from the Meralco website shows that might be because of the many voltage regulators and transformers that were working 24x7, along with the bigger screen etc. etc. They bleed our pockets dry even when we are sleeping. But to be honest, that saving was not a result of my wanting to take action. It was consumerism’s blessing in disguise. I merely fell in love with a Mac! The point is, knowing how to shave off at least P1,000 on your electricity bill is easy. You can start with the Meralco website that lists down lots of “electricitips” and has information on the wattage requirements of common household appliances. Helium.com and Stretcher.com have more useful tips and there are many, many more resources online. The question is whether we are frugal enough to follow through on these ideas. Tell you what, let’s have another contest. The person who shows me the biggest reduction in electricity from May to June (computed on a per person basis) gets a simple treat from MoneySmarts. Are we on? Send electronic copies of your electricity bills for May and June to lightdream (at) gmail (dot) com. It's a worthy goal. Hope to hear from you in July!

(This piece is written by Bianca, one of the readers of MoneySmarts who has been chosen for the one-year Money Makeover challenge by INQUIRER.net. Bianca’s real identity is confidential, so that MoneySmarts can share her family’s financials and the lessons she has learned with the rest of the world. Read more about Money Makeover here.) A financial planner (not Joe Ferreria) told us: sell your timeshare. My husband and I communicated silently the way old lovers do – with a look (or a glare, but that is another story) – and made a decision. We will not. I think he understood the hesitation and communicated to us his silent admonition. Insolent fools. At the back of our minds, we had a suspicion that he was right. Not about the fool part (although we could be sometimes that too), but about our timeshare. After all, we had a strong opinion against timeshares in the beginning - a waste of money, will cause delusions of beaches along Belize, sun stroking our backs, while the Pacific mirrors our dreams. Not that it’s a bad dream. But believe you me, a timeshare costs an arm and a leg. It ranges from P250,000 to gazillions (think Disney timeshare - I could not even get a quote on how much that is), depending on the location of the rental, the season (red, white and blue), and how unwilling to bend the sales person is. Think where that money could have gone – a downpayment for a new car, a new house, education…. But it does not end there. It gives birth to other expenses – yearly maintenance fees (which went up from P2,500 to P4,000 in the blink of an eye), RCI fees (S$150 annually –in Singapore dollars, but with the current exchange rate, it might as well be in US dollars), booking fees that could range from P2,500 (Asia) to almost P10,000 (outside of Asia). It does not include airfare, or the cost of food. The RCI hotels, although three or four stars, are almost always in the outskirts of the city – that means it is 30 minutes away from where the action is. With cab fares, we could have had a decent room at a city hotel with dancing lights, Prada and great food at our doorstep. But it is not all bad, as we have found out in our two years of owning one. With it, we only spend approximately P3,000 per night, and if the trip is stretched a week, the discount could be really substantial. Moreover, the accommodations are almost always one bedroom suites, and they say that if we are really kulit (translation: a charming prick) with the RCI agent at the other end of the line, or during low season (August to October), we could even be given a two-bedroom suite (good for 6 people). Match the hotel savings with really low airfare (through Clark, the other gateway to Hongkong, Malaysia, Singapore, Korea), it could satiate the wanderlust in anyone. For our first trip, our family (hubby, daughter and myself) went to Malaysia and Singapore and spent P30,000 for five nights (four nights in Malaysia, one in Singapore), inclusive of airfare and food. We recently went to Hongkong and Macau (for 4 nights) and spent P40,000, also inclusive of airfare and food. But do we recommend it? We do not. Well, at least, not to everyone. It certainly was not value for money to our parents, who had two timeshares. They paid approximately P700,000 for both and they got seven days at a one bedroom suite at the back of the Flamingo in Las Vegas, Nevada (the sign on the wall says $1,000 per night and that was a source of a little comfort) and seven days at a one-bedroom suite at a manor near Legoland in California. Sounds plush, but however I do the math, it is not P700,000. They tried to save up their weeks and were planning to go to Europe but travel was put off year after year after year because the kids got married, houses had to be built, the farm needed to be farmed and so forth. The timeshares expired and they never got to go. A timeshare is a commitment. It is for people who love traveling with a passion, love to do research (for cheap airfare, great places, good food), and, at the onset, the temerity to haggle with the timeshare salesperson until that person buckles down and gives the lowest-value-for-money-price imaginable. There will be hits and misses, we know. But we are passionately excited to see the rest of the world as a family, to hear the lyrical overtures of another language, introduce our daughter to life’s many wonders, and immerse ourselves in the magic of cultures so fascinatingly different from our own. Our timeshare keeps the door – doors – open. Yes. We are keeping it.

