Monday, October 31, 2011

Financial IQ: Wealth Creation

Proportion of pay to save.Image via Wikipedia
Financial IQ Philippines Quick Hit(s):

Nice read on wealth creation for every Juan :)


Savings and investments are independent of each other,” says registered financial planner Rowena Cuyco-Suarez. “These two create wealth that covers the things that you will need. From the day you were born to the time after you join your creator, you will need money. It’s not being morbid nor materialism, you’re just being practical.”


She elaborates, “You either live too long or die too young. If you die too young, you need income replacement for your family. If you live too long, you need money to take care of yourself—and we are talking of past retirement. We are talking about the time when you’re 70 or 80 years old, and probably need a wheelchair or a caregiver.”


Saving for the far-off future is probably a stretch for many Filipinos, and Suarez argues for a change in mindset. “Only five percent of Filipinos have planned for retirement,” she claims, citing a study made within her industry. “That’s because many of them believe that their kids will take care of them when they grow old.


But this is a cycle we have to break. Because by the time you do retire, your kids will have their expenses to think of.”


Like death and taxes, day-to-day expenses are inarguable. Suarez classifies them into six major categories, and advises planning ahead to respond to them in the form of investments. These categories then become the basis for one’s creation of wealth.


The first pillar, which is the foundation that precedes other, is income replacement. This is the insurance to cover the family’s welfare should the main breadwinner pass away. Suarez gives an example of one form of financial planning: “If the family spends P500,000 a year, to survive the loss of their breadwinner, they’d have to multiply this annual income by, say, 10 years. Their protection amount”— or the monies that would serve them in good stead at the death of a parent—“would be P5 million.”


Health protection or available income for the inevitable sickness or hospitalization is the next in line. Suarez says that current research shows 48 percent of Filipino families contending with the illness of a loved one will take the out-of-pocket expenses from their daily budget. Neither do they have a substitute for the lost (or temporarily disabled) generator of revenue. She advises,


“If you have protection for health, you will get the money you need for hospitalization and medical expenses from a fund that you have set aside for that. The money for your monthly expenses will not get touched at all.”


The third category for wealth creation would be setting aside funds for the kind of education that will help children develop a bright future. The fourth is retirement, which marks its time after the last child has graduated from college. The fifth is the aforementioned post-retirement life of the senior citizen. Small beginnings


Financial planners like Suarez recommend investments that take factors like inflation into account. She points out, “Given the present inflation rate, your monthly expenses of P40,000 in 20 years time can grow to P100,000. You have to plan for it.”


Some of the tools that are available in her arsenal and which can give an interest rate higher than the usual bank deposit are investments in stocks and bonds, pension plans, and mutual funds. Financial planners act like “financial doctors” who analyze the would-be investor’s sources of income, level of capability to save, and financial objectives, and then make the necessary recommendations.


Some investments can last for decades, while others, like an educational plan, will require the investor to pay a certain amount for only a few years. Each plan is customized according to the investor’s needs and plans.


“In every investment, you have to have a goal,” Suarez says. “We ask about goals, dreams, and aspirations. We also update ourselves in what’s happening to our client’s life. Like if he’s sending a new kid to college or got a new job, how will that development affect his finances?”


She also debunks the myth that only millionaires can invest. It all starts by setting aside 20 percent of one’s income, which could mean a modest amount like the abovementioned P4,000 monthly seed money that blossomed into a P5,000,000 retirement fund.


The rewards can come much sooner. In one case, one middle-class professional who only set aside P56,000 for the past two-anda-half years was able to collect more than half a million pesos as her health insurance when she was diagnosed with cancer. Another lady in her 60s used merely the interest in her savings to shop along with her grandchildren in the U.S., leaving her savings principal still intact.


Start with a small amount, but make the effort to start at all, Suarez urges. The key to cultivating the pillars of life are “discipline and commitment. Forget the jackpot mentality of enjoying all the money you have right now. What happens when all of it is gone?”

http://mb.com.ph/node/339564/building-pillar


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Friday, October 14, 2011

Financial IQ: Imelda Cojuangco, MVP, Pacquiao, Ramon Ang, Lhuilliers Also Missed in Forbes

LAS VEGAS - NOVEMBER 13:  Trainer Freddie Roac...Image by Getty Images via @daylife
Financial IQ Philippines Quick Hit(s):

Oh, there are more tycoons among the country's most affluent that need to be added to Forbes list.


