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Reaction to Worrisome Savings Data

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One of yesterday’s Business World Online articles entitled: Statistics agency cites worrisome savings data elicited discussion in Colayco Foundation. Here’s some of our insights:

Guita T. Gopalan, Managing Director

In the Colayco Foundation’s many years of advocating financial literacy and financial freedom, we have observed that the savings problem affects all income classes regardless of  whether they are earning six figure incomes or are living on a street sweeper’s salary.

Through the generosity of partners, we at Colayco Foundation are able to give training to low income earners: factory workers, tricycle drivers, janitors, etc. In these events we have noted that despite very limited income, families spend for recreation. In many cases, we’ve found families neck deep in debt but still spending on ‘wants’. While in terms of ratio, recreational spending is small compared to spending on necessities, it is a behavior which keeps them in a cycle of debt and financial insecurity.

The most alarming reality is that the financial behaviors of low income households are pretty much the same with their middle and high income counterparts. There is a savings problem, a huge debt problem and ultimately an inability to achieve wealth among Filipinos.

Armand Q. Bengco, Executive Director

Savings is a habit – a repetitive action. And just like any good habit – it’s very difficult to start in the same way that it is difficult to start exercising, eating healthy, stop smoking, etc. Why is that so? Because the benefits of saving take time to manifest, the myth of instant wealth and easy money remains alive. The notion that saving is depriving oneself further deters Filipinos from saving. It’s a big contrast to spending on recreation or consumer goods which give immediate but short-term satisfaction.

I remember my own personal struggle to take hold of my personal finances beginning 9 years ago: I was heavily in debt, a limited income and with a family of 4 to support. What finally convinced and motivated me to start saving was when Mr. Colayco said “If you can not do everything, why you do nothing? Start with something!” And it hit me! I can start small – save what I could and increase it when it’s reasonable to do so. I may not be wealthy YET, but I’m getting there one step at a time. This is the mindset and commitment I want to share with everyone.

This is the work of Colayco Founation to motivate and encourage Filipinos to take a hold of their personal finances – to Be GOOD: grow out of debt, to actively embark on their Wealth Journey, to explore their PISObilities by developing their InvestAbility and to being fully InvestEd in their obligation to be wealthy. We also develop an environment which encourages Filipinos to be financially responsible in tandem with financial institutions, government, the private sector and educators.

Through saving and investing, a Filipino’s dreams can become reality. By saving Php33 a day Filipinos could grow their money to Php2.1-5.7 million in 30 years and even as much as Php94.7 million in 40 years. Imagine that!

Mary Anne B. Colayco, President

I have three points on the reason brought forward by those who save less.

  1. The costs of living are higher but income is not commensurately higher…ergo, less savings.
  2. Spending for vices (alcohol, gambling, drugs, unnecessary shopping, clubbing, etc) like opium… drown out their pain.
  3. It is also possible that good education has become too expensive. And that over all there are fewer chances of getting jobs, especially good ones, with mediocre education.  So why spend on education?

No matter how real these points are to some people, it still doesn’t negate the importance for each to overcome the difficulty of saving.  Follow the formula INCOME minus SAVINGS equals EXPENSES.  Even if the savings are less for the reasons stated, continue and invest over a long term basis.

Francisco J. Colayco, Chairman

This is simply a validation of a mindset of ” induced helplessness”, i.e ” eh kulang na rin lang, gastusin na and enjoy.” It is also an indictment on staying within one’s comfort zones and not exploring new ways to improve one’s lives. Perhaps, it is still a manifestation of the mindset of entitlement vs the mindset of achievement: “asa sa iba; hindi sa sarili.” Additionally, so many have fallen to become losers. They may have developed this habit of losing as a result of utter dependence on others other than themselves.

Investing in a Sari-sari Store

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A favorite business of OFWs and their families is the sari-sari store where the capital required is very low.  For just about any amount, and a property that opens up to a street or pathway that is frequented by people, one can open a sari-sari store.  In fact, many stores are just a small room in their home with a barred window that opens out to the street.

What will make a sari-sari store successful?

Because of the numerous sari-sari stores located beside each other, it seems unbelievable that any of them make money.  In fact, a few make money but others end up just selling their inventory to get back their cash.  Some even just use up their inventory for their personal needs so that these do not rot.  Many don’t even know if they make money or not.  They just don’t seem to be running out of cash for their business so everything must be okay.

The required inventory capital can range from PhP10,000 and more.  There may be costs for permits and fees for the barangay depending on the practice in your area plus of course any renovation you may need to convert your place to a store.  A successful Owner said that if you want significant earnings, no less than PhP50,000 inventory capital is needed.  Examining the margins that storeowners add, it seems that 20% is a good average.  Assuming you can turn-over your inventory at least twice in one month, then you can have a gross profit of anywhere from PhP2,000 to PhP10,000 per month.  You can add to your inventory as you become more successful.

To compute your net profit, remember to deduct your allowance for your storekeeper or “Bantay”, your transportation costs to purchase your inventory and your electricity, if you have a refrigerator/freezer.

It seems that the three most important factors for success in a sari-sari store are pricing, customer relations and inventory control to make sure that your earnings are not fictitious.