From 2008 to 2010, official estimates show that Filipinos will need almost two million new homes for families that are either currently renting, living with their parents, or are just about to start a family. Many will most likely be bought through bank financing. For those who are in been-there-done-that mode, you probably know how easily a dream home can turn into a nightmare. Johnny Noe Ravalo today tackles several issues that most homebuyers find out only after the move. Do you build the home yourself, hoping to find a hassle-free contractor, or go for a house ready for its new occupants? I don’t know about you, but the words hassle-free and contractor don’t exactly sound like they should go together. On the other hand, the problem with buying a house ready for occupancy is the likelihood that you’ll wake up the next rainy season with seepages in your walls, or some other surprises that will drive you mad. Noet says there is no golden answer to this.

There is no golden answer. I know of one couple who took a mortgage to buy a home before getting married. They ended up with outlets that short circuited anything plugged into them, aircon outlets that didn't work because there was no electrical wires attached, a fuse box that was underpowered for the house and a living room that were eight to ten inches deep when rains were heavy. Oh, did I also tell you that the kitchen sink refuse went straight out of a hole into the street so their neighbors literally knew what was cooking for the day? Building a home isn't any easier. If you don't have any reliable contacts, hiring the labor is going to be a big problem. Would you or your spouse have the time to physically supervise the day-to-day build up of your dream home? More importantly, could you tell if something being dug, cemented or wired was not in order? My own experience with contractors hasn't been encouraging either. Again, even if you are physically present on site, you depend on the contractor to get several different things moving at the same time, working towards the same goal. Since contractors end up committing to several simultaneous projects, they often outsource jobs with contractual workers. This is a hit-or-miss situation since it is difficult to impose a quality standard. Besides, even if the contractor's own employees do the work, individuals do the digging, cementing, cutting, welding, the wiring. It is impossible, and unproductive, to have someone second-guess each and every worker. In the end, there is a fair amount of trust --- and luck --- involved here.

Financing a home is equally tricky. Although interest rates are very friendly these days to homebuyers, there’s still the issue of whether to get fixed interest rates or not. In his column, Noet says fixed rates for 25 years is not a bad deal. But if you’re tempted to stretch the loan to 30 years to lower the mortgage to, say, P5,000 monthly, keep in mind that interest is paid on outstanding balance and not on declining balance.

Those who argue that a fixed rate loan prevents the borrower from taking advantage of falling rates lose sight of the fact that the borrower is protected from the repricing uncertainty. The borrower cannot be protected from repricing risk (both up and down) and still have the benefit of downward flexibility if rates fall. Kamille, check the website of different banks, especially the housing loan calculators. This gives you a clear idea of the monthly amortization, depending on the amount to be borrowed and the term of the loan. Going for a very long-term housing loan will not always be good. Remember that interest is paid on the outstanding balance and so the longer you maintain a loan the more you pay in interest. Choosing too short a term will also not work well because a higher monthly amount may be too much to bear. If something unexpected happens with Kamille's income, the mortgage is in trouble.

As Noet pointed out, every homebuyer ends up with a unique house story. Even those who are satisfied renters have their own. I got swarmed with comments when I wrote “On my Christmas wishlist: a new house”. Check it out here. So, what’s your story?

