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WHILE ON a recent trip to Japan, I heard a story about an OFW driver who nearly wasted away his earnings. He worked in Japan for close to 30 years, and at one point was earning an equivalent of P400,000 a month with overtime pay. He had a wife and child back home in the Philippines and was able to send his child to school. However, he was always out drinking at bars in expensive Tokyo while having several relationships with other women. "Puro good time," they say.

Well the guy wasn’t able to hold on to his job due to his drinking problem. His employer asked him to resign, and he was given an equivalent of P2 million as separation pay.

 

His Filipino friends could only shake their heads in disbelief at how he wasted away the opportunity to have a well-paying job, and how he was not able to save any money to make his life better. Last they heard, he was back home, bought himself a tricycle which he drives for a living, and is staying with his parents since he could not afford to buy a house of his own.

 

By Karen Galarpe IT seemed like a scene from a scary movie: P30,000 per sem tuition now will become-- P111,000 per sem in 17 years at 8 percent increase per annum P152,000 per sem in 17 years at 10 percent increase per annum P206,000 per sem in 17 years at 12 percent increase per annum As Registered Financial Planner Alvin Tabanag continued on with his Powerpoint presentation at the recent Money Sense Live! Family Finance 101 seminar, the audience looked at him in disbelief when he said it may take P1 million to P2 million to get a child through college 15 years from now. That may be peanuts for the millionaires out there, but for the rest of us, that is a tall order. A very tall one. Clearly then, we must all save for our children's education, and the earlier we do so, the better. Just how to do that? Tabanag, personal money management coach, author of Kaya Mo Pinoy! 12 Steps to Build Wealth on Any Income, and founder of Pinoy Smart Savers, counts the ways: 1.Pay as you go. It's crossing the bridge when you get there. “A bad strategy since there is no guarantee that the parent will still be gainfully employed or earning income at that time,” said Tabanag. This may also lead to huge debts if that's the case. 2.Get an educational plan. Now educational plans are viewed with utmost suspicion since the industry is having problems. However, Tabanag said the industry is recovering. What really pulled the industry under was the sale of traditional educational plans since the 80s which promised payment of tuition fees in the future no matter what the cost may be. The unanticipated deregulation of tuition fees, the 1997 Asian financial crisis, and the lax enforcement and monitoring of government agencies adversely affected the trust fund earnings of the preneed companies offering traditional educational plans, and the rest, shall we say, is history. “The preneed industry, while troubled right now, will get better,” explained Tabanag, citing the recent SEC order requiring preneed companies to increase their trust fund deposits up to 70 percent. He further said saving for a child's education through a preneed education plan may be attractive to some because it is ideal for those on a tight budget, fits nicely to our “gives” mentality, is easy to understand, and forces us to save. Here are Tabanag's tips for those considering getting an educational plan: a. Buy only from big, reputable companies. b. Read the terms and conditions carefully. c.Compare rates of return. d.Buy the plan you can afford. 3.Save and invest on your own. Another strategy is do-it-yourself: Invest for the purpose of getting higher potential earnings. There is a risk involved, and this strategy requires discipline and regular monitoring. However, there is a wide array of investment choices available which can help you meet your goal. Examples of investment choices are long-term deposit accounts, government securities, stocks, and mutual funds or unit investment trust funds. 4.Use the mixed funding strategy. This simply means employing a combination of any 2 or all approaches. Whatever way you choose, start saving now.

IT'S Wednesday as I write this. These past two days, Monday and Tuesday, I saw my retainer fee for the month from a publishing company disappear--in just two days. First, my desktop computer refused to do anything at all, and so I brought it to the computer shop. It turned out that the power supply is broken and the video card sympathized with it and broke down as well. Since the computer guys were tinkering with the CPU, my son and I figured we might as well add 1 gigabyte of RAM. Then on Wednesday, it was time for the car to have its 40,000-kilometer check up. This does not come cheap, I realized, especially after I OK'd a rustproofing job, etc. So there, a whole month's work pay gone in two days. Why does money "evaporate" so fast? Parents with school age children may be thinking along the same line at about this time of the year. With tuition fees the way they are now, it's no joke to send one child to private school. And what now if there is more than one child? I learned from a financial management talk I attended years ago, that one must prepare for annual expenses by saving for it monthly. Take tuition fees, for instance. See how much the annual fee is for next school year, divide the amount by 12, and begin saving that amount monthly this June. This can be done as well for other annual expenses: car registration fees, annual income taxes (for the self-employed), and insurance premiums. As for repairs and maintenance expenses, saving a little more for this purpose every month will cushion you from the shock of getting your repair bill in the future. Preparing for big expenses this way will help you avoid panicking when it's time to pay up. Save, save, save.-Karen Galarpe

