Filipinos love houses. It’s no secret that the ubiquitous Filipino seaman pays for a window this month, a wall next month, the backyard the following month…all in the name of a happy house for his family.

Today’s Money Myth Buster is really easy. The tip is: Buy your second house first.

The common tendency is to buy the dream house on the first try. That means buying the one that has the ideal living room, the kitchen that opens up to the east, the house with a bath for every bedroom and two or more guestrooms. Budgets are stretched to the limits. A few months later, amortizations and other hidden costs and series of unexpected expenses become totally agonizing. This tip says this is not a smart way to buy a house.

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A grocery receipt is a thing of beauty. It shows all our angst and anguish, our hidden aspirations and frustrations :-). I certainly felt that way as I was thumbing through my two-feet-long grocery receipt and decided, then and there, to cross out items that I could live without.

A month later, sandwiched between tall shelves of SM Hypermarket, I was smiling smugly, feeling like a new person. Ha! I shaved off around P3,000 from my monthly food and toiletries budget. (Bow with a flourish).

If you or somebody you know is really hurting for cash NOW, why not consider trimming the fat off your budget. This is certainly not limited to grocery isles and will go a long way towards curbing that spending habit.

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Ahh… Divisoria. Where brave men dare not tread. But get a couple of mommies together, throw in some single ladies looking for a good bargain, and you are good to go.

A lot of people think going to flea markets saves quite a bundle of money. In December 2006, when the economy was scraping the bottom, Agence France-Presse reported that Filipinos flocked to places like Divisoria, Baclaran, Quiapo and other bargain shopping areas instead of glitzy shopping malls. For many, it was the worst Christmas in years.

And these are not just the masa you are talking about. There are a lot of Divisoria divas in the rich mommy club. Take Melanie Marquez-Lawyer and Tessa Prieto-Valdes, for example.

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When our emotions run wild during shopping, our wallets take the hit. I have heard people I interview say time and time again that the most foolish purchases they made were done at the spur of the moment. Most, if not all of them, turned out to be very emotional decisions.

While I was attending a time-share or vacation-share marketing presentation for the first time, my jaw dropped when everyone stopped what they were saying to clap furiously at some couple’s decision to “invest” in the product.

At that time, it was very disconcerting and irritating to me, as I was furiously trying to figure out what the product was all about and what it would cost. Turned out it was a common strategy to heighten emotions and pressure others to do the same thing.
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America is spending its way to disaster. You can see the signs everywhere: Americans burning a hole in their pockets through their credit cards, big houses, big cars, small savings. I can’t help asking whether Filipinos, always enamored with what Uncle Sam is doing, are going in the same direction.

In Metro Manila, at least, I would say this is true. As one of MoneySmarts’ readers commented (I think it was tee), we are in a wanna, wanna, wanna mode. Let’s break the mold by curbing our spending habits. This week, MoneySmarts is all about tips on how to do this in our Money Myth Buster feature.

Tip number one: Learn how to multiply by 12.

What’s the monthly payment on the new X-trail? Or the plasma tv? The monthly payment on a G3 phone is only so-and-so… That’s not so bad…

Thinking of spending in terms of monthly payments is a sure way of falling right into the marketing trap. Some marketing guys are so smooth, they even divide the cost into days (It will only cost you P150 per day! Surely that’s not expensive?).

Bust out of that mentality by learning how to multiply by 12 – all the time. That simply means to annualize the cost of an item. And then ask yourself what that kind of money will mean to you.

I tried this tip with a couple I met over the weekend at a friend’s son’s pre-birthday swimming party. With three children in school, they are starting to worry about tuition fees. “It’s an annual headache,” they told me. The main breadwinner, the husband, has a stable income and commissions on top of that, sometimes amounting to P50,000 in one check. But they had credit card debts and they are always worried about money, they say.

The couple said their main problem was they love to dine out as a family. New Italian restaurant across the street has to be tried. Little burger joint should be tested. They spend more or less P2,000 per payday minimum. They didn’t say how much was the biggest bill they every paid on food.

I looked at them in admiration. Both husband and wife are loving parents. They are totally family-oriented. They are good people who are trying to do their best but are floundering. Two grand every two weeks didn’t seem like much in the face of a P50,000 single check for commissions.

I let them do the math. P2,000 per payday meant P4,000 per month meant P48,000 per year. Their eyes grow large. “That can be a huge chunk of their tuition fee!” wife says.

Marketing staff pepper malls these days selling all sorts of imaginable stuff on installment – from Black and Decker power tools to Magic Sing Karaoke to condominium units. They make it look affordable by using the monthly payment trick. Flip the technique back at them by always multiplying by 12.

Fair-goers check out Samsung’s 102 inch plasma TV. Photo: AFP

Finance people rarely agree on a single point, but this topic causes them to scamper to all points of the spectrum. Some believe that cash-value plans are better, others believe buying term and investing the difference is a superior strategy, others think the best way is somewhere in between.

You will have to help me prove or bust this theory based on your experiences, but let me first define this issue further.

Insurance may seem like a maze to most people and the way it’s sold here in the Philippines does not help at all. I know quite a number of insurance agents who take the time to listen first to their clients’ needs and only then draw up a recommendation that would be best for their clients. But in my experience, it is still the norm for agents to recommend the product they like best.
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A finance professional last week told me he had a great tip for MoneySmarts. He said the 0% interest rate promotions are a sham. Yep — a clever cover up, a daring deception, a trap for the millions of unsuspecting shoppers in this great big mall of a country.

Unfortunately, he declined to be identified, but he was willing to explain all the details. So MoneySmarts went money myth busting to find out if his claims were for real.

Hot glue gun stuck to the end of my nose! I was surprised how easy it is to make money in this country. Here is what I found.
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Have you seen some credit card advertisements lately? Charge your monthly expenses…no need to worry…you can pay only five percent of the total…and we will still consider you a good client.

Isn’t that just great? *one eyebrow going up*

Just paying the minimum amount will make you vulnerable to a compounding sinkhole that will suck in your money with the force of a hurricane. There is a personal finance advice that says: Pay as much of your credit card balance as you can, if not the total amount. Let’s put this to the test to find just how much it can save you.

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Emerson Abraham has a stable job, his own house, a lifestyle that some would call spartan, and no credit card debts. He knows that saving money is important but he and his wife set aside some funds when there’s extra and spend some when they feel they should. In his own words, “it was not a priority.”

Then his children got sick with something that their health cards did not cover. His stay-at-home wife, worn-out with taking care of the children, also got sick. Then he got sick. Emerson’s savings were depleted and things were pretty rough for some time.

The family has since recovered. Emerson now places great importance in saving part of his income regularly. There’s a rule of thumb that says people should set aside 10% of their income regularly. Let’s put this rule under the microscope.

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If there’s anything I have learned from writing about personal finance, it is this: pay debt as soon as possible. Do not be held hostage to it. It can cripple you and your family because as J. Reuben Clark says:

Interest never sleeps. It never gets sick. It works on Sundays and never goes on holidays.

But what of those who are seriously trying to clean up their act? Which one should come first? Pay debt or save money? Do both at the same time? What is the best strategy?

Our Money Myth Buster today is: pay debt first.

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