One of the hardest, if not THE most difficult thing to do in improving personal finances, is not learning the math nor finding out how to boost investment returns. It’s adjusting one’s lifestyle to suit one’s income. There’s difficulty on both sides of the table – when the income is rising or when it’s shrinking. When Dad gets a big jump in salary, he thinks of getting a faster car. When mom gets a big break in her home business, she thinks of getting a new condo. What happens when the global economic slump hits Dad’s company or mom’s big break unexpectedly turns into a big heartbreak? The kids are not the only ones that find it very hard to get used to a smaller house and a less funky ride. Today’s personal finance article “Learning to cope with a single income” is about a mom who decides to stay at home for the kids. It’s also about adjusting one’s lifestyle to a shrinking budget:

Question: I am a mom with two kids, ages three and one. Every time I go to work in the morning, I feel a pang of guilt leaving them with their yayas. My husband and I have decided that I give up my job and stay home to take care of the kids. I’m happy about that, but also nervous about making ends meet in the long run. I’m due to resign at the end of the year. Can you please give me advice on how we can live well on my husband’s income alone? – Annie

The advice below are crucial to her and her husband’s peace of mind:

1. Practice living on one income for the next seven months. This will help you assess your financial resources and adjust your lifestyles. Live as if you are already supported only by your husband’s income. No doubt this will be difficult, but practicing now will help you see how you can live simply. Start by cutting down on eating out. Bring baon to work. Start taking public transportation if you have been used to taking the car. Cut down on splurges, such as weekly home massages and trips to your favorite coffee shop. There are many ways to simplify lifestyle.
2. Save your income for the next seven months. Since you will be living on your husband’s income, put your income away as an emergency fund that can support you in times of crisis (e.g., illness, job loss, death). You will need this fund to dip into in emergency cases so you won’t have to borrow money and pay for the cost of borrowing. This fund may be placed in investment products that may potentially earn more interest, such as high-interest savings deposits, time deposits, bond funds or equities funds (from mutual funds or unit investment trust funds). Putting your money in such instruments will give you more interest than a regular savings account.

I like how Annie thought this through. She did not decide on the spur of the moment. Choosing to be a SAHM (stay-at-home-mom) by the end of the year gives her some leeway. Emotional moms who feel those pangs of guilt can easily quit, just like that. I know, as I’ve felt that urge many times in my working life. So, since Annie knows when she will have to deal with a much-lower paycheck, she can prepare. Why wait for December to adjust? Start pretending to live on a single income right now and consistently set aside her salary in her buffer fund. Or at least start with a 50% savings, and make it a family challenge to stay within the budget for the next couple of months. As always, careful preparation and delayed gratification is key. Check out the rest of the article here.

I know this lady who almost received a new La Germania gas range oven that cost around P20,000 last weekend, but opted for a P400-bunch of yellow calla lilies, homemade paper cards and lots of hugs and kisses. The P20,000 went into the family savings. Do you think she’s… a) nuts b) a miser c) sensible d) smart With gas already at P50-something per liter, rice prices higher by more than P10 since the crisis began and everything else going north, I would be surprised if inflation hasn’t curbed spending for Mother’s Day. In fact, mothers were most likely the ones who discouraged lavish celebrations! Read our personal finance article: Inflation cramps Mother’s Day celebrations.

Excerpt below: Inflation cramps Mother’s Day celebrations

By Chupsie Medina INQUIRER.net

With Mother’s Day fast approaching, searching for that ideal gift poses one big challenge. Skyrocketing inflation compounded by continued hikes in crude prices have turned cost into a major consideration.

Stores big and small are now enticing gift-hunters with just about anything – from the cute to the fabulous. Restaurants too are sprucing up.

For some Filipinos, cost hardly factors as an issue. Cecille Yap, a doting daughter, quips: “Mothers are priceless, so it doesn’t matter if times are hard.”

