Question: What are the best books on personal finance that you can recommend? Thank you, sir.—Honney Natividad via Twitter

Answer: Best is a relative term and I may not be the right person to give you a qualified answer. However, I can give you my opinion on some books that I personally find insightful and helpful. Finance, even Personal Finance, is a very broad subject matter involving many disciplines and there are many good books out there that are very good read.

There are books that write about the technical aspects of personal finance and zeroes in on specific subject matter, i.e., investing, estate planning, stock market, insurance planning, accounting and the like. There are also books that tackle the broad spectrum of personal financial planning. There are also many books that tackle behavioral issues on finance that belongs on the motivational or self-help genre. Then there are the hybrids that try to give you a more balanced view on the technical as well as the behavioral issues on the finance and I personally go for these books.

Perhaps the most popular finance books are those written by Robert Kiyosaki, which were brought about by the highly popular Rich Dad Poor Dad bestseller. The book is so popular that it created some sort of cult-like behavior among many, which is quite disturbing if you ask me.

Rich Dad Poor Dad and Kiyosaki’s succeeding books have some good points but they are quite over-rated for me because they lack some specificity and many readers question the validity of his claims. Like any book, we should learn to eat it like a fish, we get the meat and throw away the bones, as the saying goes.

Let me give you a list of books that I highly recommend because I like the way they were written—balanced and grounded on solid financial principles; yet they can still help you get motivated. Sorry, Kiyosaki fans, you won’t find his books on my list.

1) Total Money Make Over and Financial Peace by Dave Ramsey—OK I admit it, I’m a Dave Ramsey fan boy and for a good reason. I like his straightforward approach on personal finance. His books, particularly Total Money Make Over is very practical and it is full of real stories of people who overcame financial difficulties.

Ramsey is a no-nonsense finance guru yet you can really sense his sincerity in trying to help people get out of the financial mess they are into. These two books are great starter books that will open your eyes and give you hope.

2) Pwede Na! The Complete Pinoy Guide to Personal Finance by Efren Ll. Cruz—Hands down, Efren’s books are the best personal finance book ever written by a Filipino. It is a concise yet surprisingly comprehensive book that will guide the reader in the many facets of financial planning and financial instruments. As the title connotes, it is indeed a complete guide, yet it will not overwhelm you as you find yourself glued to the pages.

3) Millionaire Next Door—by Thomas J. Stanley and William D. Danko. This is an iconic book that discusses the behavior of Millionaire in the USA. It is not only insightful, it will actually shatter many of our misconception on wealth and wealth accumulation. I particularly like this book because it is based on solid research. This is a good financial behavior book that may help you change your mindset.

4) Automatic Millionaire by David Bach—this book by a best-selling author gives you an overly simplistic view on achieving wealth and yet it is effective in its message that in eating an elephant, we need to do it one bite at a time. Simple, practical and sensible.

5) Money Matters by Larry Burkett—Financial counseling is the most effective route toward achieving financial security but many do not have access to good financial counselors or advisors. Money Matters is a form of counseling book and I like the question-and-answer format. The questions are very practical and real, not superfluous or ambivalent. The answers of Mr. Burkett are successful in providing advice in an emphatic way; yet, you will find that his answers have sound financial grounding.

6) Till Debt Do Us Part by Chinkee Tan—another book written by a local author that I highly recommend. Chinkee’s book deals with an issue that plagues many Filipinos and yet one that is hardly discussed openly. The author successfully convinces the reader that debt is not a good thing and yet it gives us hope that being truly debt-free is within the reach of the average Pinoy. I like the practical steps in finding a solution to the debt trap written specifically for the Pinoy psyche. Chinkee has written many best-selling books but Till Debt Do Us Part remains to be my favorite.

There are so many other good books and reading them is definitely a good idea. Just make sure that you are objective in reading the book and it does help to check the authenticity of the author. Many are led astray by what they read so I want to reiterate this concern. Notwithstanding the many “bad” finance books out there (local and foreign), I implore the Pinoys to get a book on personal finance and read. One good idea can change your future and redirect you to the path to financial peace.

I am in the process of writing a book myself but recommending it here will be self-serving so let me just stick to the six I mentioned. Financial wisdom will be yours if you seek it. Hope this helps.

