The Five Fundamentals of Fiscal Fitness

With the new school year in full swing and kids getting back to basics, this is a great time to revisit the basic building blocks of financial planning – what we call ‘The Five Fundamentals of Fiscal Fitness.’  We believe that financial success is 80-90% determined by how well a person follows these fundamentals:

1.    Save enough money from your paycheck into permanent savings.
2.    Have enough liquidity to manage the bumps in the road.
3.    Buy enough insurance to protect against catastrophe.
4.    Own the proper size house.
5.    Avoid consumer debt.
 
Let’s take a look at each of these in a little more detail:
 
Save enough money from your paycheck into permanent savings.

This means putting money away not for a future purchase, like saving for a car or a vacation, but into building permanent wealth off of which you can eventually live.  For most folks, that means using your company 401(k) or 403(b) retirement plan.

How much is ‘enough’? Of course the specific answer for anyone is unique to each situation, but a really good place to start is to take your starting age minus 15 and save that percentage of your income.  So if you start saving at age 25 and save 10% of income you’ll be in good shape.  If you wait until you are 35 to start, saving about 20% of your income is a good general target.  If you don’t start saving for retirement until age 45, you’re going to need to save about 30% of your income to reach your goals.

Have enough liquidity to manage the bumps in the road.

Again each person’s situation is unique, but a good place to start for employees is 10% of income in a checking account and 20% in emergency reserves like a savings account or CD’s.  Double those amounts you are self-employed.

Buy enough insurance to protect against catastrophe.

Insurance isn’t intended to cover minor bumps in the road or common maintenance, the reason you have liquid reserves to handle those things.  Insurance is needed to cover major, catastrophic events – like losing your ability to earn an income because of death or disability, being sued for a fatal accident or having surgery or other major medical care.

You probably need more life and disability insurance than you think.  Your ability to earn an income is typically your greatest asset.  Consider:  if your house burned down and wasn’t insured, it’d be terrible but as long as you could keep working eventually you’d be able to buy another one.  However if you lose your ability to work, there’s no way you could overcome that except for having enough insurance.

Own the proper size house.

For most folks this means owning a house worth between 1 ½ and 2 ½ your annual income.  Not only does real estate provide a lot of enjoyment in addition to its diversifying effect on your net worth, with a proper mortgage and liquidity combination it gives protection against inflation that can’t be found in many other places.

Avoid consumer debt.   

Consumer (bad) debt is any debt used to buy things that lose value over time, and is most commonly found in credit cards and auto loans. Good debt is used to buy things that increase in value like a house or an education, and is not what we are referring to here.

Spending above your means and always having an auto payment are two of the most crippling mistakes you can make.  The old saying ‘If you can’t buy it in cash don’t buy it’ should be the rule, not the exception.  Adhering to this Fundamental is one of the biggest things you can do to help yourself achieve financial success.

These five things aren’t very complicated, but like many recipes for success in life it’s the things that are simple-but-difficult that are the keys to success.  If you’d like more information about building a strong financial future, or a checkup on how you are doing so far, please get in touch and we’ll be happy to talk with you.

Retirement Planning: Simple, deep and fundamental guide towards peace of mind

This is a guest post by Grace

Do you know that 8 out of 10 retirees will be dependent on their children for financial support? This statement was released from the Philippine National Statistics Office in 2003.

We are already in 2015, and yet I still see a lot of families who have their parents living with their children. It is happening and I am not even surprised because it has been in the culture of many Filipinos. I have been a Financial Advisor for almost 5 years now and witnessed many single young professionals stayed single for a long time without saving a penny because they spend quickly on gadgets; travel a lot, big purchases or constantly providing for their family (Mom, Dad and nephews). I have nothing against the latter but I still believe that making them financially secure through total dependency on you makes you a greedy person rather than a generous person. Why? Because you are holding them of their talents to earn a living by providing for themselves, In short, passing the legacy to them, so that even when you are not around they know what to do.