Pricing

All sari-sari Owners say that they check out the competition in their area to determine their selling price.  If they are all checking each other out, it must be the oldest store in the area that sets the benchmark then.  However, each owner does not necessarily follow the benchmark.  Each has a reason to sell higher or lower than the benchmark.  For example, some owners have a source where they are able to purchase at a much lower price than the regular wholesalers and supermarkets. Others believe that they can price higher because they have a better location or better service.  However, I doubt that this will be a good long-term strategy as purchasing power worsens with the cost of oil and gasoline going up.  People will walk the extra mile to get the best value for their money.

Customer Relations

Nobody likes dealing with a grouch.  Foreigners always say that Filipinos are happy and smiley people.  Let’s be happy and smiley to our co-Filipinos too, not only to the foreigners.

It is always good to be in touch with the needs of your customers.  If you know what else they would buy that you don’t yet have available and what price, tell them that you will make sure you have it on the date you are sure you will have it.  Don’t make promises you won’t keep.

Inventory Control

Very few do this as they consider it a waste of time considering the many items in small quantities.  However, it is just a matter of setting up the system and everything else can be done automatically.

The Owner has to set a day for inventory of all items to be sold.  For each item in the store, have a stock card (can actually be a piece of paper).  The stock card has columns for Date purchased, # of units, price/unit, total price, Date Sold, # of units, selling price/unit, total price and Balance # of Units.

The Owner makes the stock cards for each item giving the correct description for easy alphabetical filing and fills up the Date purchased, # of units, price/unit and total price.  The cards are filed alphabetically in a box for easy retrieving.  Each time an item is sold, the “Bantay” picks up the correct card, fills up the Date Sold, # of units, selling price/unit and sets aside the stock cards that he/she filled out during the day.

At the end of each day, the Owner then checks the stock cards that had a sale and fills out the Total Price and Balance# of Units columns.  All the stock cards are then returned to the same box alphabetically together for the next day.

Once a week or at least once a month, the Owner has to make a total inventory to make sure that the Balance# of Units column for each item matches.  This way, the Owner knows his /her profits plus he keeps the bantay honest.

Here are a few more tips:

1)      Have a good bantay you can trust, preferably one who can read your alphabetically arranged stock cards and can write the date and # of units sold.  The bantay should understand the system and know that he/she will be checked.  This should help in reducing the temptation to be lax or to give away products.  Make sure you do the checks; otherwise your system was a total waste of time.  If you or your child is computer literate, this system can easily be done on your computer.

2)      Canvass where purchase costs are cheapest and plan your trips to reduce transportation costs.  Some suppliers, particularly those with unbranded products, are willing to deliver.  Look for them.

3)      If you have a refrigerator or freezer, sell refrigerated items at a premium over the regular items to cover the electricity cost.

4)      Try not to sell on credit but if you do, add a premium and set a credit limit per customer depending on how well you know him/her.  Collect within a week.  Stop all sales if not paid on time.

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Whether you are an entrepreneur or an employee, personal finance skills and knowledge are necessary for your financial success. Learn more by joining our upcoming seminars:

PISObilities: Wealth Within Your Reach

July 7, 9am-12nn, Pasig City

INVESTability: Mutual Funds

July 7, 2pm-5pm, Pasig City

Contact 6373731, 5024590, 09178088857 or email renzie@colaycofoundation.com for inquiries and to avail of our early bird discount.

Makabuluhang PANGUNGUTANG

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Makabuluhang PANGUNGUTANG: Ang Ating Paningga sa Kasaganaan

A guest post by Financial Wellness Advocate Melchor V. Cayabyab

“Give me a lever long enough and I could move the world.” – Archimedes.

Ang “pingga” o lever sa ingles ay mga kasangkapan na nagagawang pagaanin ang anumang bagay,  gaano man ito kabigat,  na nais nating ilipat, iangat o di kaya ay kuhanin. Dahil sa paggamit nito, mas nagiging mabilis at mas marami ang ating nagagawa.

Sa ating pang-araw-araw na buhay, ang pingga ay ang mga tulong na nakukuha natin mula sa ibang tao, samahan o maski sa pag-unlad ng  teknolohiya na nagpapagaan at nagpapataas ng kalidad ng ating pamumuhay. Ito ang ating  mga paningga o leverage na ating ginagamit upang pagaanin ang ating buhay.

Sa usaping pinansyal, ang paningga ay  ang mga ginagamit natin upang mapabilis ang pagpapalago ng ating salapi. Ito ang makakatulong sa atin para makapagsimula ng negosyo o di kaya ay mamuhunan sa kabila ng kakulangan ng ating impok at ari-arian. The concept of leverage is all about achieving ever more with ever less.

Pangungutang Bilang Paningga

Isa sa mga pwede nating magamit bilang paningga sa ating buhay-pinansyal ay ang pangungutang. Ito ang paghiram ng pera ng ibang tao para ipantugon sa ating ninanais gawin. Sa pamamagitan nito ay nagagawa nating alpasan ang usapin ng kakulangan ng salapi. Ito ang ginagamit ng mga negosyante upang magsimula  at/o  palawakin ang operasyon/produksyon ng kanilang negosyo upang magkaroon ng mas malaking kita. Ika nga nila “kung wala kang sapat na pondo at may magandang ideyang pagkakakitaan ay gamitin ang pera ng ibang tao.” Subalit …tulad ng iba pang paningga, ito ay “double-edged sword” . Makakatulong ng malaki kung tama ang diskarte subalit ilulugmok tayo nito kung magiging mali ang ating paggamit tulad ng karanasan ng maraming lubog sa kumunoy ng pagkakautang.