Appears in Philippine Daily Inquirer

Question: I’m an OFW in Singapore, 24 years old and starting to be serious aboutmyfinances. I have started to save already but sometimes I feel like a ‘bank’ needing to send money home most of the time. I am now torn between helping my family and preparing for my future. I already built my emergency fund, what’s next for me? – M.B. Pangilinan, via e-mail

Answer:

Firstly let me get this off my chest and say “mabuhay ka M.B. Pangilinan!” Being an Overseas Filipino Worker is hard and difficult and yet you endure all of it. In my eyes, you guys are truly modern day heroes and I’m not just riding the band wagon, I mean that from the heart.

Let’s see how we can sort out your sticky situation. Firstly, it is very noble of you to help your family despite your young age. Our society is a unique one when it comes to giving family support, we have burdened our children into providing for us, and yet it is also very noble of us that we do not abandon kin that needs our help. I don’t know you personally nor do I claim I understand your family’s situation. What I can say is to look for some sort of balance, a middle ground of some sorts. While we can argue that it is not your obligation to provide for the other members of your family, I don’t think that ignoring their plea for help with let you sleep well at night also. I suggest you have a nice talk with the folks, respectfully telling them about your willingness to help but respectfully telling them of your situation, goals and aspirations. Look at your cash flow, how much money can you send home and still have enough left for you to prepare for the future and start investing? Only you can discern that percentage of your income that you can send home. By continuing to send big amounts of money home, not much will be left for you to prepare your future with; and I believe that too much dependence on your income will prevent other members of your family into being productive. An honest to goodness talk with the folks, done in a very respectful and loving manner will keep the harmony in your relationship with your family.

Moving on to your next concern, what’s next for you after you have established your emergency funds? That’s the fun part brother – you can now slowly build your portfolio and make your money work for you. Every dollar you set aside and invest is a step closer to achieving your dreams. Start by identifying your goals, what is it that you really want? Do you see yourself retiring earlier than customary retirement ages, say 50? Do you envision coming home in a few years to settle down and put up your dream business? Knowing your goals is the first step into investing. Your financial objectives should determine every action you will take in finance. What is your risk tolerance? Would you consider investing aggressively or do you see yourself as a conservative player? In investing, yields are determined by the risks you take – the higher the potential yields are, the higher the risks and vice-versa.

It would be good to allocate a regular amount, part for savings and part for investing. A good suggestion for you is to look at pooled funds. If you plan on investing in Singapore, there are a plethora of choices there, just be careful that you investigate the funds you are investing into. Many of them are termed to be ‘exotic funds’ and might not be consistent with your objectives and risk preferences. Should you decide to invest in the Philippines (and I pray you do), you can also look at the pooled funds here being offered by way of local mutual funds or Unit Investment Trust Funds (UITF) being offered by the bigger banks. They are investment funds professionally managed and you can opt for conservative, moderate or aggressive risk. Pooled funds are good starter investors especially for young OFWs like yourself since it allows you to invest in small amounts and you will have access to professional investment management. While you are still trying to discern the path you will be taking, it is prudent that you start planning and execute those plans. “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.” – Proverbs 21:5, ESV

Just in case you will be home for the holidays, why don’t you send me a message so we can sit down and discuss further or better yet, join us for the Happy OFW Christmas, a blow out gathering for OFWs on December 16, 2011 from 1 to 6 pm at the Philamlife Auditorium, U.N. Avenue, Manila. This is a project with the Blas F. Ople Policy Center, an advocacy I truly am part of.

Although I am a personal finance person and the resounding theme of what I write and speak about is money, its proper use and its growth; but I am also a dude and what does most dudes like a lot is fashion, not! While many of us, specially the married men, do not ogle at other women anymore (I only stare at my wife), we do so with cars. Cars remain to be one of those things we like to look at, drive and own.

I’m on my 3^rd car which I was blessed to review and this time, I was able to use and enjoy the mighty Honda Jazz. The Honda Jazz is one of those ‘iconic’ vehicles that a lot of people simply go ‘ga-ga’ over. Personally, I was not a big fan since I’m not into small cars, owing to my body frame. When my friend called me and asked if I would want to test the 2011 Honda Jazz, I agreed but was not really too ecstatic, it’s just a small car after all.

All my pre-conceived notions about the Jazz were instantly thrown out of the window the moment I sat in the driver’s cockpit. Firstly, the Jazz is not as small as I thought it was. I’m not sure if it’s just optical illusion but I was really delighted that the Jazz was really roomy – even for a big guy like me. The biggest come-on of the Jazz is its roominess relative to its size. I love the leg room, head room and its over-all spaciousness. The riders at the rear will likewise enjoy the space. It is amazing how the Honda Jazz can have so much space considering it is a sub-compact car. I particularly enjoyed the folding seats so you can load bigger cargo. The ease of folding the rear seats is also a big plus and so convenient.