There are only 3 easy steps that I want to share to young people who do not yet know how to save for their future:

Step 1:

 The moment that we start working, we can already set aside 10% of our salary. What is the 10% for?  The 10% goes directly to God’s hand. How do we give to God? The head of the church is Jesus Christ and we are the parts of the body, the church should allow you to practice this willingly. We are in God-believing country and yes, it is a command in the book of Deuteronomy 14:22. The Bible talks about tithe which means a tenth of your first crop. 2 Corinthians 9:7 gives us an insight of the attitude of our hearts when we give to God. And how do we do this? We start a relationship with him through believing in Him. What is 10%, when what we all have is His. The gospel truly changes our values inside out which are truly critical in managing our finances.

Step 2:

This may vary on your needs and salary: at least 20% goes to savings and investments. Let’s say you have a P15,000 salary. What you can do is send 10% of 15,000 to your retirement fund and another 10% in your savings account. In this way you will have the discipline of making your money work for you and another for emergency funds.

Step 3:

What about the 70%? Our favorite part of our work is when we finally enjoy the fruits of our labor. This is the part where we spend for our basic needs and take a vacation. This is when we work around with the 10,500 or 70% of the 15,000. We budget around with this because we still need to be disciplined when it comes to our expenses.

In summary, this is the classic example of putting your money in order:

Salary = Tithe + Savings & Investments & Protection + Expenses

How we see our future is how we save for it.  Are we among those 8% of the retirees who will be asking their children for money because of sickness and old age that we cannot work anymore? I know some parents who felt ashamed already because they knew that their children wanted to provide for their own family. Or are we among those 2% who are financially secured?

A grandmother who planned her retirement 40 years ago, have been living an abundant retirement now. Because the time she spent with her family is when they visited her in her house while having a sumptuous meals together or even travelling abroad. She’s now 80 years old and never did I see her ask for financial support except when playing with her grandchildren.

We too can experience this kind of retirement in the future if we start now while we are still healthy and earning a living. Let us increase the 2% of the retired population and make more people aware of their discipline. The way we can do this is to start with ourselves and pass it on.

The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully. – 2 Corinthians 9:6

Grace Panugayan is a Registered Financial Planner and working with one of the leading Insurance Company in the Philippines, Pru Life UK for 5 years.

Photo Credits to the following

north.cofc.edu

www.huffingtonpost.com

beatthe9to5.com

A Single Yuppie’s Guide to Saving

Payday is not until next week but your wallet is now empty. You scratch your head and ask, “Where did all my money go?” This scenario is not uncommon for the working class specially the Pinoy young professionals. The truth is, most of us single yuppies live from paycheck to paycheck. We are the generation that demands “work-life balance” that is why we like to work hard and party harder. We live like kings on a payday weekend and end up virtually broke on the next weekend. There is absolutely nothing wrong with enjoying the fruit of your hard work. Let’s all live and enjoy. Carpe diem! However, if you are one of those people who seriously want to solve the problem of running short on cash a few days before payday, don’t you think it’s time to ask how  you spend your money? The first step toward financial stability is reflecting on your finances. 

Create Your List of Expenses.

Take some time to sit down and list all your expenses for the month. You can do this on your day off or even on your coffee break. Now, what you will need is to create several lists of expenses on a piece of paper or you may use an Excel spreadsheet. Identify the average amount of your pay slips for the past 3 months. You may be earning a total of twenty four thousand a month from your call center job - make a mental note of this figure or jot it down.

The first thing you need to identify is the total amount of your monthly bills. This is really easy and anyone can do this. Heck, some people may already be doing this! Your monthly bills may include, rent, mobile phone, internet service provider, credit cards, cable TV, and other stuff like electricity and water bill. You may include your average spending on groceries under this list.

The second list of expenses you need to create is the cost of your fare allowance from your home getting to your workplace. Do you take the MRT or you prefer taking a cab? You should include your lunch money on this list as well. These will all be part of your “daily operational expenses” and you will need to multiply this into the number of working days in a month. Keep in mind that on average, there are a total of 22 working days in a month. 

The third list would be your “lifestyle expense”. Do you usually drop by Starbucks for a cup of coffee before heading to your office? Do you buy snacks at the office vending machine? How about your weekend activities? How often do you go to the movies? How much do you spend when you go to clubs and how often you visit a spa massage? Anything that is on this list are all variables but, pretty much flexible because you can live without them or you can replace one activity with a cheaper alternative. 