Makabuluhang Utang

Upang  maiwasan ang panganib ng pangungutang bilang paningga ayon sa personal finance expert na si Francisco Colayco ay mahalagang maunawaan ang konsepto ng GOOD DEBT at BAD DEBT.

Good Debt: Ang pagkakautang kung ito ay ginagamit sa pagtatayo at pagpapalawak ng negosyo, pamumuhunan o anumang gastusin na makapagpapataas ng ating kita. Sa madaling salita, ito ang utang na ginagamit upang palaguin ang ating yaman.  Mangyayari lamang ito kung ang kikitain sa paggamit ng pera ay mas mataas kaysa babayarang  interes sa inutang na pera.

Bad Debt: Ito naman ang inutang na ginamit sa karaniwan, buwanang gastusin at mga luho ng hindi dahil sa emergency. Pinakamasama rito ang inutang para ipantustos sa luho, pambili ng mga gadgets para makasabay sa uso at iba pang kahalintulad. Hindi na nga nakapag-ambag sa pagpapalago ng ating yaman, ilulugmok pa tayo nito sa pagkakautang na  kumakain ng malaking bahagi ng ating kita. Ang dulo, magiging siklo (cycle) sa atin ang pangungutang. Mangungutang para ipantustos sa nawala sa atin bunga ng pagbabayad utang at mangungutang para ipambayad utang.

Mga Paalala sa Pangungutang

1. Piliting magbayad lagi ng cash. Tandaan na ang interes na babayaran ay karagdagang gastos dahil  bawat pangungutang ay may kaakibat na bayaring interes. Manghiram lamang kung kailangan.

2. Huwag na huwag mangungutang para sa luho.

Walang masama sa panghihiram ng pera. Nagiging mali lamang ito kapag ito ang hiniram ay hindi nakapaglilikha ng karagdagang kita. Pinakamali kung ipantustos lamang sa luho.

3. Mangutang lamang ng  kayang bayaran. Bago mangutang, alamin muna kung kakayaning bayaran ang obligasyon (prinsipal at interes) ng hiniram na pera. Never assume that you will always have your present job. Kapag nalubog kasi tayo sa utang ay malalagay sa alanganin ang ating reputasyon at nagiging masikip ang mundo natin sa kaiiwas sa ating mga inutangan.

4. Huwag paabutin na 30% ng inyong buwanang kita ay mapupunta lamang sa pambayad utang. Ayon sa mga eksperto, sobra na ang pangungutang kung lalagpas sa 30%. Magiging mahirap ng matugunan ang ating mga pangangailangan. Malaki ang panganib na mabilanggo sa siklo ng pangungutang.

5. Piliin ang utang na may pinakamababang “effective interest rate”. Mahalaga na malaman kung paano kinokompyut ang interest ng ating inutang. Posible kasi na hindi pareho ang interest rate na sinasabi sa iyo sa aktwal na interest (effective interest rate) na babayaran.  Mas mataas  ang effective interest rate kapag ibinawas kaagad ang interest sa matanggap na halaga ng inutang. Piliin din ang interest on amortizing principal – ang interest ay nakabatay sa balanse ng prinsipal sa buwan.

Iilan lamang ito sa mga paalala ko tungkol sa wastong pag-gamit ng utang. Gamitin ang ating mga paningga upang makamit ang kasaganaan! Para sa dagdag na kaalaman, samahan kami sa July 7, 2012 para sa Pisobilities: Wealth Within Your Reach seminar.

Melchor V. Cayabyab is an educator, an entrepreneur, and a Financial Wellness Advocate of Colayco Foundation. He has been teaching economics for more than ten years now. He was awarded the “Most Outstanding Teacher of Manila” in 2003. As an entrepreneur, he is a successful distributor of different food supplements. Last year, he established “AHON SA KAHIRAPAN”, a micro-lending cooperative that aims to lend money with very low interests and at the same time help its members learn how to manage their finances properly.

Make Money On The Side

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Guita Gopalan, CFE’s Managing Director recently wrote a blog post for Lenddo Phils.

People often ask us what they can do to earn additional money on the side while working full-time. The list is endless-from joining a networking company to writing to buying and selling stuff. The key to success is finding something that matches you. There is no one-size fits all…

Read the full article on the Lenddo Blog

The Colayco Foundation provides financial education articles and materials to various traditional (newspaper, magazines, etc.), digital (websites, e-magazines, blogs, newsletters, etc.). For more information about this service email guita@colaycofoundation.com

Ang sampung piso araw-araw, puwedeng maging milyun-milyon!

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Isa sa pinakamadalas itanong sa akin ay, “Magkano ba ang dapat kong itabi?” Para sa akin, dapat ay 20 porsiyento. Kung matatandaan ninyo, ang financial equation na parating itinuturo sa atin dati ay:

ANG KINITA MO – MGA GASTUSIN = PERANG DAPAT ITABI

Mali ito! Kaya nga ngayo’y pinalitan na ng:

MGA GASTUSIN – KINITA MO = UTANG MO!

Mas lalo pang lumala!

