MY MONEY STORY

Learning to Save and Invest Early
By Yvette Michelle Llanos Dee Yao

Belonging to a traditional Chinese family, I was raised to be very frugal, hardworking, business-minded, and practical. I sure was and still am. I remember saving most of the allowance given to me when I was a kid. My mother would always tease me that I am so kuripot that the only thing I buy in school was water. But even that is not true because I bring my own water jug and would not need to buy one.

When I get my ampaos (red envelopes with money) during birthdays and Christmas, I have the money deposited straight to my bank account. I never got the habit of spending money given to me. If it’s not anything important, then it is not worth spending on. At an early age, I already formed the habit of saving, thanks to my mother.

When I was in high school, I remember my father handing me an ATM and told me to use it if I need anything to spend on. I just looked at it, placed it in my wallet, and it stayed there for a really long time—untouched. I never withdrew money from that ATM and my father just told me one day that he already cut it. I wasn’t given another ATM since then.

I rarely ask money from my parents, except when I needed to buy an expensive book, photocopy a lot of school materials, or join a field trip. How did I manage to save so much? Simple, I started saving early, and on top of that I looked for alternative sources of income. Being Chinese, most of my summer was spent helping out in the business where we got some form of compensation. I also spent my summer being a student assistant in ICA, where we also get paid for helping out during enrollment. During my stint there, I was even able to get a tutee and had managed to take on the tutor role for a year. From time to time, I also sell stuff like cell phone batteries, CDs, gift items, and accessories to my friends.

On my own

When I stepped into college in 2000, I wanted to start handling my own finances. I got all my money from my mother and asked the permission of my father to let me handle all of my money. I wanted to have it consolidated so I’ll get a better picture of how much I had. I remember the reaction of our secretary when I told her that I wanted to get my money from my father, she was both surprised and proud. It was never expected. There was never a contention, most probably because they knew I wouldn’t spend it on anything impractical.

I wanted to try out investing and so I converted 70% of the money I had to dollars. I bought it at P53.85. After a month or so it started going up and – voila! – the next time I checked it was already at P56. Was that a good decision, especially now that the exchange rate is roughly at 46? Well, let’s just say it pays to be disciplined and invest early, even if the outcome is not necessarily favorable.

My pesos and dollars were both placed in time deposits, with very low rates. I asked my mother if there is a better alternative in the market. She then introduced me to CTFs (common trust funds), which are now known as UITFs (unit investment trust funds). I pooled my money with my mother to get a better rate, the minimum was $10,000.

Catching the investing bug

In my third year of college, I took up a Financial Investment Analysis class under George Gohu. I enjoyed it very much. We were asked to participate in an online trading competition, Virtual Tycoon. It was during that time that I developed a love for the stock market.

When I graduated from Ateneo and joined Philamlife-AIG as a management trainee, my financial world became bigger. I got introduced to so many things. The first thing I tried was mutual funds, which gave me very good yields. Being an employee of an insurance company, I purchased several personal insurance as well since I would eventually need it, especially when I get married.

2004 was my debut year in the stock market. My first stocks were IPO issues of SM and MWC. Too bad I wasn’t able to hold on to my MWC, which would have tripled in value by now. My knowledge and experience in the market got broader year after year. After seeing that my broker won’t lower down the commission fees they charged me, I opted to trade online. It was then that I met Juanis Barredo and Conrado Bate of CitisecOnline.com who gave me valuable insights that help changed my trading habits, from a speculator and day trader to a more disciplined and keener investor.

But this doesn’t mean I don’t lose money. I do but I have learned to cut losses which I believe is something most people, especially first time investors, won’t do. Choosing the right stocks and holding on for the long term is also key in investing in this market. If one has little time and minimal level of expertise, it is better to invest in mutual funds, UITFs, or variable life insurance.

To date, I have already tried on quite a handful of financial instruments – CASA accounts, time deposits, mutual funds, insurance, stocks, UITFs, corporate notes issued through banks, and even currency trading. But the number of instruments a person has is not a measure of how financially adept a person is. What is more important is that a person understand how these instruments work and whether it has a role to play in her portfolio – either as a diversification tool or to meet her financial goals.