Thanks to Entrepreneur magazine’s managing editor Eileen Ang, features editor Rocel Ann G. Junio, staff writers Peter Imbong and Carlo Mallo for inviting this writer to be a resource speaker on Aug. 18 at their roundtable discussion about the Philippines’ 40 wealthiest based on the latest Forbes magazine list. Two experts who joined me were Enderun Colleges Dean of Business & Entrepreneurship Edgardo Rodriguez and Ateneo Graduate School Prof. Danilo A. Antonio.


By the way, I said the Forbes list is good, but I believe it is incomplete for missing such tycoons, who could definitely qualify for its top 40 list with the lowest net worth being US$85 million. Here are some more missing from the list: Imelda Cojuangco, Manny Pacquiao, Manny Pangilinan, Ramon Ang, Mike Velarde (religious leader but also a realty businessman), the three inheritors of the Chito Madrigal Collantes estate, the Floirendo family, the Araneta family of Cubao, the Lorenzo family of Lapanday, the Ortigas family of Greenhills, Carlos Chan of Oishi, Alfredo Yao of Zest-O/Zest Air, “Radio King” Fred Elizalde, flour/sugar mill tycoon Alfonso Uy, “Tuna King” Ricardo Po Sr., Angelo King, the Lhuillier brothers with reputedly the world’s largest pawnshop chain in number of outlets, Ambassador Jesus Tambunting of Planters Bank, Wilson Lim of Abenson/Waltermart, Lucio Co of Puregold,  the Roxas family of sugar milling, etc.



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Sunday, October 9, 2011

Saturday, October 8, 2011

Financial IQ: Are you a Saver or Spender?

Example of an American grocery store aisle.Image via Wikipedia
Financial IQ Philippines Quick Hit(s):

In order to properly secure our future, we need to have a "Saver" and "Investor" mindset.  The earlier we can break away from the "Spender" mindset, the better it would be for ourselves and our family.


With this latest recession, I was caught off guard. I'd been living in Florida, where unemployment rates were low and the housing market was off the charts. My job was stable and most people I knew had no financial worries. But then the housing market crashed and the layoffs started. I gained an entirely new perspective having lived through the most recent recession.


I view my house as a liability


While a home that you own and can rent out is an asset, most houses are liabilities. I never realized how much of a financial burden a house could be until my friends started losing their homes. Because of the recession, I've picked up the pace in terms of paying off our mortgage. According to USA Today, a lot of people are crunching numbers to figure out how they can pay off their loan in 8 years, using a Quicken Loans product called Yourgage.


I don't decline extra work


When I was living in Indiana during a local economic depression, I was always motivated to work. I could not pass up an opportunity to earn income doing what I love when so many people couldn't find a job. Seeing people living in humble circumstances then and now keeps me focused on productivity. In contrast, during the economic boom I just went to my 40-hour job and took it easy the rest of the time.


I question my own purchases


When the economy was booming in Florida 9 or 10 years ago, I never thought twice about buying things I wanted. I may have questioned my sons' purchases, but rarely my own. Now I think before purchasing a new outfit or even buying treats at the grocery store. I track my spending and consult my budget.


I don't count on a job


It's not wise to put all your money into one investment vehicle or to depend on one source of income. Because of the recession, I've thought about diversifying my streams of income. I find creative ways to make money such as being a secret shopper and participating in focus groups through marketing firms.


I'm not embarrassed to scrimp or forage


Before the recession, I felt as though people gave me a strange look if I pulled out my coupon organizer. Now they expect people to use coupons. I also forage for elderberries to use for pies and jellies. I'd never go so far as to be a "freegan" who salvages discarded food in dumpsters, but I don't look down on those who do. I never would have had the guts to collect berries before the recession, but now I look forward to elderberry-picking season.


The recession has not made me bitter or cynical, but it has made me appreciate and respect money. I'm more thankful for my family and the work that I'm given. I take better care of my things so they last longer.


