Recently in emergency planning Category

(Cool piggy bank. File photo from Agence France-Presse) 9 weeks: the average Filipino’s rainy-day fund Saving money, Financial Planning I have a friend who loves rainy days. She loves the sound of raindrops on her car, her windowpanes, the street – just about everything! I too find the rain very “senti”, uber-relaxing and it puts me in “emote mode” hehe. Helps me to put words on paper too. But rainy days of the financial kind, that’s another thing. I can’t imagine anyone liking them. They strike suddenly and ruthlessly – and you don’t know long they will last. Remember the recent study by Citibank that revealed Filipinos have low financial IQ? There’s another revelation in that survey that says average middle-class Filipinos have on the average nine weeks’ worthy of rainy-day funds. On the one hand, I found it quite comforting that average, middle class Filipinos have a rainy-day fund at all! On the other hand, that fund won’t see us through those dark and depressing days. As you all know, the prescribed amount is three to six months worth of living expenses. The baseline is not your salary or earnings from business, but living expenses. Here’s a thought: do you know how much you spend monthly? If all you have is a vague figure, get your pen and start jotting down monthly expenses. I have previously written that putting your money in mutual funds, bonds or equities is foolish if you don’t have an emergency fund first. You don’t want to be caught needing cash when the market’s down! Our personal finance feature for today from Citibank says:

Nine weeks. That may not be enough to get back on one’s feet. Thus, there is a need for an emergency fund that should cover anywhere from three months’ to six months’ worth of expenses. This will help you tide over the tough times until you get back on track. Besides, borrowing money to cover emergencies will cost you more. Should you save for three months’ or six months’ worth of expenses? Some financial experts advise only three months’ worth of expenses in the emergency fund if you are employed. If you are self-employed, they say you’ll need six months’ worth of expenses. But of course, the more you save, the better. You do not know when bad things may happen and for how long they will last. Save at least six months’ worth of your expenses — living expenses, bills, saving for a child’s education, and the like. As to your big challenge: How to save for an emergency fund when there doesn’t seem to be enough funds in the first place. Here are some tips: 1. Stick to your goal. If you say to yourself that you will start an emergency fund, be committed to do all it takes to fulfill that goal. 2. Review your obligations. You mentioned that you have “so many other obligations.” Study your list and find an expense you can cut down. For example, if you haven’t been going to the gym at least three times a week, then you may be better off canceling your gym membership. The savings you will get from canceling the monthly dues can be channeled to your emergency fund. You can find another exercise alternative that won’t cost you money, such as walking in the park. 3. Before spending anything for the month, save first. Once you get your paycheck, set aside some money for your emergency fund. Start with at least 10 percent, and increase it as you free up more obligations. Making saving a priority will be beneficial for your financial future. 4. Open a separate account for your emergency fund. This will help you to avoid dipping into your emergency fund for living expenses. 5. If you have a sideline income or receive a windfall (example: bonus or prize money from a contest), use this to pay off your debts, then put the rest in your emergency fund. 6. Cut down on expenses that you can do without. These may include weekly trips to an expensive coffee shop, or going for designer clothes. Just think: if your family is in need or has an emergency, you wouldn’t even think of these things. But you will rack your brains thinking of how to meet the family emergency with your meager funds. Thus, prioritize the emergency fund.

If you or anyone you know is struggling to set up an emergency fund, how’s this for motivation. Forget the three to six months rule of thumb for the moment. Just start saving any amount upwards of P1,000 this payday and move on from there. Start with small steps and give yourself a pat in the back afterwards. Consistency is what matters most. You’ll find it easier as you go along. Good luck!

I only have admiration for people who try to educate themselves on financial planning or how to manage their money. When I wrote about Mariannet early this week, I was amazed at those who responded – many of you have come from similar (or even worse) but have managed to lift yourselves by your bootstraps and are, in fact, doing well! One of you who commented on that post was right: you are a testament that poverty does not have to be a widespread problem. The answer lies within each of us. In fact, Dr. Noet Ravalo’s column yesterday talked of real-life stories of two drivers who were from the similar backgrounds, but have very different strategies on saving money.

Let me take the case of Bert (not his real name). He is a driver at a government agency and takes home roughly P10,000 a month, including overtime. To beat the morning rush from the Las Piñas area, he takes the FX (airconditioned public transportation) in the morning although he takes the jeepney (not airconditioned) at night. He is married with four children, the youngest being eight years old and the eldest is already in high school. Bert has a small loan with a government financial institution, which he faithfully pays on time. Bert’s wife takes care of their modest rented unit.

I have known Bert since he was single, working as a security detail in a government office. I vividly remember our chat over a decade ago: he kept on saying to me, “Gusto ko sanang matuto nagmaneho para naman maka asenso ng konti.” You could see it in his eyes that the ever-present smile was the facade to some dogged determination to move ahead. With the help of friends who literally lent their vehicle, Bert learned to drive through the busy streets of Las Piñas.

Al is a driver just like Bert. Prior to coming to Manila in 1996, his work experience was limited to driving a pick up truck through sugar fields and, according to him, overtaking only carabaos. While he has now been working for the same family for over 10 years, you can just imagine what it was like for him (and his passengers!) driving through EDSA (Manila’s main highway) back then. Al was so new to the city that he opted to take the flight of stairs to carry the bags of his boss rather than be trapped inside that steel contraption he has never ridden before (aka the elevator). Yes, the flight of stairs, 15 floors worth of stairs.

Al now has a take home pay of roughly P14,000 a month. Aside from being a paying member of the Social Security System, Al has two weeks of paid vacation in December, over and above his 13th month. Al is also married, has a son who is about seven years old and an “adopted daughter” who is two years old. Al’s wife is also a full-time homemaker.