If asked how early one should invest, I would say that it should be as soon as possible. Kids should be taught about saving and investing at an early age. Financial discipline has to be ingrained to the children’s mentality as soon as they can understand it. My colleagues would actually tease me that the first word my baby would utter would be “A-C” (trading symbol for Ayala Corporation). Kids or teenagers should also be given a freehand on how to spend and invest their money (with some supervision). On top of that, a person should learn to explore and read about the instruments that interest him or her. Do not procrastinate investing and don’t be lazy in filling out those application forms.

My friend asked me what made it easy for me to decide to get married, I quickly replied “be financially independent” and everything follows.

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MY MONEY LESSONS

The ABCs of Investing

Yvette Michelle Llanos Dee Yao caught the investing bug early on. Here are some things she learned:

1. Make mistakes early. Yvette started investing in currencies, converting 70% of her savings to dollars. It went up, only to later fall in value. Despite the loss, she says it still pays to be disciplined and invest early than not trying at all.
2. Try everything. She has not used lack of knowledge as an excuse for not investing. Rather, Yvette has tried all sorts of investment vehicles, from time deposits to stocks. But she got into them after understanding how they work and how they would contribute to her portfolio.
3. Don’t procrastinate. Procrastination is one of the biggest obstacles to investing. Yvette believes kids should be taught about money as early as possible and teenagers should be given a free hand (with some handholding) in managing their money.

SMART SPENDER>TIPID TIPS

The Guerilla Guide to Cell Phone Usage

Spending too much on your phone bills? Follow these tips

By Sherwin Chan

While governments worldwide are scurrying to save their economies by spending, individuals like you and me are saving money by reducing our spending. Cutting spending – both discretionary and nondiscretionary – can be tough as this means a change in lifestyle. And there is none more difficult than modifying our mobile phone usage habits.

We send an average of 15 messages a day per person. In a month, that number sums up to 450 messages. Assuming you are using one of the two dominant providers in the country, you would have consumed your prepaid credit of 300 by the 20^th day – just on text messages. Even a postpaid plan of P500 seems inadequate when you consider that you also have to make calls from time to time.

Old numbers, new habits

It is estimated that almost half of the Philippine population already use a cell phone – prepaid or postpaid. This means that most of us are looking for ways to cut down on existing usage costs instead of looking for a new plan. The prepaid subscriber has it easier as he can just stop using his phone and save money instantly. On the other hand, the postpaid subscriber is going to be billed a monthly rate no matter what.

Apart from a monthly rate, if you’re a postpaid subscriber, you are probably still tied up with your two-year contract. You have the option to divorce, but the settlement will leave your jaw dropping. So the only choice left is to find creative ways of keeping the monthly bill at a minimum.

Here are our five guerilla tips for saving on your cell phone bills:

1. Track your calls and texts

The most obvious solution is also the most disregarded. Cell phones today can track both the total minutes of your calls and the total text messages you’ve sent. Since these features are already there, be wise enough to use them.

Moreover, make sure that you turn on the “summary after call” feature of your cell phone. Now, you don’t have to count every minute of your calls. But by being conscious about it, you’ll think twice before you make another call. When you finish a conversation, make sure that you press the end call button even if you are on the receiving end of the call.

2. Call, don’t text

While texting is still cheaper than calling, consider this scenario: ever realize how a simple question of “what you doin?” can lead to a lot of texting back and forth? If you sum it all up, you would have spent more on text than if you just called the person. Apart from that fact, there are promotional call rates out there from Globe Telecom and Sun Cellular.

Both prepaid and postpaid Globe subscribers enjoy special discounted call rates in-network. By adding one of three prefixes before your 10 digit number you can make cheaper calls Globe to Globe. With “235”, you benefit from P10 per three-minute Globe-Globe calls. With “232”, you get 10 centavos per second on Globe to Globe or Touch Mobile calls. And with “236”, you are charged P20 for 20 minutes per call between Globe to Globe or Touch Mobile.

