“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!
May 2008 Archives
- 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.
- Power up this tip by automating your savings. If your bank can’t do this for you, transfer to another one.
- 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.
- 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.
- Give yourself fun money. This let’s you enjoy life without breaking the bank. Sets a limit on what you want to spend on.
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.
“Despite millions of pesos available to him as a lawmaker, Beltran lived a simple life.”
"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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Train children to handle money well.
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?
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? – AnnieThe advice below are crucial to her and her husband’s peace of mind:
- 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.
- 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.
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.
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.
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.
“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. :-)
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.
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.)
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.)