So the car is roomy, a big benefit — but space is not the only criteria for value right? I like looking at the interiors of the car, particularly the dashboard since a driver spends a lot of time inside a car and a functional and ergonomic panel that is pleasing to the eye helps us stay sane amidst the stressful Manila traffic. A great sounding stereo where I can plug my iPod plus an air conditioning system that keeps the whole car cool despite the scorching Philippine heat is definitely a win-win combination for me.

The car is nifty, the car is spacious and the car is functional… but does it drive as good as it looks? While many reviewers like to test cars by taking them outside Mega Manila, the real test for me is how the car handles in our city streets – after all, I spend more time driving in the city than I do outside. My best gauge of driving pleasure is that if at the end of the day I am not exhausted from driving, the car gets two thumbs up from me. After traversing through the crazy streets of Metro Manila, going to places for meetings from one after the other, and the occasional request from my wife for unscheduled errands, the Jazz was such a dependable partner. Was I tired after ‘playing’ with the Jazz for a whole day? Not at all! I was actually looking forward to my wife asking me to do errands because it is an excuse to use the definitive Honda for another spin.  With only a 1.3 L displacement, the response of the Jazz was impressive – it is zippy and handles the streets like it was hugging the road. The suspension was also smooth even if it is on a small platform.

Like I said before, the acid test of any car for me is how my family enjoys it. I got twoyoung boys who love to tag along with me and they were raving about the Jazz, from how it looks from the outside and in the inside. My Teenage girls also liked the car a lot, even asking me to buy one each for them – well, I told them that after they graduate and earn their own income, they can get themselves their own Jazz with their own money – but with my blessings! Since my wife drives a lot too, I asked my wife to drive the Jazz as well and did she approve of the popular car? She said just said that she wouldn’t mind having one for herself to replace our older cars – that’s one of the best endorsement any car can get.

I never really got why the Honda Jazz was a very popular car and why its owners rave about their cars with cult-like behavior. A few days with this diminutive yet grand automobile, I have become a huge fan of the Honda Jazz.

My only issue with the Jazz is its cost — the model I tested, 1.3 L A/T, has an SRP of Php 792,000. But I suppose one needs to pay the price for the quality and value the Honda Jazz brings. After all, you get what you pay for.  Oh, before I forget, the best feature of the Jazz for a personal finance guy like me is its fuel consumption! Is it efficient? You bet! I estimate about 14 kms. to a liter and that city driving with insane traffic at times!

The Honda with all its Jazz, got themselves a keeper.

I thought about a lot of marriage breaking up and it seems that annulments have been increasing in the Philippines and has actually been more socially accepted. So why do marriages end? How can a couple who are really in love with each other end up hating each other? How did “till death do us part” become such a cliché?

I have heard many speakers, counselors and even Preachers say that money is the number one cause of separation by a factor of 4:1. While money is definitely a primary concern of many break-ups, there is very little factual data to support such a claim. However, many studies would put money as one of the leading cause along with communication, infidelity, wrong expectation, intimacy and commitment; although not necessarily the number one and by no means a factor of 4:1. Sorry to burst the bubble of some speakers, counselors and Preachers – I would urge them to double-check their facts.

Despite money not being the leading cause, it is definitely a concern for many marriages and can lead to the breaking up of marriages. I am not an expert in marriages and I have no qualms about telling people that I can be clueless as to keeping a ‘perfect’ marriage, just ask my wife! However, after two decades of being together, my wife and I managed to survive the many challenges in our marriage and most of those challenges are financial in nature. By God’s grace, I think our union will survive in the next 20 or so years.

Here are some suggestion married couples can consider with regards to finances in their marriage:

1) Communicate & be transparent – I find it disturbing that many couples are unaware of each others finances. Even the law acknowledges that a marriage brings union, including their finances and made provisions for conjugal properties. Bereft of any pre-nuptial agreement, a marriage solidifies the finances and everything as now co-owned. Statement of income should likewise be transparent; many problems erupt from false assumption. A wife might be yearning for better family lifestyle thinking that the husband’s income can sustain, only to be dismayed that it can’t. By being transparent and communicating properly, expectations can be managed.