The “235” promo will last indefinitely while the other two promos will end March 2009. To make a call using any of these prefixes assuming your Globe subscriber number is 0917-1234567, just dial – 2359171234567.

The charges applied depend on the type of postpaid plan you have. If you are a G-Plan subscriber, all your calls are charged first to your free minutes. Once your free minutes are consumed you can start enjoying these lower rates; however, they are charged on top of your fixed monthly rate. If you happen to be a G-Flex (consumable plan) subscriber, both the 232 and 235 prefixes are deducted from your bill. The 236 promo on the other hand, will be on top of your bill.

This tip is pointless for Sun subscribers as long as you and your friends are using the same network. Unfortunately, Smart’s text and call promotions are currently available only to prepaid subscribers. This brings us to our next tip.

3. Be on the same network as your friends, family and colleagues

If you happen to be out of the contract period, examine your contacts list. Among those that you frequently call, what networks do they use? Chances are you will realize that most of your friends are connected to a particular network. Maybe it’s time you switched?

You can try Smart’s Gold Lite Plan where you can get a line by just submitting a valid address-bearing ID. The benefits start when you realize that the call rate for this plan is just P2 Smart to Smart/Talk ‘n Text. The lock-in period is six months only and with a starter plan rate of P300, it is among the lowest out there. The Lite plans also come in denominations of 500, 800, 1200, 1800 and 2500. All plans do not have a free cell phone.

If you intend to get an additional plan for your family, why not look into the group plans plan offered by Smart and Sun? The Smart Trio Plan has a call rate P4 per minute for calls made among the three subscribers. With Sun Cellular, a value-minded consumer can look into their Group Plan 999. With this plan, three family members can enjoy unlimited texting and calling among themselves. Both the Smart and Sun group plans have free phones.

4. Say “no” to nonessential services and text-in promotions

Ringtones, while fancy and “cool,” costs money. Most phones today support MP3 and other music formats. These tones are readily available all over the Internet. This goes the same for wallpaper and mobile phone games if you know where to look.

Text-in promotions on the other had are very much the same as raffle promos. The odds of you winning are low. And unlike raffle promos, you are charged for sending an entry. So why bother?

5. Going abroad? Don’t bring your phone

Grab a local SIM card in your destination country. When you make calls using your Globe, Smart, or Sun phone from abroad, you will be shocked when you see your next statement. If you absolutely must bring it, use your phone to receive text messages. Your family and friends back home are only charged the regular text rate of P1 even if you are abroad.

Hopefully these tips will help you rationalize the use of your cell phone. Hard times call for tough measures. It doesn’t have to be painful though as long as you are conscious of how you use it.

EXPERT ADVICE>RFP MONEY MAKEOVER

The Billion Peso Couple

The high-earning, high-living couple does not have problems with accumulating wealth. Their problem is how to protect it

By Hazel Ann Acuña

Ernesto Gotanchan, 58, is a businessman and owner of many commercial and residential real estate properties while his wife Elizabeth, 40, works in an offshore bank as head of the corporate loans department. Ernesto has five children, the eldest—his 24 years old daughter—with his first wife, who passed away, and four sons with Elizabeth, with ages ranging from four to 13.

The couple has gross earnings of P5,000,000 a month, mostly from rentals of the commercial and residential properties of Ernesto. His total collections every month is a minimum of P4,500,000 from his properties in Makati, Mandaluyong, Quezon City, Laguna, Cavite, Tacloban and Cebu. Elizabeth earns a monthly salary of P500,000.

The Gotanchan family is living the good life, with a residence in Forbes Park in Makati, membership in the Yacht Club, and an almost unlimited budget for cars, clothes, and casinos.

They have a net worth of more than half a billion (see Table 1: Net Worth Statement).

