Financial literacy is not just about numbers. It’s all about mind set.
By Francisco Colayco

Money management starts with understanding what money means to us. In a market-driven economy like ours, money is indispensable. It is the means to live the lifestyle we choose and to share what we have acquired.

To each according to his deeds. This is the fundamental principle we live by. We are responsible and accountable for our own future. We exist for a purpose and part of that purpose is to enrich our lives and the lives of others. To achieve this goal, we must first secure our own individual wellness. We cannot share what we do not have. In the end, it’s all about building financial and spiritual wealth over our lifetime.

When is one wealthy?

Depending on how one views assets and money, the concept and obligation to build wealth appears to be lost to a great majority of income earners. Most are focused on the amount of money to be earned and spent (almost as quickly as it is earned). Only a few specifically plan and measure wealth in terms of assets and money relative to the amount of their time left in this world and to their other life goals e.g. sharing their bounty with their community.

Professionals, especially those occupying finance-related managerial positions know every detail about their company’s finances and plans for growing their employer’s wealth. Unfortunately, many of these professionals hardly pay attention to their own personal financial situation. They focus on what they personally earn and forget that such income may not be sustainable. They get lulled into thinking that their employers will always be there to provide: good income when they are actively employed and enough pension benefits when they retire. But the sad part is that there is no guarantee to this. The greater part of employees (at all levels) will need to augment their pension benefits so that they can sustain their chosen lifestyle after retirement.

For those who are thinking of their future, there is one important economic question to ask: “How long will you be able to sustain your chosen lifestyle, if you stop actively working for money today?” But is there a one right answer to this question? Is it 10 years? Is it 20 years? A 20-year-old professional may be able to sustain his lifestyle for 5 years without working. Is he then wealthy? How about a 90 year old whose net worth may also sustain him for another 5 years? Is he wealthy? Clearly, the right answer is unique for every individual. His age, his lifestyle, his net worth and his earning power will determine whether his is wealthy or not. It is the individual’s values that will ultimately determine when he has achieved the wealthy status.

Some live with the philosophy to live rich and die rich. Some believe otherwise. They are quite happy to live as richly as they can so that when they die, they die poor. This group puts a premium on sharing their wealth while they live. They measure their worth by the number of lives they touch with their resources. They accept their mortality and their responsibility as stewards of their assets while active in this world. They realize that they don’t have use for money when they are gone.

Whichever philosophy we live by will determine our personal financial strategy. Quite obviously, the financial behavior and related investment decisions of such individuals will be radically different. Is one then wrong and the other right?

Common principles
Whatever the belief, the reality is there are two roles for every economic being: active entrepreneurship and passive entrepreneurship. Thus, in our financial lives, the active income generating strategies and passive income generating strategies must be distinct and time-bound.

Reality also dictates that it is an obligation to learn to be a knowledgeable investor, to become a passive entrepreneur. After all, we can only be an active entrepreneur for a part of our lives. But we can be a passive entrepreneur for our entire life. This is the fundamental principle behind the need for financial planning at all stages of our financial and physical lives.

Time is of the essence. Growing wealth is based on time and compounding of earnings and interest. Success is better ensured when we start early.

Managing your finances is much like riding a bike
By Efren Ll. Cruz, RFP® FPA®-Member

Have you ever wondered what keeps you upright when riding a bicycle? A bike remains upright when it is steered. Please note, also, that the faster the bike is moving forward, the smaller the steering inputs need to be in order to balance the bike.

Applying sound personal finance is much the same as riding and balancing a bike. In life, we want to get from point A, say a situation where money is scarce, to point B where the abundance of money allows us to focus on the more important things in life.

For a safe ride, however, you need to know how to balance your bike in much the same way as you balance your finances. Things like unnecessary spending, low income, poor saving habits, wrong investments, bad advice, greed, and fear can throw us off balance much like stones, potholes, dogs, cars, and pedestrians would the cyclist. It is, therefore, critical to maintain that financial balance.

One way to make it easier to do that is to have forward motion, just like with a bicycle. And what is the most practical way of attaining enough of this forward and sustainable motion? The answer is by investing. My apologies to Cebu Pacific for paraphrasing their slogan, “It’s time every Juan flies.” But, indeed, it is high time that every Juan invests as well.

Before we continue, let me make it clear that investing is not all about making money. Investing is all about making the future more affordable, of attaining that forward and sustainable motion.  In fact, if you relate investing to corporate activity, no corporation has stated “making money” its mission or vision. The same should be true for the individual.

Suppose you are 40 years old now and you want to enjoy a 20-year retirement period upon reaching the age of 60. Let’s also assume that your total retirement expenses will amount to P500,000 per year using today’s pesos. With an inflation rate of 6% p.a., the total future value cost of your 20-year retirement would be over P64 million. If you have only P1 million in savings at the present time, you would need to save roughly P263,000 a month for the next 240 months ([60 years old – 40 years] x 12 months in a year) to arrive at your P64 million at age 60.  However, if you were to rely solely on your P1million by investing it now, you would need to make it earn just over 23% p.a. Add P10,000 a month to your investments for the next 240 months and your required return goes down to 18.5% p.a.

Of course, earning 18.5% p.a. is very tough, especially in this current era of low interest rates.  This is why investing in non-guaranteed investments like bonds, stocks, and even your own business makes all the more sense. The risk is higher, but so are the returns. To a certain extent, putting your money in more risky investments becomes a necessity. You may want the safety of ordinary bank products like time deposits. But, if the net return to you of these products is lower than the inflation rate, you are better off consuming than saving or investing.