2) Plan, plan, plan. Preparing a budget and sticking to one is definitely a conjugal exercise. I highly recommend that a couple sit down and discuss their budgets, how to disperse income and what to prioritize with their limited resources. A couple must agree on the budget and once a budget is set, they must respect each other by be faithful to the budget. Of course, some flexibility should be exercised as well.

3) Practice family financial planning.  Set up an emergency fund. Think long term — save & invest for the future. Buy life insurance (this really brings peace of mind). Prepare for retirement. Avoid getting in debt and if you need to take a loan like home loan, talk about it and get counsel first.

4) Practice stewardship. Many issues arise if couples don’t practice stewardship. They need to be responsible and accountable to each other and most especially, to the Lord.

5) Learn from other couples. This is not just about money management, but about marriage in general. Have mentors for your marriage and please chose those with a good track record for obvious reasons. You don’t need to learn by experience because it is way too risky to experiment with your marriage.

And here’s my most cherished tip for married couples, keep the Lord in the center of the marriage and everything will turn out great. “If they obey and serve him, they will spend the rest of their days in prosperity and their years in contentment.” – Job 26:11, NIV

It is foolish to think that we will never undergo an emergency in life and most of the time emergencies cost a lot of money. In my seminar Steps to Financial Peace, I talked about setting up an emergency fund as the 3^rd step to achieving financial security.

Before starting on emergency fund, it is best if you know how much you actually spend in a month. Many people I know are clueless as to how much they spend monthly. During a financial planning session, I asked someone how much he spends monthly. He told me that he wasn’t sure as to the exact figure so he said he will just give me a ballpark figure. The figure he gave me was P40,000 to P80,000. If the discrepancy was about P5,000 to P10,000, it would have been understandable but P40,000? I politely asked the person to really think about all his expenses, examine his bills, record his spending and get back to me.

If you already have a monthly figure, you are now ready to start building your emergency fund. The rule of thumb for emergency allocation is somewhere between 3 to 6 months of your monthly expenses. 3 months is good, 4 months is better, 5 months will be great and 6 months is excellent. Emergency funds come in handy for a variety of reasons: medical emergencies, loss of employment and so forth. You should also be sensible in determining what an emergency is and what it is not. A 42” flat LED TV that is on Sale is definitely not an emergency.

Why should you set up an emergency fund? Here are 3 good reasons why you should:

1) Emergencies do happen:  It is foolish to think that emergencies will not happen to you. As time goes on, you realize that things do come up that you have not planned for; and you’re going to have to provide for them.  Things do happen, and they won’t happen at a convenient time.

2) Relieves stress:  Having an emergency fund has an added bonus — Peace of mind! You will feel relieved because you no longer have to worry about most small emergencies.  Once you get your larger emergency fund saved, you won’t have to worry about paying for most large ones either.

3) Risk reduction:  When you have established a emergency fund (along with other important things like life insurance, non-life insurance and health insurance), you have a lot less risk of unfortunate things happening.  You will also be less like to go into debt.  In other words you’re making sound decisions to plan for problems, before they actually happen.

I know that starting an emergency fund is not easy for others but this is definitely something we should prioritize. Dave Ramsey suggests we do it by ‘baby steps’. Set aside little money regularly into an emergency fund. Do it in stages like 1 week worth of expenses first, and then move to 2 weeks, to 3 weeks and so forth. Keep a piggy bank or an envelope for you to put your cash into it. My wife and I have this big transparent piggy bank where we put bills into. Once the amount reaches P3,000 to P5,000, we transfer it to our savings account that is dedicated for emergency funds. We also take baby steps too.

Here are some tips:

1) Keep your emergency fund in cash or near cash placements like savings, current, time deposits or Special Deposit Accounts (SDA). Do not invest your emergency funds yet as those are intended to be a buffer or a margin for your finances. Make sure that the deposits can be withdrawn quickly and without huge penalties.

2) Keep some of those funds in an ATM account, say 2 weeks’ worth. Emergencies do not necessarily occur during banking hours.

3) Once you have achieved an ideal 6 months emergency buffer, start investing in better yielding instruments like marked to market funds (UITF, Mutual Funds) because said instruments should perform better in the long run. If you keep all your money in low yielding deposits, its value will ultimately erode because of inflation.

Gear up for an emergency because it is the wise thing to do.

“A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” – Proverbs 27:12, NLT.

Here is an interesting thought: Would Jesus have an emergency fund? Read this LINK.