Ang TAMANG EQUATION ay:

ANG KINITA MO – PERANG DAPAT ITABI = MGA GASTUSIN

Dapat kang magtabi ng 20 porsiyento ng iyong buwanang kita bago mo ito gastusin. Malamang sasabihin mong hindi mo kaya, na kulang ang iyong kinikita. Ngunit ‘di mo ba napapansin na kapag kumikita ka nang malaki-laki — halimbawa, P15,000 sa isang buwan — kadalasa’y nagagastos mong lahat, ngunit kapag mas maliit ang iyong kinita — halimbawa, P10,000 lamang — napipilitan kang pagkasyahin ito sa iyong mga pangangailangan? Ang ibig sabihin, kaya mo naman talagang magtabi ng 20 porsiyento (o higit pa) at pagkasyahin ang natitirang 80 porsiyento. Sa ganitong paraan, mapipilitan kang mamuhay nang nakabagay sa iyong kinikita — mapipilitan kang bawasan ang mga gastusing hindi naman talaga kailangan. Ituring mo na lang ang 20 porsiyentong ’yan na bayad sa iyong sarili, na gagamitin mo para mapaghandaan ang iyong kinabukasan.

Ang kalahati ng 20 porsiyentong itinatabi mo (10 porsiyento) ay dapat mong ipunin hanggang umabot sa halagang katumbas ng anim na buwan mong sahod. Ito’y dapat mong ilagak sa mga financial instrument gaya halimbawa ng government bonds na wala ganoong risks at kumikita nang higit sa ating inflation rate na 7 porsiyento. Ang natitirang 10 porsiyento nama’y pambayad sa life at medical insurance premiums at long-term savings plans gaya ng pension plans.

Kapag nakasanayan mo nang mag-ipon, masasabing sinusunod mo na ang “Unang Kautusan” para makamit ang “Kalayaan sa Kakapusan”: “Bayaran mo muna ang sarili mo!” Sa kalaunan, ang 20 porsiyentong itinatabi mo ay lalago. Kapag nangyari ’yan, mas mabilis mo nang maaabot ang iyong mga pangarap. Mahirap ngang simulan, pero kapag nagawa mo, magugulat ka kung gaano kabilis lumaki ang pera mo. Basta’t huwag na huwag mong gagalawin ang iyong ipon at mga ipinamuhunan.

Ang naitatabi mong P10 kada araw o P300 kada buwan ay maaaring kumita sa annual rate na 12 porsiyento, basta’t nai-invest mo ito nang maayos. Kung hindi mo ito gagalawin at hahayaan mo lang lumago, magkakaroon ka ng P66,600 sa loob lamang ng sampung taon. Sa halagang ‘yun, P36,000 lang talaga ang iyong naipon. Ang ibig sabihin, halos dodoble ang pera mo.

Kung maipagpapatuloy mo ito ng sampu pang taon, o makapag-iipon ka pa ng P36,000 sa loob ng 120 na buwan, magkakaroon ka ng P273,400. Ang ibig sabihin, ang naipon mong P72,000 sa loob ng dalawampung taon ay lalaki ng halos apat na beses.

E, paano kaya kung kumita ang naipon mo ng 20 porsiyento kada taon, imbes na 12 porsiyento lang? Kung gayon, ang P300 na naitatabi mo buwan-buwan ay lalago at magiging P101,700 sa loob ng sampung taon, P731,700 sa loob ng dalawampung taon, P4.6 milyon sa loob ng tatlumpung taon, at P28.8 milyon sa loob ng apatnapung taon. At ano nga ulit ang kailangan mong gawin para makamit ang ganito kalaking kayamanan? MAG-IPON AT MAG-INVEST NG P300 LANG KADA BUWAN!

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Inaanyayahan ng Colayco Foundation ang lahat na makisado sa mga sumusunod na seminar:

PISObilities: Wealth Within Your Reach

July 7, 9am-12nn, Pasig City

INVESTability: Mutual Funds

July 7, 2pm-5pm, Pasig City

Contact 6373731, 5024590, 09178088857 or email renzie@colaycofoundation.com for inquiries and to avail of our early bird discount.

LENDING IS INVESTING. COLLECTIONS MUST BE REINVESTED

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Here is an amusing educational story that I received from the email.  The writer asked to remain anonymous but was very open about sharing his experience to help others.  We will call him Luis.

It is normal that people who are short of cash to approach relatives and friends who have some extra money.  The borrowers will even offer good interest rates to entice the lender to agree.  In fact, borrowers prefer to pay the interest to reduce whatever “utang na loob” the loan will cause.  The Lender also becomes interested because he is able to help his relative or friend and make some money at the same time.  There is definitely nothing wrong with this type of transaction.

When Luis got married, he and his wife had extra cash from gifts and savings.  One day, his friend, Carlos was complaining about the 31% he had to pay for interest on a two-year car financing loan.  Carlos was not really complaining about the rate but more on the charges that went with the loan like chattel mortgage, processing fee, post-dated checks etc.

Luis saw a great opportunity to earn.  He asked Carlos if he really wanted to buy the car and if he really wanted to get a loan. Carlos replied positively.  It’s just that he didn’t want to pay for all those extra charges.  He didn’t think it was fair.  Luis asked Carlos  more questions to check if Carlos could really pay for the amortization of the loan.  Luis was satisfied that Carlos could really pay.  So, he offered Carlos a deal.  He would lend Carlos P300,000 for two years for a 30% interest.  The car would be registered in the name of Luis and would be covered with full insurance.  Luis would not require detailed documentation and there were not extra charges.

Carlos was very happy.  For the P300,000 at 30% for 24 months, Carlos gave Luis a monthly check of P16,250.  Luis was also very happy.  After all, where could he get a deal earning 15% per annum without any risk.