Yet, how can you mitigate the risks with non-guaranteed investments? Simple. Just observe the following rules of investing:

1.    Assess your risk and return preference.
2.    Do an inventory of your resources, which include Size of funds, Expertise and Time or what I would call the SET rule.
3.    Search for investments and/or businesses that will match your answers to #s 1 and 2.
4.    Form a portfolio of investments and/or businesses (don’t just put all of your eggs in one basket).
5.    Monitor and review your performance regularly.

Just as an added note, if under the SET rule, you find that you don’t have much money to invest, you may opt for pooled funds like mutual funds and unit investment trust funds. With a mutual fund, for example, all you need is P5,000 or $100 to open an account. If you have the money but lack the expertise or the time, you may opt to hire financial advisers. If you have all of the requirements under the SET rule, then you can go straight to the markets and do your investing yourself.

Going back to the humble bicycle, we know that once we learn that skill of riding a bike, it would be difficult to forget it. Similarly, learn personal finance. Once you get the hang of it, you will remember it for the rest of your life. Cheers to you, Juan.

Are you in the market for a condo? Here are a few things to consider before taking the leap.
By Lynda C. Corpuz

Buying a house and lot seems like the ideal scenario. But with prohibitive prices or distant locations, it’s not for everyone. And to be sure, some people would rather live in a condominium. For a growing number of Filipinos—whether by force or by choice—their condo has now become their home sweet home.

If you’re looking for a condominium, you have to decide if you should buy a unit or just rent. Buying of course gives you a sense of ownership, as you own not just your condominium unit but your part of the common areas in the building. You’re in fact a co-owner of the condominium corporation itself.

Your condo unit can also appreciate in value, making it an investment especially if you sell it later on. It also gives you permanency of address, compared to a renter. It also reflects well on you when you apply for loans. Plus, there are no hassles and headaches in dealing with a landlord (or landlady for that matter) since you’re not a tenant but an owner.

Renting is okay also, especially if you plan to move in a few years. But if you rent for the rest of your life, you don’t build any equity in something you can call your own. In fact, the amount you pay for rent for, say, five years may already be equivalent to buying a condo outright. “Renting or buying, either way, it all depends on the person’s needs,” concludes Daniel De La Cruz, president of online condominium supermarket www.condo.com.ph.

Whether you buy or rent, you have to keep in mind some important factors before you sign that contract. Don’t get easily sold by what you see in brochures, model units, and 3D walk-throughs. Here are the seven top things you need to check:

1. Location, location, location. Nothing beats the right location, as it dictates both your lifestyle and your condo’s market value. It should be near your place of work and accessible to schools, hospitals, shopping malls, and major roads. Felipe and Cristina Salvosa share that their condo is very easy to get to and from work—a must factor for young professionals these days. JM Martinez, who lives and works in Makati, says, “As long as you live in a place accessible to your work, that would be the best benefit from this investment.”

2. The developer. Who’s behind the condominium project? Those who were burned in the late 90s know how painful an experience buying a condo during the pre-selling stage only to find out later the developer has run out of funds to complete the project! JM says the developer should be dependable and reputable, even if it means paying a price premium. “But more than the reputation of the company, we want to be assured that the company is an expert in the business and the structure was built with good materials,” he adds. So check the track record of the property developer.

3. Infrastructure and amenities. Ask about the infrastructure, utilities, power generators, security, soundproofing, even garbage disposal. What are the amenities and recreational facilities available? Is there a swimming pool, gym, playroom, function rooms, and garden? You don’t want to go down and get out every time you want to do something. You want to make the most out of your investment. If it’s a mixed-used development, scrutinize the entire master plan. Will there be offices, schools, cafés, restaurants, and shops in the community? Analyze the floor plan of the unit you’re eyeing. Examine if it’s the right size and space for your needs not just now but a down the road.

4. Density. Remember, you’re living in a high-rise building, sharing with hundreds or even thousands of other occupants a limited number of elevators, parking space, and amenities. Ask how many floors and how many units per floor there are. Consider the master plan of the developer for the entire vicinity, particularly for mixed-used developments. How many buildings will be put up and how many people are expected to live, work, shop, and dine in the entire complex? Where will these buildings be constructed? Your great view of the city skyline just might turn up later on as a view of a future adjacent building.

5. Dues and other costs. Condos can be notorious with exorbitant association dues, as you share the cost of repairs, maintenance, and improvements of the building with other dwellers. JM notes association fees are expensive but a tenant should maximize what he or she is paying for by using the facilities and coordinating with the administrator for any need, from repairs to what not. If you’re fortunate like the Salvosas, your association fees can also be very reasonable, in their case, about the same as with the dues for homeowners in private subdivisions. There are also related expenses like parking space, which you have to buy or rent separately. You’d be shocked at the cost, so plug this in your budget. And bet you overlooked the fact you have to pay value added tax (VAT) on top of the sale price, plus closing fees, and property tax.

6. Stage of development and completion date. You can of course buy a unit at an existing condo building and move in immediately. But like a brand new car, it always feels better to be the first owner of a condo unit. So if you decide to buy, do so at the pre-selling stage, not when it’s already complete. “Once the building is completed, the price can be double the original amount,” Cris says. JM shares they bought their unit at The Residences during the pre-selling stage at around P6 million, including interest and the cost of minor changes in the interiors. Consider also when the project will be completed, as you need to project your own plans against the target date.

7. Investment potential. JM shares they also considered if they could resell the condo in the future or rent it at good price. If you’re thinking of buying a condo as an investment, it is best to buy during the pre-selling stage and sell or rent out the condo when it is completed. The reputation of the developer and the resale record of its other condo projects should give you an idea if this one you’re considering has investment potential.