In the end, the recession has made me a better, more thrifty person.

http://finance.yahoo.com/news/First-Person-How-Recession-ac-4133652592.html?x=0


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Sunday, October 2, 2011

Financial IQ: How to become a Millionaire?

CNBCImage via Wikipedia
Financial IQ Philippines Quick Hit(s):

Great article.  This is exactly what Financial Advisors are saying... invest regularly regardless of the financial market cycle and you will achieve financial independence in due time because money together with time will work in our favor.


The idea of becoming a millionaire may seem like a pipe dream.


When it comes to retirement, most Americans doubt they've saved or invested enough to retire comfortably, let alone reach that million-dollar milestone. A new AP-CNBC poll finds nearly one-third (31 percent) of U.S. residents believe they would need a minimum savings of $100,000 to $500,000 if retiring this year in order to be confident of living comfortably in retirement, and 22 percent believe the minimum is $1 million or more to retire comfortably.


Only one-fifth of U.S. respondents think it's likely that their net worth will total at least one million dollars in the next 10 years, while 62 percent said that is "very unlikely." The consensus from the majority of respondents (61 percent): It is "extremely" or "very difficult" to become a millionaire in the United States today.


But many are still trying to hit that million-dollar mark — and millions of Americans have already attained that goal.


The number of millionaires in the country is growing. The U.S. has more than 10 million. Despite the European debt crisis and worries about the U.S. economy, a May 2011 report from the Deloitte Center for Financial Services projects that the number of millionaire households in the U.S. will more than double to 20.5 million in 2020, with combined wealth of $87 trillion, up from $39 trillion in 2011.


Money makes money, but it can be tough to make that money grow in these rocky financial markets. The AP-CNBC poll found six in 10 U.S. residents (62 percent) say their confidence in investing has been shaken by recent volatility in the stock market. That sentiment has increased over the past 12 months. Today, 65 percent of those who own stocks, bonds and mutual funds are less confident about investing, compared with 61 percent last year.


Respondents in the AP-CNBC poll say they're making saving and investing a top priority. The survey asked people what they would do with a million dollars and found, on average, that Americans would spend 31 percent on saving or investing; 17 percent on giving to family; 14 percent on spending; 13 percent on paying down debt; 12 percent on buying real estate and 11 percent on charitable donations. Unfortunately, the reality is that mounting expenses, lower wages and job losses require many Americans to dip into those savings to pay for household bills or pay down debt.


The reality is that investors who stayed the course and did not pull their money out of the market in the last few months may actually have fared pretty well. Despite an almost 8 percent decline since mid-July, the broader stock market, represented by the S&P 500 Index, is up nearly 8 percent over the past 12 months. Certainly it's been a rough few years with the S&P 500, down 8 percent in five years. But over the past decade, the broader stock market is up by more than 10 percent.


In most cases, the road to financial security in retirement comes with steady savings, strategic investing, and probably a later retirement date than you may have envisioned at the start of your career. Keep these three rules in mind: First, you need to live within your means. Next, you have to commit to saving a certain amount every month and stick to that goal. Then, you have to make sure your investments are in a diversified portfolio — a mix of stocks, bonds, and alternative investments (commodities and real estate) and rebalance that mix to attain your goals for growth.


So how long will it take until you're a millionaire?


If you start with an initial $10,000 investment and your portfolio grows by 5 percent every year, here's how much you need to save each month to reach your $1 million goal by age 70, according to Bankrate.com's calculator.


• 25-year-olds have to save $450 a month. That's just $15 a day for the rest of your working years.


• 35-year-olds have to save $850 a month.


• 45-year-olds have to save $1,700 a month.


• 55-year-olds have to save $4,000 a month. (Of course, with an average inflation rate of 3 percent, that $1,000,000 nest egg will only be worth $642,000 in today's dollars. So that means you'll likely wind up having to save even more.)


Still, for those who start early and save often, becoming a millionaire doesn't have to be a pipe dream.

http://finance.yahoo.com/retirement/article/113526/what-it-takes-become-millionaire-cnbc?mod=retire-planning


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