PERSONAL finance experts encourage teaching one’s children how to handle money. It starts with letting them know how valuable it is, and what happens when they spend it or save it. My parents never sat down with me to teach me about handling money. But from observing them through the years, I have learned valuable insights I practice up to now. Here are the money lessons I learned from them: 1.  Money does not grow on trees. You have to work to have some. No work, no money. My parents got married a few years after the liberation. Times were hard. Since my dad’s earnings as a government clerk were not enough, he supplemented his income by becoming a security guard at night at the pier. And when this still wasn’t enough, he would borrow an uncle’s jeepney and drive it a couple of trips around Manila ferrying passengers. When he got back from driving the jeep, he earned enough to buy powdered milk for my kuya, who was then a baby. Hard work pays. 2. Prioritize needs. My dad said he told my older siblings as they were growing up to think twice if they want him to buy them something. That is because he will have to work hard and do all he can to give them what they want. Needs come first. 3. As long as it works, use it. I remember we still used a black-and-white TV in the 80s when almost everyone else had a colored TV. Let’s just say we maximized the use of that TV until it was time to upgrade. No buying on a whim here. I think this is why I hold on to my cellphone until it literally falls apart or refuses to budge. I use a cellphone unit for an average of 3 to 4 years –just about the time it dies on me. 4. Invest in things that matter. Shoes, for instance. You can get two to three pairs of cheap shoes for the price of one pair of good quality leather shoes, but in the long run, you will spend more when you get the cheap ones. They don’t last long and you’ll have to buy a new pair again in just a few months. This has taught me to think twice when buying anything—will I get my money’s worth? Will it last long? Will my investment pay off? 5. Save. Live within your means. My dad has been known to be “kuripot” but he just makes sure he doesn’t use up all his paycheck. He has built up an emergency fund long before finance experts have thought of the term. Living within one’s means made it possible. Teach your kids how to handle money, not just by telling them, but by living responsibly yourself. Actions speak louder than words.--Karen Galarpe

FOR THOSE of you who made it your New Year’s resolution to spend less and save more, how are you in the compliance department? I know it’s not easy to do so, but really, as simple as it sounds, that’s how you can have more money left at the end of the month or year. I’ve shared my own peso pinching tips to friends: 1. Look for a beauty salon that charges less. I’ve decided to give up some perks (free iced tea or coffee and a quiet ambiance) and go for a salon that gives the same service (without the perks) at half the cost. 2. Plan trips. Save gas, time, parking fees, transport fare, and energy by scheduling all your trips to one area at one time. 3. Eat more at home. Not only will you hone your cooking skills, you will be healthier physically and financially too. 4. Use up freebies. Those ketchup, sugar and cream sachets you get from fast-food outlets can be put to good use. 5. Try cheaper alternatives. Need your caffeine fix? Avoid the daily trip to the chic coffee shop and settle for the vending machine or bring your own coffee to work. 6. Pay attention to items on sale. Something you really need might just be on sale, so look at the sale items first. Also, check out secondhand bookstores for books that cost a fraction of the cost of new ones. 7. Go local. Help the economy and save your money as well; oftentimes, locally produced goods are cheaper than imported ones. My friend Migs Cruz, a doctor, shared that he has become more frugal now that he has two kids. Here are some specific steps he has taken to stretch that peso a bit more: 1. Use freebies as gifts. Med reps give tons of gifts to doctors, from pens and notepads to bags, clocks, and so much more. Migs gives these away to his staff and other personnel in his place of work and this saves him the cost of buying new gifts for Christmas. 2. Get a hand-me-down. Migs’ bike was stolen from his garage, so he asked around in the hospital if anyone had a spare mountain bike he could buy. One of the residents did, and sold it to Migs for P1,000 and a secondhand DVD player. He had it repaired for P500 and now it runs like new. A new bike would have cost him P4,000 to P5,000. 3. Recycle old clothes. Those old long pants are cut off just above the knee for P30 and still look great as pambahay. 4. Avoid the casa for car repairs and maintenance. Migs says, “My car aircon compressor got broken and the casa was charging me P40k for replacement to be done in 2-3 days. I went to Banaue Street in Quezon City and got the compressor replaced brand new at P17k. The service took only 6 hours.” Also, a 60-km checkup at the casa would have cost him about P10k, but he had it done at another auto shop at just P2,500 after the mechanic determined no additional repairs were needed. 5. Reuse stuff. Migs’ old Rayban sunglasses were already falling apart although the lenses were still OK. So he just bought a new pair of eyeglass frames and paid only P500 to transfer the old lenses to the new frame. A brand new pair of the same brand would have cost him P5K and up. Little steps like these count in stretching your pesos. :-) (Karen Galarpe)