Carlos was a good debtor.  He paid on time and Luis received P16,250 per month.  In 24 months, Luis actually received a total of P390,000.  Unfortunately, he spent the monthly P16,250 check each time he received it.  He didn’t reinvest it again because it was a relatively small amount each time.  At the end of the 24 months, Luis ended up with only the last P16,250 installment!  Luis likes to laugh at himself when he tells the story.  But he said that in truth, he really feels badly about the lost opportunity.   He is much more prudent now.  Luis values money much more, no matter how little of it there is.  Today, P16,250 can be invested readily.  In fact, even only P5,000 can already be invested.

Financial literacy is not about numbers…it’s all about mindset

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Attitude

I mostly talk about how you can increase your income by setting your financial goals, investing, going into business, and other similar activities.  Let me share a story that reinforces the title of this article.  Your attitude will make the difference!

There is a story from The Simple Truths of Service by Ken Blanchard and Barbara Glanz, famous American authors about a simple cab driver named Harvey.  He doubled his income from the previous year and in the third year even quadrupled it.  He did this by doing the same job that he had been doing for many years.  He just changed his attitude completely after hearing Wayne Dyer on radio saying “ Stop complaining!  Differentiate yourself from your competition. Don’t be a duck. Be an eagle.  Ducks quack and complain. Eagles soar above the crowd.”

Harvey said that he used to be like most cab drivers, a duck always quacking and complaining.  He decided to change his attitude and looked at the other cabs and their drivers.  The cabs were dirty, the drivers were unfriendly and the customers were unhappy.  So he made a few changes at a time and when the customers responded well, he did some more.

Little by little, some of the changes he made were: 1) He kept his cab spotlessly clean.  2) He became extra friendly, greeting his passenger and telling them that he wanted to bring them to his destination in the quickest, safest and cheapest way.  3) He asked them if they wanted to listen to any particular radio station.  4) He even had drinks available for them. 5) He offered them something to read.  6) He asked if they wanted to talk or just to be left with their own thoughts.

After a while, Harvey’s customers called him for appointments and if he is busy, he asks a reliable cab driver friend to pick up the customer for a commission.

It is so easy to immediately say that this story is only possible in America.  But even within America, the author said that he told the story of Harvey to at least 50 cab drivers and yet only 2 of them took the idea and developed themselves.  The others just thought up of all the reasons why they couldn’t improve anything.  This just goes to show that it is not the kind of job or the place.  It is the attitude of the person.

This is the same attitude that is needed by everyone who wants to change his lifestyle and save.  So many write me that they need to earn more money or they want to invest but they don’t have the money.  They want me to tell them step-by-step what to do.  Nobody can do that.  Each person has to stop complaining, find what it is in his life that he can improve on and work on it.

Financial Literacy

Perhaps the issue why there is so much complaining and less action is the lack of financial literacy.  While most everyone is driven by the desire to earn money, how many have a real understanding of how to keep and manage money?” People do not seriously understand why they should save and what they should do.  In informal surveys I have made during talks and seminars, I am amazed at how few have a clear understanding of what wealth means (i.e. when is one wealthy?).  Less than ten percent have an idea of how much money or earning assets they should have by the time they want to or have to stop working.  Very few have clear personal goals at specific future dates.

This lack of goals and plans are in any income class. There are poor people who will do anything to get themselves out of poverty.  Some succeed and some don’t. Sadly, there are poor people who just accept their fate and cannot see how they can get out of it.  On the other hand, there are rich people who are driven to make sure they do not have to downgrade their lifestyle in the future.  There are also rich people who sadly have the mistaken notion that their wealth will always be available forever.  They wake up one day to sadly learn that everything is gone.  These are, to me, the sorriest lot.  They could have shared so much to so many.

There is stage that anyone, rich or poor, can achieve where one is happy because he considers himself wealthy.  One can only reach this balance with the right attitude similar to Harvey’s.

But even with the right attitude, one still needs to have some skills to move in the right direction.  One of these skills is Financial Literacy. In simple terms, Financial Literacy is knowing how to keep what you earn and how to do more with what you keep.

But before anything else, one must understand, know and accept that wealth does not necessarily mean having millions and millions of pesos. What is prosperity for one may not necessarily be wealth for another.  Lifestyle defines this for each person.  The rich and famous need to spend so much more to maintain their lifestyle.  Many envy them because of their seeming “fairy-tale” lives but are they really to be envied?  It is so ironic that so many rich people are deep in debt and would give anything to live a simple life.

In reality, having money, even lots of money, is no assurance that one is automatically wealthy and can therefore afford to stop working for money.  Wealth and money means nothing unless it is matched with time and expenses.

Are you wealthy if you had PhP 1 Million in your pocket?  What about PhP 2 Million, PhP 10 Million or PhP 100 Million?  The answer lies in your expense profile.  If your living expenses are very high because of your lifestyle, or perhaps because you have so much debt, then maybe even if you had PhP 100 Million, you would still be financially short.

So if you had cash and other financial assets that can support your lifestyle for say ten years, would you consider yourself wealthy?

Wealth or kayamanan has to be also based on how much time you have left in this world.  If you are in retirement and have ten years to go, then you are wealthy enough if you had financial assets good to support your lifestyle for ten years.  But if you only have resources good for five years, then you are not wealthy enough.   In this case, you still have to grow your financial assets or lower your lifestyle to match your financial capability.