This year, as in previous years, she will still make time to buy something for her mother. She doesn’t mind purchasing something more expensive, thanks largely to a bigger disposable income.

Those who feel the constraints of rising fuel and food prices, however, are resorting to more creative gifts. Koni Macapagal, 28 and single, plans to stay the whole day at home with her mom.

“Time with her is something that I have not been giving lately. I’m like a boarder in the house,” she proffers with a guilty grin. She feels this gesture will be better appreciated than the unforgettable little things she had given in previous years.

Here are some ideas for financial and non-financial gifts for Moms, some of which are based on true stories: 1. Zero out or at least pay a portion of her credit card debt. (Based on a true story) 2. Buy her a good timeshare in a good company or hotel chain. 3. Placement in a mutual fund or unit investment trust fund 4. If she’s still in her 20s to 30s, shares in companies that are sound and secure. Retail treasury bonds are also an option. 5. If the budget is tight, breakfast in bed with toast, jam and freshly squeezed juice is always a hit. One year to plan for another successful Mother’s Day.

All these talk about Meralco and the high cost of electricity has made me wonder what the average Filipino household’s power bill looks like. To make the comparison fair, why don’t we divide our electricity bill with the number of persons living in the house, including babies. I think the little darlings consume a bigger amount of electricity compared with the average person (need for airconditioning etc.) For April, I paid P805.88 per person. How does that compare with yours? *** Meralco shares went into a nosedive today after news of a possible investigation (good luck with making it look like a friendly Q&A) by Congress into how Meralco runs the show. If there’s anyone in the audience who doesn’t know that this is politically driven, raise your hand. No hands? If this entire hullabaloo actually brings down my electricity bill, goodie. But here’s a So What Chocnut snippet that people should not miss. Exactly 20% of that electricity bill goes to Meralco. If you look at your bill, you will see the biggest portion is called generation charge, which goes to the independent power producers and the National Power Corp. Yes, that means the government. That simply means the power to bring down electricity rates is in the government’s hands. And that should make you wonder what the administration is trying to do. This early, the business community is already worried. Of course they are not buying the we-want-to-drive-down-electricity-costs-for-poor-Filipinos line. Former central bank governor and AIG's standard bearer Joey Cuisia has already been interviewed on television saying, "After Meralco, who next?" Not good for business confidence.

Quote for the day:

People think they can invest P20,000 and grow that to a million if they are smart enough. That’s an urban legend. Truth is, you need money to attract money. Capital formation is very important.

-- Augustus J.V. Ferreria, senior executive vide-president of Generali Pilipinas, in a MoneyMakeover session May 5, 2008.

The idea of investing is sexy. We are all in a hurry to do it. The more technical and highfaluting, the better. Stocks, bonds, forex, real estate – bring them on! The wisdom of the wise tells us to make sure we have the “pisi” (rope) to invest and make money even during market fluctuations. Yes, even for supposedly–dummy-proof instruments like mutual funds. We must consider worst-case scenarios before we let excitement push us to jump without a chute. Dr. Noet’s column today explains for example that even for assets we are planning to hold to maturity, we cannot just be fixated on the specific date in the future when we will get our principal plus the discount or minus the premium. We must also think about what will happen if worse comes to worst, we need to liquidate before that time.

A high income or extensive wealth will allow a select few the option of holding onto assets irrespective of market swings. Indifference is a clear clue that they have judged themselves to be liquid enough to either withstand the market spikes or remain focused only on the maturity date. This is the privilege of having a "mahabang pisi".

For most retail investors though, our pisi is much shorter. We are much more prone to a liquidity squeeze and more likely to react when the day-to-day value of our long-term assets are fluctuating. The irony is that when investors sell when prices are already falling, values drop even further. Panic begets large losses and large losses beget further losses.