THESE DAYS when quizzes of all kinds make it to Facebook amusing and not amusing one’s network of friends (recent quizzes include "Are you UP material?" "Anong university ang bagay sa ‘yo?" and True Age Test), a money personality test would really come in handy. A quiz like this would confirm your fears that you are a spendthrift needing help, or would give you cause for a victory dance if you’re really money smart. A quiz I took today showed that I am a balanced person. The result said: “People who exhibit a balanced money personality style enjoy making and managing money. They may view budgeting and investing as a game of sorts. Money is viewed as a tool that is used to achieve one’s goals. While they often have a budget, Balanced persons do not become overly uncomfortable with the occasional unforeseen expense or in purchasing the occasional luxury item. Balanced persons often feel that diligence, research and effort will reward them in the end. If they invest, Balanced persons tend to have balanced portfolios and are often comfortable seeking advice from financial managers.” Now that’s cool! My siblings have always ribbed me for being “kuripot” to the point that I write down every expense I incur every day but my mom comes to the rescue, saying I do spend for the things that are worthwhile. One of my goals is to make money every year, and so I am careful to spend within my limits. At yearend, I tally all my income and expenses and see if I really made money (net income). I think it is a sad thing if at the end of a year spent working, one finds net loss instead of net income in a personal income statement. So what’s your money personality? Take the quiz and post your result here. (Karen Galarpe)

Time deposits are very popular among Philippine savers, both small and big ones, because they guarantee earnings from cash you are sure to get back after a certain period (normally 30 days, 90 days, and 180 days). That’s of course assuming that you chose the right bank (hello Rural Bank of Parañaque?). I once wrote about a Chinese businessman who lived on his P50 million placed in a time deposit account rolled over regularly. He enjoyed it so much that he believed renting a house for P85,000 a month in a posh Quezon City subdivision was better than buying his own home, because doing so would reduce his stash of cash. In the US, investors maximize time deposits (more commonly known as certificates of deposits) by using a strategy called “laddering.” This simply means spreading your money in CDs with different maturity dates, so that you get regular income from them. By doing this, you make sure that you don’t have to withdraw from your time deposits prematurely and suffer from the steep penalties. I made a few calls to the top three local banks and one thrift bank and here are their time deposit rates: P10,000-below P50,000 BPI –- 2.25% (30 days) -- 2.625% (90 days) BDO –- 1.875% (30 days) -– 2.75% (180 days) -– 2.875% (360 days) Metrobank –- 1.25% (30 days) –- 1.75% (90 days) –- 2% (180 to 364 days) PSBank –- 0.5% (30 days) –- 0.5% (90 days) P50,000-below P100,000 BPI –- 2.5% (30 days) –- 2.75% (90 days) BDO –- 2.25% (30 days) -– 3.25% (180 days) -– 3.375% (360 days) Metrobank – 1.5% (30 days) –- 2% (90 days) – 2.25% (180 days to 3.64%) PSBank –- 1% (30 days to 90 days) P100,000-below P500,000 PSBank –- 3.5% (30 days) –- 2.75% (90 days) BPI -– 2.625% (30 days) -– 2.875% (90 days) BDO –- 2.5% (30 days) –- 3.25% (180 days) -– 3.375% (360 days) Metrobank -- 2% (30 days) –- 2.5% (90 days) -– 2.75% (180 days to 364 days) P500,000 to below P1 million PSBank –- 3.75% (30 days) -– 3% (90 days) BPI –- 2.75% (30 days) -– 3% (90 days) BDO –- 2.5% (30 days) -– 3.25% (180 days) –- 3.375% (360 days) Metrobank –- 2.25% (30 days) –- 2.75% (90 days) –- 3% (180 days to 360 days) P1 million to below P5 million PSbank –- 4% (30 days) –- 3.25% (90 days) BDO –- 3.25% to 3.5% (30 days) -– 3.625% to 3.75% (180 days) –- 3.75% to 4% (360 days) BPI –- 2.875% (30 days) -– 3.125% (90 days) Metrobank -– 2.75% (30 days) –- 3.25% (90 days) –- 3.75% (180 days to 360 days) Some interesting revelations:

1. It pays to shop around for the best rates.
2. Some banks significantly rewards bulk deposits. Note that BPI has the best rates for deposits in the lower brackets but towards the half-a-million-peso level, its rates are taken over by PSBank and BDO.