 Now, you were able to identify your total monthly expenses, how much was left? If what was left turned to negative balance, then make adjustments in your “lifestyle expenses”. If there’s more money left, congratulations! 

How much money do you really need to save? 

The responsible thing to do is to keep 10% of your income in a long term savings account or investment. If you are earning 24k monthly, you must keep 2,400 pesos in your “life savings”. This 10% is non-negotiable and part of your income which you could invest, while doing so that money will get a compounding interest in 10 to 15 years for VUL, growth stock mutual funds or the stock market. Most of the commercial banks offer investment banking options which could help you attains your financial goals.

Start a short term savings account or open another savings account. Your short term savings must be versatile. This pot of money will pay for that new gadget you really want to purchase or use it as your travel funds if you take trips every 4 months or so. If you are considering a home renovation project or simply need cash for a “rainy day” use your short term savings account as your emergency fund, never withdraw from your “life savings”. Truth is, you’ll never know when you will finally decide to settle down and start having your own family, and your expenses will definitely change and will multiply. When that time comes, you will be grateful for yourself   having the discipline in keeping that “life savings” untouched. 

At the end of the day, the value of determination will be the only thing you need in order to build a savings account. Nelson Mandela once said "It always seems impossible until it’s done." You have to start somewhere and the sooner you start your savings account, the better. Don’t be careless with your money but don’t be a scrooge either. Live and enjoy your youth but make sure to create a balance.

Photo sources

www.free-power-point-templates.com
Forbes.com
www.themoneyways.com
www.carltonhouse.ca

Mahj graduated with a Bachelors Degree in Economics at Dela Salle University Dasmariñas Cavite. Currently, she’s a freelancer and studying graphic design.

She was also a former fraud specialist of a Trillion Dollar bank .

Investment Reflection: Asset Allocation

With recent corrections, I have been actively looking at stock market. I have sharpened my finance skill to read financial data. In order to make sound investment, I have also made an effort to understand more of the various businesses and their future outlooks. I would say I have become a more technical and proficient investor during the process. At the same time, I know much better what the world is happening.



This is not all. I still have plenty to learn. However, I feel this is not healthy, given my already fully occupied schedule. I find myself "multi-tasking" to unleash my financial potential to the maximum. I do it before and after my family sleeping hours, while travelling to/fro work and pockets of time when I am alone. For example, while in toilet (don't think you want to know so much details). So, I decided it is time to "discipline" myself.

I am only active in stock market when it is tanked. I don't have problem when the stock market is doing extremely well. Moving forward, I decided to only spend 1 hour daily to read news and looking at stock market during market turmoil. I will do it early morning, during lunch break from work and while travelling home.

Asset Allocation
Given the recent correction at about 20% from the peak, I am supposed to be 40% invested in equity. You can read my asset allocation here. Currently, I am 20% invested and I am only looking to be 30% invested the most now. Yes, you are right, I did not follow my plan exactly. This is because my asset allocation is a rough estimate. This is also why I asked you not to follow any "star" blogger (of course not talking about me) closely on your investment decision. Situations changed quickly, faster than any star blogger can manage to update their new post. Most probably, they will not update 100% of their trades. Not to mention, you may not be able to follow every minute on what the star blogger says, even if they are able to share by minute.

I would like to update my asset allocation a little:

Using STI ETF as reference	Cash	Stock (capped at)
≥ 5 years historical high	90%	10%
10% dip from highest	85%	15%
15% dip from highest	80%	20%
20% dip	70%	30%
30%	50%	50%
40%	30%	70%
50%	20%	80%
60%	10%	90%

My watch list: STI ETF ($2.8), CapitaLand Commercial Trust ($1.295 & $1.17), AIMS AMP Capital Industrial REIT ($1.22), Keppel Corporation ($6.5 & $5.85), Starhub ($3), local banks. May add 1 or 2 more to the list soon. You may notice some prices seem too low for now, but it is just my asset allocation strategy. Please don't take reference from mine as I have other financial instruments to invest. This is more for my personal tracking.

My family and I are going for a vacation to Taiwan for 9 days. I will not be able to reply any message or look at the stock market (I hope). See you!