“But this opportunity comes only once!” the thought reverberates in my head. “Nah,” reason sets in. That’s greed talking. Conserve financial strength, build up capital, choose tradeable investments and only then invest. Breathe in, breathe out. :-)

With ten short days to go before Landbank of the Philippines ends the offering period for its long-term negotiable certificates of deposit, confused overseas Filipino workers are still at a loss on how to access the offering. At the heart of the problem are Landbank’s feeble presence overseas and a ticklish issue on documentary requirements. You will find many examples of those concerns from MoneySmart readers in my previous posts on the LTNCDs here and here. Joey Sale, a senior analyst at Landbank, said the bank has held meetings on these issues Monday afternoon, conscious of the difficulties the OFWs are facing. He said Landbank’s overseas offices could process applications from OFWs who want to buy the LTNCDs themselves and not through relatives. There are offices in California, Italy, Singapore, Japan, Taiwan and three in the United Arab Emirates. (A full list with contact details can be found here.) But with almost eight million OFWs scattered all over the globe, many would likely not be anywhere near those areas. HSBC would be their next option. Since the LTNCDs are onshore instruments, it is still not clear whether HSBC can offer the instruments in branches outside the Philippines. However, Joey Sale said interested OFWs may ask HSBC branches if they can process the application. I guess it can’t hurt to ask. Documentary requirements were also a major ticklish issue. There has been a clamor for Landbank to relax its requirement for a special power of attorney giving relatives of OFWs the authority to make the investment for them. While Landbank is not likely to relax this requirement because of legal constraints, it is considering extending the deadline. However, OFWs may have to submit another legal document called “deed of undertaking” (don’t lawyers complicate our lives? Hehe, peace!) where the OFW promises to deliver the special power of attorney after a period of time. This has not yet been finalized, though. (Just a heads up for all of you out there looking for a way to invest in the LTNCD.) So far, there has been lukewarm response because of these access issues. As of Monday afternoon, availments have only reached P2.65 million. Landbank is waiting to see if the demand will snowball this week. There are also talks of a second offering, but nothing definite yet. With inflation figures said to reach 8% this year, Joey said those who are looking at real effective interest rates and not just the nominal rate of return find the LTNCD returns low. “It’s true, that’s a concern. But you can’t get similar interest rate for a similar investment in other banks. Time deposits that give lower rates will require you to put in P50,000. The LTNCD’s minimum is just P13,698.91,” he said. Joey Sale has agreed that I post the investment banking department’s phone numbers in MoneySmarts. I do hope calling these numbers will give you a better experience than the hotline or trunkline. Good luck! Contact: Joey Sale – 405-7228 James Saldana – 405-7732 More details on the LTNCD here. (P.S. Done in the service of the OFW, NOT for Landbank.)

How do you prepare yourself for a loved one’s death? Not exactly a peachy thought on a MoneySmart Monday, I know. But as they say, there’s no going around death and taxes. And while it may be easy to prepare for the loss of a loved one financially, the emotional part is something else again. Can you attache a peso sign to that? This story from MoneySense about a widow’s journey from tragedy to triumph is worth the few minutes it will take to go through it from start to finish. Very inspiring. Excerpt below:

I got the worst possible news that a wife could ever receive: a six-seater Cessna plane carrying a skydiving expedition crashed in Tanauan, Batangas. One of the four charred bodies they found belonged to my husband, Jimmy del Rosario II. Pilot error, I was told. On May 8, 2005, I felt that the world closed in all around me. I could not bring myself to go to the morgue to identify his body. During the first year, I cried everyday. But I also knew that I had a little girl and her future to look after. It was a good thing that we had gotten her an educational plan. One of the provisions of her plan with Philam was a waiver of all the fees if the payor dies. My daughter automatically received the full coverage of the plan. I also received something from Philam, as well as an amount from the insurance coverage of the aircraft company. One-woman show I had the option of selling our businesses and going abroad, but I decided to tough it out despite offers to buy them. I knew that I could run the business, since Jimmy had taught me a lot over the years. But I found out that I still had a lot to learn. Jimmy had very good social skills. He was very outgoing, while I was the quiet type who prefers to stay in the background. He was the salesman and I was the accountant. That was our teamwork. He handled employees who were getting out of line. The biggest part of our income came from Jimmy’s bulk sales of accessories, because he was the one who had a lot of contacts. I took on all the challenges. I started talking more to people, especially our employees. I let them feel that they can come to me with their problems and that they were part of my family. This is an integral part of our business, because building a relationship with them helps us to trust each other. We carry the latest accessories, such as LCDs and housings for the newest models. My technicians are constantly surfing the Internet to find out what is new. In this business, you always have to know what is popular or what the customers will ask for next. Filipinos, by nature, want their gadgets to be flashy and up to date. Our peak months are the “-ber” months when people have more money to spend. Since my shops are scattered in malls across Metro Manila and outlying provinces such as Bulacan and Cavite, I run things from a central office, and a runner goes to the shops for me. I am very hands on; I work late if I have to, monitoring inventories and checking if everything is in order. I feel that I have to set an example for my employees. I cannot show them that I feel lazy or they will start to get lazy themselves. Running a business full-time can get stressful sometimes – to the point that my employees tease me and request that I comb my hair once in a while. Slowly but surely There are still consistent offers for the shops, but I politely turn them down. From six shops, we now have eight. We have also added new services: downloads for MP4s, MP3s and PSPs. These are added income for the stores. There are times that I want to pinch myself. I cannot believe that I was able to handle this male-dominated business by myself. I cannot believe that slowly but surely, there has been growth and progress in my life.

There are few absolutes in financial planning. By absolutes, I mean things that work for the entire universe of persons wanting to have the money-smarts to be financially secure. But one of that is protection. Savings, protection, investment. It can’t get as basic as that. There are different ways to attack these absolutes but each one requires the ability to conquer the need for instant gratification and doing something as boring as preparing for something that will happen in the future. Thanks for sharing your story, Maneth. (P.S. No, I am not in the payroll of the insurance industry.)

Investment professional Alijeffty Gonzales has a simple idea for Filipinos working overseas who want, at the very least, to protect their capital and still get their feet wet in the equities market at the same time. In his blog post here, he says any OFW can do this by putting at least P13,699 in Landbank’s long-term negotiable certificate of deposit and investing P6,301 for any equities fund of his choice and voila – you have an equity-linked note or ELN. Sounds highfaluting, eh? ;-)

An ELN basically combines a zero-coupon note with an instrument that invests in more volatile (exciting) securities like stocks. As the zero-coupon returns 100% of the face value at maturity, any residual value of the stock portfolio becomes "gravy" at the concurrent reckoning date.

Here’s Jeff’s math: Scenario 1: On the fifth year, stock market drops to ZERO Scenario 2 : the stock market is flat (zero growth) Scenario 3 : The stock market grows by an average of 8.00% Jeff says:

Looking at the extremes, this portfolio will return 100% of your capital at the worst case scenario and enhance your return to 8.42% at a modest stock market growth, this could be a great opportunity for OFWs who are contemplating to invest in the stock market for the first time.

Here’s MoneySmart’s take: Good for investment beginners, which means most Filipinos, not just OFWs. If you are saving for something that will be happening 5.5 years from now, say you are sending your son or daughter to a university overseas or you will be needing a downpayment for a car or a small house -- and you are positive that if you don’t set aside money NOW, there’s a chance you won’t be able to shell it out in the future, then lock in your money Jeff’s way. A 7% return is low but still much better than those offered by some pre-need companies and current time deposit rates. Plus, I would rather put my money in a government bank that is less likely to fold up than some little-known investment company offering the moon and the stars. Hello PIPC, heh. (In case you're wondering, no I don't have a deposit account in Landbank that will mysteriously grow sinfully big in the near future. Nope, this is not a paid advertisement.)