Computing what you will get in interest Interest rates are annualized. To compute what you will get in interest, use this formula: Interest = (principal x rate x days) / 360 For example: P16,666 = (P5 million x .04 x 30) / 360 That’s the amount you will get if you put your P5 million in PSBank for 30 days at 4% interest. That’s about P200,000 for a one-year placement with simple interest. Remember, however, that earnings from time deposits are taxed with a 20% withholding tax. Are your savings safe? Time deposits are covered by the Philippine Deposit Insurance Corp. up to P250,000 and are thus more or less savings instruments for the ultra-conservative. However, there are also risks involved and these are mostly a result of how you choose your bank. How? Interest rates as of now are market-driven. That means that if I were a bank and I really want your deposits, I would try to best all my competitors and give you the highest rate in the market. To this end, competition among banks is good for depositors. However, some lesser-known banks, knowing their Waterloo, attract deposits by offering higher rates. You, the depositor, then have to make a personal decision whether you would accept the higher risk to get the higher return on your money from a bank with a not-so-stellar track record, management structure or business outlook. In fact, time and again, banks that have been known to close shop because of liquidity problems have offered abnormally high interest rates right before declaring a bank holiday. In MoneySmarts, readers have often pointed out that rural banks give much higher time deposit rates than the big commercial banks. That’s true. Some gave out as high as 18% or 20%, and now you know which banks those were. Most of these banks are now closed. So choose your bank well. Disclosure: MoneySmarts' husband works for PSBank, but has not in any way influenced this article.

The softness in the job market these days may cause some of you to consider freelancing or consultancy. I could go into all the pros and cons of such a plan, but let me focus on a personal finance tip that many freelancers and consultants forget: set aside one month of your salary for every year of serving a particular client. This would approximate a separation pay when the engagement ends. I was chatting with Nannette Ferreria, a registered financial consultant (RFC), one afternoon when she told me about this strategy. With all the demands of juggling time, meeting with clients and getting new ones, it’s easy to lose your savings focus. Naturally, I will assume you are saving as much as you can and keeping your emergency fund equal to six months’ worth of no-touchie money secure. Then there’s the usual stuff about having your own health insurance in place, investing as much as you can, and making sure you don’t get into debt. But I think it’s a very good idea to—on top of all these things—to make sure you have at least 1.0 to 1.5 months worth of your salary tucked away.

The Registered Financial Planners (RFP) Phils. is giving free financial planning seminars to companies in an effort to help out firms and organizations who, in turn, want to help their employees manage their personal finances in the midst of the ongoing financial crisis. It guarantees that there will be no commercial promotion of any kind during the seminars. After the seminar, RFP Phils. will also be giving out survey questionnaires on Filipinos' saving and spending habits to more fully understand how Filipinos are coping during these financially challenging times. If you want to know the full results of the survey, answer the following questions through this blog, or copy the questionnaire in a Word file and email your answers to me at lightdream (at) gmail (dot) com. Name: (Optional) ________________________ Age: ____________________________________ Gender: Male, Female (Encircle one) Civil Status: Married, Single, Separated, Living with partner (Encircle one) Monthly Gross Family Income: a. 20,000 – 35,000 b. 36,000 – 50,000 c. 51,000 – 65,000 d. 66,000 – 80,000 e. 81,000 – 95,000 f. 96,000 – above Home ownership: Own, Rent, Living with parents/relatives (Encircle one) A)    How would you describe your personal financial situation? Would you say you:

1. Live comfortably
2. Meet your expenses with a little left over for extras
3. Just meet basic living expenses
4. Don’t have enough to meet expenses
5. Don’t know

B)    How often do you worry about money matters?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

C)    How would you describe the extent of this crisis’ impact on your personal finances?

1. No impact
2. Some impact
3. Major impact, but I can handle it
4. Very high impact, I’m having difficulties
5. Wouldn’t say

D)    How often would you say you spend money on things you can’t afford?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

E)    Have you ever felt that your financial situation was out of control?

1. Yes
2. No

F)    How closely do you watch the amount of money you spend?

1. Very closely
2. Fairly closely
3. Not too closely
4. Not at all closely
5. Don’t want to say

G)    To what extent is this increased watchfulness a result of the ongoing crisis?