Al, unfortunately, has no savings. When the children get sick or there are other needs, Al will ask his boss for an advance. The boss has repeatedly talked to Al about his lack of saving, not just for himself but also for the needs of the children. While Al always says he has learned his lesson, the reality is that nothing is left of his salary. He comes to work in brand new shades, new gloves (ones used by bike racers), trinkets here and there and even a new P6,000 bike. But Al never ever bothers to buy new clothes, doesn’t give you a semblance of a “professional” look and is just as happy to live the “OK na ‘yan” lifestyle. If you ask Al why he bought the shades (instead of say replace his VERY tattered undershirt) his quick answer is “eh sale kasi eh (because it’s on sale).”

Both Bert and Al are gainfully employed, in the same line of work and started under similar circumstances. But Bert is striving while Al is plodding along. Bert has a lower income and a bigger income but he has enough discipline to be granted a bank loan. Al on the other hand is going nowhere and that doesn’t even bother him.

Read the entire article here. Noet poined out that Bert might be starting small, but if he goes on doing what he is doing, eventually he will learn about mutual funds, stock markets, bonds and maybe even warrants, investing in the real estate and he will do well. The question the whole discussion begs to be asked is: after you know the technicals, what now? Isn’t it true that many of us have known the technicalities of investing for years and still haven’t gone past the saving stage into the investment stage? Let me again quote Noet:

Mariannet’s story is a real tragedy. But Al is as much a tragedy and he doesn’t even want to recognize it (shades and biker’s gloves and all). People always talk about “doing the math” to manage ones personal finances but Al is living proof that consideration of the technical details is patently presumptuous. It presumes that the person has foresight and it presumes that the person has a desire to make his tomorrow “better” than his present.

It all goes back to foresight. May we all get a big dose of it today. (Relatives and sympathizers carry the casket of Mariannet Amper from the family's tattered shanty house, seen in the background, in Davao city in southern Philippine island of Mindanao, 10 November 2007 to a nearby public cemetery during her burial. Struggling to survive in life of poverty Mariannet,11 hanged herself to death 02 November 2007 leaving a letter and diary depicting a life in rampant poverty. The case put a human face to poverty blighting the Southeast Asian nation, where nearly 14 percent of the 87 million population live on less than a dollar a day even as the government says the economy is on a roll. AFP PHOTO)

I was exhausted, cranky, in need of a long, warm bath and some chocolate bars to perk up my mood. Worrying about someone in the family who is sick, especially if that person is a baby, does that to you. But the voice of the man near the admission counter of the hospital where my son was admitted pierced the cloud of selfishness around me. He was obviously in pain. And he could not get a room at the hospital. “I’m sorry, sir. We don’t have a room for you. You can wait in the ER until we have a room that fits your card,” the clerk said. “Why, what’s wrong with my card?” the man said. “We need to double check if you can get a private room just as you requested. I know that the maximum for your card is P1,900 per night, but we will have to check again,” the attendant said. In the end, he decided to go home while waiting for a room. He was seventh on the list and it was already 4 p.m. Sickness is a financial planning wild card. Even if you stock up on vitamins, eat lots of fruits and vegetables, swear by the benefits of eating wheat bread, there’s no telling if or when you will get sick. There are just too many factors when it comes to health – including genes. It’s a probability that each family needs to prepare for. Are you prepared for the cost of getting sick? Is there room in your finances right now for sickness in the family? I have long wanted to do a comparative study on HMOs in the Philippines, but my son’s condition prompted me not to put the topic in the backburner any longer. However, instead of presenting you with data, I will have to throw questions at you, hoping that you will share your experiences so that we can have an initial data scan of what options Filipinos have out there when doing emergency planning. What HMO do you have? How much are you paying? What are your benefits? How would you rate the delivery of these benefits? How would you rate the quality of their service? Let me be the first to answer: My family’s HMO is Intellicare. We pay P1,484.40 per month for five cards, one of which is for a 1.6-year old baby, which I understand is the most expensive one. We have dental benefits, annual executive check-ups, check-ups with doctors affiliated with their network. The HMO covers room rates up to big private room for my husband who is the main cardholder and small private room for his beneficiaries. Whenever someone is hospitalized, they give P1,000 per day in cash, I suppose to cover other expenses during hospitalization. Ours is a corporate plan. The service is excellent. What about serious illnesses? Are you prepared for them? Last week, I attended a press conference organized by Stryker Corp., one of the biggest orthopedic implant maker in the world, which has entered into a tie-up with HSBC and BPI Credit Cards so that Filipinos can avail of an operate-now-pay-later plan. Orthopedic implants cost around P80,000 to P150,000. The entire operation can reach up to half a million. Under this scheme, if you have been recommended to have an operation, you can use your card to pay for the implant at zero percent interest and in so doing defray the cost. Using our litmus test for those zero-percent advertisements, I asked them what would happen if the patient wanted to pay in cash. Same price, they said. I was able to have a good talk with their Finance guy (they are my favorite people in every company) and he said that Stryker was charged one percent per month by the card companies, totaling 12 percent per annum, but the company decided to shoulder the cost for the first year of the program. I guess, a good deal, all in all, as long as you don’t default on your payments. One-month default would lose that zero percent deal and trap you into paying a 42 percent per annum interest on a huge amount of debt. That would give you a headache to go with your new bone transplant. Not a nice combination. The best strategy is still to have an emergency plan in place. Make sure you have three to six months worth of expenses as emergency buffer, and a good HMO to back you up. Medical insurance companies, are in general, cheaper than HMOs. But they operate by reimbursement, so you need that cash for this to work. Let the HMO story sharing begin :).