What hinders us from achieving our dream of driving our own car? Cash. Cars are not necessarily cheap and the prohibitive cost of acquiring a vehicle makes this goal so elusive. The good news is, you can still have your own car, enjoy the enormous benefits and pleasure it brings even if you don’t have the full amount to pay for it. The answer? Get a car loan. Car financing has made owning a car a realistic dream for the average Filipino. When Henry Ford built cars, he envisioned that every American family should have a car – today, that same goal now hold true in our country as well.

Having your own car provides a lot of value. Your mode of transportation is more efficient, you can get to more places in a more convenient fashion and it ultimately improves an individual’s productivity. Further, a car brings a lot of joy to the family; a family car helps foster better relationships for the family members as many memories are born from many trips using the family vehicle.  A car can really help one achieve a better life.

Nearly all banks offer attractive car loan programs and today’s low interest scenario makes acquiring cars relatively cheaper. Here are some tips for those who are thinking of financing their car purchase:

1)      Shop for good rates. Check out different banks that offer financing and you can actually ask for lower interest and you might be surprised that some of them are willing to lower their rates.

2)      Go directly to the lenders and not course the loan through the dealers. Banks gives commissions to dealers so if you go straight to the banks, chances are you can get lower rates. The same also works for car insurances.

3)      The higher your down payment, the better. Interests are charged as an add on rate and not on diminishing balances which means the effective rate is actually higher for car loans. A good way of reducing interest expense is having a higher equity portion, say 40 to 50%. Many programs entice us with low down payments because that will mean we will pay more interest. Nothing wrong with that, that’s how financial institutions earn but we must always be prudent at how we spend our hard earned money.

4)      Consider pre-owned cars. Contrary to popular notion, pre-owned cars can be financed. Cars depreciate fast in the first 2 years. A 3 year old car would still be relatively ‘new’ and have depreciated a lot, which means lower purchase cost and interest for you. In the book Millionaire Next Door, the author cites that many millionaires in the US buy 2 to 3 year old cars.

Owning a car is a reasonable aspiration and it can bring us a lot of joys. However, when owning a car will restrict your budget to a point of drastically reducing your quality of living, better think twice and wait further.

The rising cost of goods and services have been a big concern to us Filipinos for many months now. Official numbers puts inflation at around 4% but it seems that the rising prices goes beyond the official numbers. Generally, the barometer to measure inflation is the Consumer Price Index of the CPI. An earlier 3 part blog delved a lot about the rising prices and how we can survive amidst the higher cost of goods and services. For me, CPI is not a very realistic measurement of personal inflation since there are many items in our budget that are not being measured in the index such as education, among others. We all experience that tuition and education related expenses are somewhere between 5 to as much as 12% and if education composes a big chunk of our budgets, actual realized inflation will be much higher than the index.

Read Rising prices blog, part 1, part 2, part 3

I was listening to a podcast earlier and hyperinflation in Zimbabwe was referred to in a coy manner. Zimbabwe has suffered an incredible rise in prices in the past that actual measurement of inflation is rather moot. It was said that hyperinflation in that African country was so bad that prices doubles every 30 hours or so.

Just what is hyperinflation anyway? Investopedia has this to say:

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.

Investopedia further explains…

When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value.

One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion, doubling every 28 hours.

The experience of Zimbabwe is now for the books… they actually have multi-billion dollar notes so the term ‘Billionaire’ does not really mean anything there. The good news is Zimbabwe has since been able to curb its unbelievable hyperinflation and is trying to put it’s macroeconomic situation in order.

Looking at the situation of Zimbabwe or even other countries which registers double-digit inflation gives us a bit of relief and we must acknowledge that we are still a blessed nation despite our many issues.  There are many things we should be thankful for, we just need to be reminded from time to time.

Let them thank the LORD for his steadfast love, for his wondrous works to the children of man! - Psalm 107:15 (English Standard Version)

Sharing the video of my latest guesting at ANC’s Shoptalk.

Part 1 – with me.

Part 2 with Pastor Jayson Lo.

Millionaires don’t always earn their money overnight; they often get there via hard work and shrewd investment. Many of us don’t mind doing the former, but it’s the latter that often stymies those who need a little chat from a mentor to know where they can start.

Whatever your goals are, you have to become a no-nonsense investor, because great investment opportunities can be losing poker games if one does not pay full attention to what is going on. I also caution many people against putting everything they have in a high-yield investment, because one should only take risks when you already have savings and non-risky investments to fall back on.

Following my advice may take some discipline and attention to detail, but if one believes in making money work for you, after all the hard work you put into earning it—you’ll be part of a generation that’s working smarter, not just harder.