1. Not at all connected to the crisis
2. To some extent a result of the crisis
3. A direct result of the crisis
4. Wouldn’t say

H)    Are you always aware of how much money you are spending or you just have a general idea?

1. Always aware
2. Have a general idea
3. Neither
4. Both

I)    Which expenses are you having most trouble budgeting for now but are still including in your expense list?

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car/cars
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

J)    If you need to cut back on your expenses, which items would you need to remove from your list or have already scrimped on in recent months? (Choose up to three)

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

K) Which items do you splurge on, even when you know you should not? (Choose up to three)

1. Food and dining out
2. Entertainment and recreation
3. Shopping and personal items
4. Home and housing
5. Children and schooling
6. Bills and utilities
7. Cars
8. Medical
9. Luxury items
10. Travel
11. Others
12. None of the above. I have everything under control

L)    Do you or your spouse have a formal budget for your household?

1. Yes
2. No

M)    Would you say you are saving and investing as much money as you should, or should be saving and investing more?

1. As much as I should
2. Should be saving and investing more
3. I don’t know

N)    Do you have savings in the bank that you can count on when there’s an emergency?

1. Yes
2. No

O)    How many weeks’ worth of living expenses can your savings cover?

1. One to two
2. Three to four
3. Five to six
4. Seven to eight
5. Nine to ten
6. More than ten

P)    Have you resorted to borrowing money in the last six months to cope with financial needs?

1. Yes
2. No

Q)   Do you foresee a need to borrow money in the next six months to cope with financial needs?

1. Yes
2. No

R)    Have there been unexpected expenses over the past year that have severely set you back financially?

1. Yes
2. No

S)    Which unexpected expenses have set you back financially?

1. Medical
2. Cars
3. Home and housing
4. Life events and children
5. Work-related
6. Travel/vacation
7. Taxes
8. Pets/veterinary bills
9. New baby
10. Need to take care of parents/relatives
11. Business-related expenses
12. Others

END OF SURVEY

Maybe around 50 times every year since I started writing about personal finance for newspapers and magazines, people ask me this question: What do I do with P100,000? (or P50,000 or some other amount) These days, P100,000 can be stretched in every which way especially by us Filipinos. "Stretched" though can have many different meanings! I can give you a short list of things I can BUY with P100,000 and guarantee that in a couple of hours, I will be happily looking at paper bags of baby stuff and home décor! But no, I am NOT recommending that! The fact that people ask how they can save or invest this amount of money is a good sign. Remember, it’s not the amount that matters especially in the beginning of financial literacy. It’s the discipline and the habit that matters. In a casual conversation among friends over dinner perhaps, people might offer suggestions along with the dessert. Put the money in time deposit or special deposit account in a bank especially since you should keep yourself liquid because of the crisis. (Being liquid means you can easily get the money if you need it). Someone else might say buy shares in mutual funds or unit investment trust funds now that they are cheap. Or stocks. Or a retail corporate bond if you can get access to them. Or government treasuries. Or perhaps invest it in a small business like a food cart. Do I hear someone suggesting putting the money under the mattress and never use it to buy a pre-need plan? The thing with advice is that they need to be tailored to the person asking. So, let’s apply some assumptions here. Let’s say the person who is asking for suggestions has been working for 5-10 years, meaning he is roughly 25 to 30 years old, is starting a family, has parents that are starting to have health issues and who don’t have long-term health care, is gainfully employed and has a spouse who is also in a good job. So far, he has little consumer debt (maybe P10,000) and he pays roughly P3,000 monthly on his credit card debt. His money in the bank is around P20,000. For sure, you would want your P100,000 to grow as quickly as it can. But first things first: pay off ALL consumer debt and fatten your emergency fund. It doesn’t make sense to be paying the credit card company 3.5% interest and earning that same amount from the bank. Second, the problem with investing if you don’t have a buffer fund is that you might be forced to pull out the money due to an emergency when the investment is still losing. If you already have an emergency fund good for three to six months of your family’s needs, I would then start to think of setting it aside for protection (insurance and health care). Getting sick when the job market is full of layoff horror stories can be a nasty wake-up call for all of us. Assuming I already have insurance and health care, then I figure out which investment instruments my appetite for risk can tolerate. Personally, I will add to my UITF and mutual fund shares right now and forget about it for the next three to five years. I have also been thinking of opening up a stock brokerage account for my retirement. But that’s me. How about you? What would you do with P100,000?