In effect, people who are happy to live simple lives are the wealthiest of all.  Again, note that it is the attitude and mindset that defines the situation.  In the final analysis, wealth is nothing more than having the money to fund your particular needs at any given time. Being wealthy simply means having sustained financial resources to support your chosen lifestyle even without working. It is a situation where one is ready for emergencies and for the inevitable retirement stage.

With the right attitude and preparation, wealth should be within reach of every income earner.  One only needs to develop the skills.  This is what I try to impart in my books, articles and seminars.  Email info@colaycofoundation.com if you have questions.

Clarity of purpose (Purpose-driven Investing)

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Some things may seem so basic and should be part of common sense.  But actually, many do not think out issues carefully. People do things mostly on impulse and those who are not impulsive, analyze a little and then just assume things will work out on what they have decided after partial thought.  They take action based on goals that are not sufficiently clear or detailed.  The biggest example of this phenomenon is the hundreds of thousands of OFWs who invest their hard-earned savings on businesses offered to them that are clearly unsuitable to their particular situations. And why did they invest?  They were simply driven by their general desire to earn more money.  The how, the when and the why issues do not even get serious attention.  They rush to invest without defining their expectations.  Worse, they do not even compute what they will make out of it versus the possible risks of failure.  They invest based on the assurance of trusted friends and relations who are not even qualified nor experienced enough to give them such advice.

This kind of confused decision process is demonstrated every day.  It is so common for OFW families to rush investing in tricycles, FX taxis, sari-sari stores, etc, etc. When asked why they invested, nine out of ten are not able to say why except to say, “I wanted to get into business and make money”.  Their objective of getting into business is valid.  But in reality, the investment does not serve the real purpose of making money.  The thought processes, unfortunately, end there.  No further thinking goes into asking whether or not the particular business will, in fact, make money for them. They listened to stories that their investments would be profitable based on the experiences of others.  They should have at least asked themselves two more questions. What is it that I should earn and how will this investment make me earn that amount? The failure to ask these questions is precisely because people generally do not define their purpose clear enough so that they can correctly study it sufficiently think it through before they decide.

Cultural nuances

There are three Tagalog phrases that, to my mind, reflect perhaps this cultural flaw in our thinking processes.  These are: “Pwede Na (That’s good enough), Medyo (More or less) and Akala ko” (I thought that, or I assumed that).   These words show thinking that is not exact and accurate.  Unfortunately, this kind of thinking finds itself in the work place resulting in mediocre performance.

Overseas, the Filipino worker behaves differently. He is extremely productive and the reason is because he is given specific and detailed work objectives, which are measured on a regular basis. The reason is clear. Rules and other work-related systems are required.  Supervision is consistent.  Proper tools are provided and the workers are given feedback of their productivity very quickly and regularly. There is no room for imprecision.

In most local organizations, decision processes are mostly influenced by behavioral or cultural feelings and practices.  Short cuts are more the rule than the exception. Any questions or doubts, if any, are resolved based on assumptions.  Even where strict rules on quality control and management systems are in place, the quality of action still, more often than not, falls below standards.    Supervision is perceived most lacking when it comes to service industries.  When supervisors face a situation where they have to choose to stick by the rules versus cutting work time or “hurting the feelings” of either clients or co-employees, rationalization wins.  For example, they start thinking that the employees will feel bad if their attention is called and cannot work well anyway.  So, they allow them not to follow the strict rules.  Or they need to meet a deadline so they allow short-cuts.  All the other employees see these bad examples.  Eventually, everybody follows the wrong standard and quality suffers.

How would you overcome these behavioral or cultural practices?  One way is to start on the financial aspect of your life.  After all, finance will probably be the most precise part of your personal life.  Practice in being precise in the management of personal finances, encourages care in the thinking process in work, family and other relationships.

The first exercise in managing personal finances is to know where you are financially at any point in life.  Our CFE Team gives the basic principles and “commandments” but reminds you that you cannot start on a journey without a map.  A Personal Statement of Assets and Liabilities and Personal Income and Expense Statement are requirements to get started.  With these tools, you can be more precise in moving forward to make your Personal Financial Plan.  With such a plan, you can draw up alternative road maps to reach the same personal financial goal and to better assess the opportunities that come up.  No short cuts, no “Pwede na”, no Akala Ko”, no “Medyo” can be allowed.

MONEY IS A FAMILY MATTER

Your personal financial plan should always involve your family.  After all, you are supporting a family member or relative, one way or the other.  It is common sense to involve them in the planning cycle from the very beginning.  But you might be tempted to give a different picture of your earnings either higher or lower than what it actually is.  In truth, family/relatives left behind will always think that you will earn a big amount and that there will always be enough to share with them.

When you first leave, you will not know the exact circumstances of your employment and living conditions.  It is best that you do not make promises to send any money precisely because of the unknown.  However, it is best to understand and agree on exactly what your family priorities are, order of importance and amounts for each that the family needs.  Send only the amounts needed for each priority in the order of importance.

Before leaving, make it a point to bond with your family.  Include budgeting and coping with the financial crisis as part of your bonding activity.  An admirable couple I know share their bonding activities.  They have two teenage boys who they believe are their biggest helpers in saving and managing their family finances.