Table 1: Net Worth Statement

Ernest’s income-generating real estate holdings include commercial buildings, apartments, condominium units, house and lots, warehouses, boarding houses, and vacation houses, constituting the bulk of their assets. Nevertheless, the couple own deposits, stocks, offshore investments, etc., managed by top private banks, which provide diversification across asset classes.

However, their non-real estate assets show that their risk tolerance is conservative. The couple mentioned that the types of investments they are comfortable with are low-risk investments because of their upbringing and fear of getting into scams.

They don’t have a problem with debt, since their debt-income ratio is manageable: 18.68 for Ernesto and 3.06 for Elizabeth.

Their idle funds are intended for their retirement. Ernesto wants to retire when he turns 65, preferably in Europe to enjoy the museums and art galleries in his old age. He also wants to transfer and donate a portion of his investments, particularly his properties that generate rental collections, to his only daughter who will be 31 by then. Elizabeth on the other hand wants to retire at 60 and spend her golden years donating to foundations and charities.

The high life

Ernesto’s eldest daughter, who lives on her own, gets an allowance of at least P50,000 a month and capital for her three businesses. His first wife died from heart disease. His younger children study in exclusive schools and are expected to take advanced degrees in London.

Indeed, they are living a charmed life. With their current monthly income of P3,400,000 net of taxes, they spend as much as P2,860,000, for an expense-income ratio of 0.90 (meaning they only save 10% of their income). While it’s a positive cash flow of P540,000, they obviously are living in the here and now (see Table 2: Cash Flow Analysis).

The rental income is substantial, but there’s always a risk of collection problems and bad debts, which is in fact something that is already happening at some their properties. This can affect their cash flow, and may even force them to dip into their savings.

One way to mitigate this risk is to set up an emergency fund equivalent to at least two months of expenses, which is around P68,640,000. The other thing they need to do is decrease their discretionary expenses, which is already 45% of their income after tax. Specifically, they should cut down on their casino spending and gift giving, which comprise 70% of the total discretionary expenses. Doing these will not affect their lifestyle at all and should bring down their discretionary expenses by 20%.

TABLE 2: CASH FLOW ANALYSIS

SUMMARY

If there’s a will

Cutting down on discretionary expenses and boosting their investments should generate a higher net cash flow and help achieve Ernesto’s goal to have a billion peso net worth when they retire. What they haven’t planned enough for what will happen to their wealth when they’re gone.

The couple has no will. They plan to establish one right away with the help of their lawyers. Ernesto wants to copy what her mother did, which was to donate her properties to him while she was still alive. Because of that she was able to guide and help manage the properties well.

Ernesto has a pre-nuptial agreement with Elizabeth, in order to protect the interest of his only daughter. He also mentioned that his Cebu and Tacloban properties are assets of her first wife and must be given to his daughter. Aside from that he wants 50% of all his properties in Luzon to be given to his daughter. The other 50% will be divided to Elizabeth and their four sons. Two thirds of his other investments will also go to his daughter and only 25% will be given to Elizabeth and his sons.

To prepare their estate plan, the various tasks were assigned to their accountant, lawyer, and financial advisor, who will coordinate with the property appraisals, make the computations, and file the required documents.

There are three options available to the couple: pass on their properties upon death, in which case they pay a hefty estate tax; donate their properties while they’re living, which is Ernesto’s preferred route; or transfer their properties to a family corporation.

The first step is to compute their net estate (see Table 3: Net Taxable Estate) and resulting estate tax. Assuming that they use up all their savings and investments for retirement, that leaves only their real estate properties worth P361,000,000 that their children can inherit. The estate tax due after allowable deductions amounts to P69,665,000.

TABLE 3: NET TAXABLE ESTATE

ESTATE TAX DUE

The second option is to transfer their properties via donation, since the tax rates are lower (15% versus 20% for estate tax). They call also transfer over a number of years so that they can relinquish legal ownership gradually. Using a 10-year schedule of donations, based on P378,000,000 worth of properties, the couple will be able to save P17,925,000 in taxes, since they will pay a lower P51,740,000 in donor’s tax.

