Setting your own Rewards System

Credit Cards became this popular not only for the convenience they brought to the consumers but also because of the rewards system they offered. For every certain amount transacted, cardholders are given reward points that can later be exchanged for gift items such as gift checks, appliances, gadgets and even trips. So the more you use your card, the more points you get, the bigger your gift item is.

The reward system is ingenious so to speak but can that be applied to our own financial planning? I did reflect on this for some time and I thought it is possible to set up our own rewards system.

Definitely we won’t be rewarding ourselves for shopping but our performance in work for the day deserves some merit. This is where the rewards system comes in.

Everyday after getting home set aside an amount ranging from P5.00-P20.00 depending on how you feel you did for the day (This amount can vary based on your income). The key here is that the amount must be insignificant on its own that you won’t even notice it gone.

Put the amount in an envelope or a coin bank depending on your convenience and don’t touch it! Let it accumulate over a period of time. In the mean time make a list of the items you can reward yourself with after you hit a certain amount. Here are some suggestions:

Ps. 500.00 (one to one and a half week)
Gas money or movie for two complete with popcorns and drinks

Ps. 1,000.00 (two months)
Lunch Buffet in a non-hotel restaurant or a shiatsu massage in The Spa

Ps. 2,000.00 (three months)
New set of clothes or a new pair of rubber shoes on sale

Ps. 4,000.00 (eight months)
Out of town trip to Batangas or Airfare to Hong Kong

The ideas are immense and you can mix and match any items you want, any way you want it. If you’re eyeing for something, add it also to your list of rewards! It may be that pair of shoes or the bag you itching to get your hands on. Let lose of your creativity!

A word of caution though, the rewards must not be mistaken as savings. The money you set aside for this is on top of the 10%-20% amount you must set aside each payday. Furthermore, these rewards must be exciting for you such that it will compel you perform well every day. Your boss might even notice your enthusiasm at work and promote you and best of all, spending for these rewards now becomes guilt-free!

About the Author
Kendrick Chua is a candidate for the Registered Financial Planner Program. He is a life underwriter and licensed mutual fund representative for one of the leading financial institutions in the country. He is a regular contributor to Income-Tacts (http://income-tacts.com), the country’s premiere on-line community on personal finance. A marketing management graduate from De La Salle University in 2005, he has always shown strong interest and enthusiasm in financial planning and investment management. Other financial articles can be read in his blog, http://thewealthwarrior.net. Comments and suggestions may be sent to Kendrick.c.chua@gmail.com

When I am asked if people should take out a pre-need educational plan for their children, my answer is no.

Here are my reasons:

1) Too risky – too many pre-need companies have folded up so there is something seriously wrong with the way the pre-need industry operates. CAP, Pacific, Professional, Platinum… the lists goes on and on. Regulation for this industry is lax and it makes you wonder how pre-need companies design their plans.

2) Horrible returns – not all pre-need companies are unstable, there are still 2 or 3 very stable pre-need companies. However, when you compute for the internal rate of return of their plans, it isn’t really encouraging. If the inflation of tuition fees averages between 8 to 12% p.a. and the return on your educational plan is about 4% p.a., you can be sure that the benefits you will get upon maturity is severely insufficient.

3) Unfair policy provisions – if you skip your payments or decide to cash your pre-need policy, you’ll be aghast at what’s left for you, assuming you can still get any.

Pre-need proponents always argue that a pre-need product is a great program since it forces you to save. Do you know the lapsation rate of pre-need policies? It’s really, really bad – meaning, people who actually buy pre-need policies can’t fully pay their plans, or at least a lot of them. Here’s my thing: if a person can’t discipline himself to save money for something important like education, he can’t discipline himself into paying the payments of his educational plan; if a person is disciplined enough to pay his pre-need payments, he is disciplined enough to invest his money in better investment programs.

There’s a cardinal rule which finance geeks like me call the ‘risk-return’ relationship. The higher the risks are, the higher the potential yields are and vice-versa. There is no such thing as a low risk – high yield investment, you can bet that it’s a scam. On the other hand, is there such a thing as low yield – high risk investment? Who’d be in his right mind to invest his money that way? Try investing in a pre-need product… ouch!

Okay, I must admit that many people give me a dumb-founded look whenever I answer them “I don’t know, it depends”. For someone who claims to be a personal finance guy who has been in the financial services industry for over 2 decades and a trainer in financial planning, I am pretty clueless ain’t I? I simply can’t tell anyone what the best investment is because there’s no such thing. My answer will always be “it depends!”

I have a simple four rule guide that I recommend to people whenever they are perplexed as to where they want to bring their hard-earned money.

1) Investment Objective – What is the investment for in the first place? Where do you plan to use it? Is it for retirement, education, purchase of a house? Or is it just to park your money while you are scouting for other investments?

2) Time Frame – When do you intend to use the money you are investing? Is it short (less than a year), medium (up to 7 years) or long term (more than 7 years)? It is unwise to put money in long term investments when you will need your money in the short term – you might end up realizing capital reduction or you may be levied with steep penalties should you liquidate your investment. It is likewise unwise to invest in short term instruments when the purpose of investment is for the long term like education or retirement – you will not realize a good appreciation of your investments as short term instruments generally give lower yields. In other words, your investment would be drastically reduced by inflation and find yourself with not much funds when you need it the most.

3) Risk Tolerance – Investors are usually conservative, moderate, or aggressive. Determine your risk tolerance first. Is liquidity and capital preservation an absolute must for you? Or are you willing to risk some potential capital loss in favor of potential capital hike? Remember the golden rule in investing – the higher the yield, the higher the risks and vice-versa.

4) Acumen – There are simple products and there are complicated products. If you are investing in the stock market and you are not familiar with some form of fundamentals, you might regret ever putting money there. If you can’t distinguish a structured note from a time deposit, you might want to reconsider your decision. I have a simple advice with regard to this – never ever invest in something you don’t understand.

Before parting with your money, I highly recommend that you go through the four-step rule first.

“But divide your investments among many places, for you do not know what risks might lie ahead.” Ecclesiastes 11:2 (NLT).

Many people goals. Having goals helps one achieve success in whatever it is that they do in life. People, like many corporations, have termed goals – short, medium and long term goals. For some people they begin the year with plans and goals… for many corporations, they have annual planning.

Question is, how many of our plans really materialize? Just like people, many corporation are just as bad as seeing their goals come true. I personally attended many annual planning and we get to accomplish much during the planning process, however, only a fraction of what we really plan ever becomes accomplished.

On a personal level, many of our plans has a price tag – car, home, business, travel, aspirations for children and the like. Many of us just realizes that our visions and goals never really bears fruit and we just wondered that time passed us by asks the question “what happened?”. Chances are, the reason we did not achieve our original aspirations was because we couldn’t pay the price for our dreams. Many times we started well but forgot to ‘follow-through’ with what we want.

We give our goals through thinking but we often stop at that. In personal finance, we can quantify those goals and come up with a general plan on how to achieve said goals. I like to believe that personal finance is not rocket science and that everyone can achieve financial freedom if he so chooses to. We need to be deliberate in crafting our goals and we have to be as deliberate in achieving our goals through consistent and predictable actions.

This blog is dedicated to helping people achieve their goals – not through vague ‘cut & paste’ articles but rather through practical and sound advices that are well, common sense.

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“Have the dogged determination to follow through to achieve your goal; regardless of circumstances or whatever other people say, think, or do.” — Paul Meyer

“Do you not know that in a race all the runners run, but only one gets the prize? Run in such a way as to get the prize.” — 1 Corinthian 9:24