They talk about money matters to their kids to show them that they are trusted and considered matured and responsible.  They are allowed involvement and some degree of independence.  They can suggest where the cuts in expenses will be and they know that part of the savings will go to their vacation fund.

Here are some of their practices:

–          Have a “positive” attitude during discussions on money matters by sounding confident, honest and open.

–          Ask a lot of questions to find out where the kids are coming from and there should be no lectures especially no  “talk down” as if the kids do not know anything.  Treat them with respect.

–          Old money disagreements should never be brought up again.

–          Have a vacation fund.  Everybody agrees on where the next vacation should be with a target cost.  Everybody agrees on the amount to be slashed from the household budget that will go into the vacation fund.

–          Before going to the grocery, everybody agrees to a grocery list.  Everybody goes to the grocery and strictly follows the list…very strict rule “ What is not on the list, cannot be bought.”

–          Agreement not to have any househelp. Everyone agrees to what each person is assigned in house chores.  No need to pay or incentivize anyone because the goal is to have a vacation as planned.  The vacation is already the incentive.

–          Budget for electricity and water is clearly understood.  They know how long each appliance can be used to keep within the budget.

–          Cell phone usage is strictly charged to each one’s personal allowance.

–          Recreational activities are chosen so that they are not costly.

Some Recreation and Family bonding moments:

–          Quality and good quantity of bonding time of  5 hours with the kids – chit chatting, laughing and a lot of horsing around at the cost of PhP45.00 – a deck of cards!  They learned/re-learned and played various card games from 10 pm to past 3 am on a weekend.

–          No eating out.  They each know how to cook.

–          freesbie playing in the park (many free parks including Luneta and UP Sunken Garden

–          play a low-cost sport together like softball, basketball, garden badminton, hulahoop, yoyo,etc.

–          movie watching at home instead of the malls

If your family does not live with you, you might consider sharing these with your spouse back home.  Ask them to start implementing some of it even in your absence.  When you go home for a vacation, make sure that you sit down for a serious discussion to make a personal financial plan involving your family. Then, you can truly say that your whole family is one in clarity of purpose for your sacrifice living in a foreign land.

ORGANIZE FINANCES before and after WORKING abroad

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You are probably already working abroad.  But you might still welcome a review of all the right things you did and know what you could do to correct mistakes of the past. For readers who have not yet left, this is the chance for you to get ready.

It has been my advocacy to concentrate on teaching financial literacy to income-earning Filipinos.  Fortunately or unfortunately, as an Overseas Filipino Worker (OFW), you are in the majority of Filipinos earning substantial regular income.  I am quite blessed to have been and continue to be able to get to know many of your problems related to financial literacy up close.  It gives me a real sense of accomplishment to be able to assist you in understanding the need to save and to grow your savings so that you may be financially independent when you come back for good to our country.

In the first place, the reasons why you or at least most of OFWs leave their family and go abroad is a combination of the following and not necessarily in order:

1) Lack of appropriate jobs for you locally.  You might have had job opportunities in the Philippines but if you have technical capabilities, you could get a better paying job abroad.  The sense of accomplishment is also a very important part of your life.  If you lose that feeling, it can be very depressing and the nagging thought that you could have done better in life will haunt you till you grow old.

2) Want the experience and adventure abroad.  There is nothing wrong if you are not really there for the sense of accomplishment but for the thrill of being alone abroad and living a different life.  This is true especially if you are still young and single. Hopefully, you can combine work and pleasure.

3) Want for better pay.  I can’t say much more about this.  Everybody wants better pay whether in the country or outside.  I hope you carefully analyzed your net pay.  I hope you don’t fall into the group who thought they were getting higher pay in another country but cost of living and other expenses related to moving away actually gave them a net pay lower than what they would be receiving in the Philippines.

Based on my and the Colayco Foundation for Education (CFE) Team’s personal experience in dealing with OFWs, it seems that at most, only 10-20% would know how to manage and grow their money.  This same ratio probably applies as well to those who stay and work in the Philippines. Personal money management, or applied wealth management is not really taught in schools.  It’s only now that we are seeing our advocacy in promoting financial literacy (personal finance) being brought to schools. A group, which includes CFE is working on an institute to precisely educate teachers who teach finance and economics in investments and personal finance. One of the key and immediate objectives is to reverse the prevailing counter-productive mindset among the earning classes, i.e., the mindset of the “here and now”- the seeming drive to live their chosen lifestyle immediately at any expense up to and including borrowing beyond their means.

Pre-Departure Fundamentals

Before you even leave the country, first and foremost, you should have a personal financial goal.  You should know exactly:

1) How much you are worth today.  You need to make your Personal Statement of Assets and Liabilities and Personal Income & Expense Statements.

2) You should agree with your family left behind what their budget should be and be ready to send only that and no more. Your family should not be tempted to thinking that they can now spend as much as they want just because their OFW is earning in foreign currency.

3) Remember that in making that family budget, you should follow the formula INCOME-SAVINGS= EXPENSES.  It is important that you not only keep some money for your personal expenses abroad but also some savings for yourself

4) You should try your best to follow the 80-20 rule.  You should live within 80% of what you earn and save 20% of your income for your future capital.  If you can’t save 20%  you can start even with 1%.  You just have to get started and feel that winning experience. This will hopefully get you to develop that saving habit.