TABLE 4: DONORS TAX COMPUTATION

The third option is through incorporation of assets. If Ernesto converts all his real estate properties worth P378,000,000 into shares of stocks with par value of P500,000, he will receive 756 shares. Transferring his assets into a corporation is tax-free at the time of transfer. However, it only delays the payment of taxes since his resulting shares of stocks will still have to be part of his net taxable estate.

So the best strategy is through donation since it will save the couple P17,925,000 in taxes. Since the donation will be spread over 10 years, they will be able to schedule the tax payments for minimal impact to their cash flow.

By Carlos Gonzales

It’s a good thing gas prices are going down. But don’t expect this will go on forever. World oil is notorious for drastic price changes. So develop good habits of saving on gas now.

1. Don’t be idle. A big no-no: letting the engine run, with the air conditioning on, while waiting or parked. That’s actually more wasteful than restarting the engine. So, if you have to wait more than a minute, open the car windows and turn the engine off. In the same way, make your warm-ups short. Half a minute is long enough, so drive off.

2. Don’t be fast and furious. Don’t rev up your engine, even if you think you’re Vin Diesel. And be gentle on the brake and gas pedals. Hard stops and fast starts waste fuel.

3. Gas up properly. Buy gas at cooler hours, like early morning or at night, to reduce gas evaporation. Also, avoid buying higher octane gas than necessary. And don’t overfill the tank to prevent evaporation.

4. Don’t be a drag. Take out stuff you don’t need from the backseat or trunk. Every extra 100 pounds of excess weight reduces fuel economy by 1%-2%.

5. Take care of your tires. Make sure your tires are properly inflated; otherwise it will take your engine more effort and energy to run. It’s costly too, adding six percent to fuel consumption for every pound the tire is under inflated.

6. Tune up. Get a regular tune-up as recommended by your car manufacturer. That includes changing your oil and filters regularly, to keep the engine running smoothly. Poorly tuned engines increase fuel consumption by 10%-20%.

A young family shows how to be peso-wise
By Heinz Bulos

Raising a growing family is a challenge for anyone, and many just let their finances get out of control. Not the Ramoses. Cynthia Ramos, 35, and her family are savvy consumers.

They buy non-food items in bulk to pay for today’s lower prices. And they avoid the frequent trips to the grocery, which means more gas, more merienda on the side, and more effort. They always make a list and refrain from buying things not on it. For fresh food, they buy from the wet market, where it’s often fresher and cheaper than supermarkets.

When malls hold sales at 50%-70% off on children’s clothes and shoes, Cynthia buys 3 to 5 items for each of their two children, including items a size bigger for future use. She waits for major price reductions for shoes, bags, clothes and make-up. For house decors, they frequent Tiendesitas and Kanlaon, where they hunt for bargains and at the same time support cottage industries.

They’re role models for the environment too, as they recycle whatever they can. She says, “Our helper collects bottles of suka, patis, toyo, and newspapers and magazines. The proceeds go to our helper. You help someone and you also help the environment.” They also teach their children to conserve water, even employing that Barney song to remind them (“Oh, I never let the water run”). They save on electricity, thanks to their air-conditioner with timer and free fan. They cook for more than one meal and store leftovers in the freezer, since re-heating entails less time and uses less LPG. Cynthia sometimes arranges carpools with her neighbor or sister.

They often bring the kids to the movies, but they carry their kids’ snacks and drinks instead of buying exorbitantly priced popcorn and sodas at the cinema. They also avoid Timezone when they’re with the kids as it’s practically a money trap. Rather, they create fun games at home using existing toys and computer games, even using their own point system and giving out prizes.

They also time their vacations when low-cost packages are offered. “Try the Palakbayan packages of PAL for domestic vacations. Or try the Cebu Pacific seat sales,” she points out. And when she needs a little pampering, she gets a massage at home for just P200 to P250, half or a quarter of what it would cost going to a day spa. “You can even sleep longer,” notes Cynthia. “But be sure to pick one with a good reputation.”