5) Learn what options you have for saving both here and abroad. You should not just send everything to your family and relatives.  In fact, it is better that you make arrangements for direct placements of your investments with financial institutions before you leave.  In your working country, on the other hand, you should find out the safe methods of keeping your savings.  If you feel confident about investing there over the long term with a reputable financial institution, you could do that.

Your whole end goal should be to come home “for good” with enough saved so that you can sustain a fairly comfortable financial life with your family.  These goals have to be quantified over specific time periods.  You need to monitor your progress and thus should regularly update your personal financial plan.

You might become so homesick and start believing that you have enough saved and that you can easily find a job or business when you come home.  You might start believing that what you have saved will tide you over until you find the job or business.  Unfortunately, many times this might not be a realistic assumption so be very careful

If you still need a job, you should be relatively sure you have that job before coming home for good. If you dream of getting into business, you should prepare for the business that you intend to get into.  You should prepare together with your family in identifying what business you will get into, thoroughly study the identified business and have a complete plan in how to set it up and start operations.  Ideally, the business should already be running even before you give up your job abroad. You can start to prepare for this by working on plans each time you come back for vacation.

One of the better ways to do this is to look into franchise businesses that fit your goal.  In some cases, Franchisors can provide active management of the business in the start-up year.  This way, you or his family member can be taught how to run the business on-the-job. There is no better way to prepare and train than going through this kind of hands-on training.

Typical Back-For-Good Situations

When you are finally home in the Philippines, you could be one of those who say they cannot adjust to the new life.  Most of the time, it is because you realize that what you have saved is not enough.  This is so because it usually is taking you longer to find a job or to think or put up a new business or maybe your lifestyle has just changed.  In this case, your only choice really, is to cut down on expenses drastically until you are able to settle down.

Those who have lived in the Philippines all their lives know that setting up businesses can lead to a lot of frustration especially since the choice of business should be dependent on the passion of the person, interest, size of market and sufficient funding.  To all the OFWs and those who want to be OFWs out there, always remember the saying that “The grass is always greener on the other side.”  Examine your options well whatever side you are in now before making important decisions to uproot yourselves and move overseas or to come back home.

Post Script

With today’s global financial crisis, the challenges are even more pronounced.  Economies of practically every country are melting down.  New investments are not happening and all are trying to conserve whatever cash and assets they have.  Worse, credit is very tight such that even ongoing good businesses are hard put to maintain, much less expand their operations. What is the bottom line of all this? Be practical. Hold on to your jobs for as long as possible.  Don’t rush into starting up new businesses.  The rule of the day is to conserve your assets and avoid risks.

Armand Bengco on Love and Money

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Money matters are important in loving relationships. Poor financial management is a big reason why couples break up and families fall apart. Being able to easily and comfortable discuss money, income and wealth matters with your partner and children may just save your marriage and family.

Develop ease and comfort in talking about money, income and wealth with your partner and your children. Couples and families should have quality conversations about money matters.

If you are in the dating and boyfriend/girlfriend stage, understand how your partner feels, views and manages his/her money. Does he or she buy things at a whim? Does he or she save regularly? Does he or she have insurance? And other things. You don’t need to know the specifics of how much he or she earns but just understand enough to see if you can work with his/her style of financial management in the long run.

Once you have decided to become life-long partners, are engaged or are in the early stages of your marriage, you can get into the specifics of who does what in managing your family’s finances.

Set your budgets as a couple. Be honest with each other especially regarding debt, acquisitions and any and all money transactions.

Work out between yourselves who will MANAGE and who will DECIDE on money-income-wealth matters. Share the responsibility for your financial future with your spouse. Come up with mutually agreed upon rules about spending limits. Decide on what you can agree on as “mine”, “yours”, or “ours”.

Part of communicating is agreeing on your immediate family’s goals – education, kind and cost of lifestyle, retirement, big ticket acquisitions, etc. As early as you can, start planning, saving and investing for these things.

If you have children, don’t wait till they are working till you discuss money with them. Once they start asking you for things they want to buy you can already introduce them to good money concepts. Take them with you when you go shopping, explain why you choose this brand of shampoo over the other brand.

Another important note about families in the Philippines – the EXTENDED FAMILY matters especially because we often extend our help to our families. Often, even after marriage, couples feel obligated to help out the family they were raised in, their parents and siblings and sometimes even cousins or even as far as the 2nd or 3rd degree of consanguinity. As Francisco J. Colayco often reminds; “you can not share what you do not have.”

So secure your immediate family first – the one you are raising with your partner. Agree on what and how much to share with parents; siblings, etc. Agree on why – what’s the purpose or the reason why you are giving financial help. By agreeing on these things beforehand you won’t have to keep secrets on how help was given. There is a thing called money infidelity too.

A family is like a corporation too. Corporations existence is to earn, make profit, grow and expand. Recently, CSR-corporate social responsibility or giving back to the community is becoming a part of corporate life and existence. The same is true for a family-earn, make profit, grow, expand and give back. Just remember – you cannot share what you don’t have.

Conversations about money with loved ones don’t have to be difficult or embarrassing. They don’t have to be often or take a lot of time but it should be honest and objective. Involve as little emotion as possible – sabi nga “Maski masaya, hindi dodoble ang pera. Magalit man, hindi mababawasan ang utang.” Respect your partner’s opinions and suggestions and think rationally.

Oh and just a last tip! Avoid talking about personal finances during meals and in your bedroom – use those situations to build meaningful relationships with your partner and family.


Edited by Guita Gopalan