The term ‘Financial Planner’ has been a buzz for quite some time now. It makes sense to have a doctor for our medical needs, architects & engineers for our building needs, computer engineers for Information Technology needs – why not a Financial Planner for our personal finance needs?

The benefits of having a Financial Planner makes it a great idea. A Financial Planner’s best trait is that he sees the ‘big picture’ of your financial life and will be more objective and more deliberate in helping you achieve your financial goals.

However, just like in any profession, not everyone deserves to be called a ‘professional’.  In the absence of any local regulation or guidelines, anyone can call himself a ‘Financial Planner’ without having the necessary training, education or certification. Worse, there are self-serving companies that certify their own people as financial planners. There are so many individuals who decided to start putting the term ‘Financial Planner’ in their business cards and the public got more confused as to who is a financial planner and what a financial planner really does. Agents of financial services products started to ride on the wave of financial planning, calling themselves financial planners and yet their only objective is to sell their products. There’s nothing wrong with selling financial products, it is a very noble profession but my beef is when the public is being mislead just so that one can make a sale.

Further, a fancy designation, though helpful, is not a guarantee that a person is a real financial planner. The acid test of a financial planner is if he subscribes to an accepted financial planning process and willing to put his program on paper, also referred to as a financial plan. A good gauge to discern a real financial planner is if he subscribes to the internationally accepted 6 Step Financial Planning Process (by the Certified Financial Planner Board of Standards):

From http://www.cfp.net/

1. Establishing and defining the client-planner relationship.

The financial planner should clearly explain or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

… to be continued.

Here’s an article I wrote for my column at the Business Mirror a year ago, just thought of sharing this once more.

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Confession of a Financial Planner

MY wife Mia and I went on a date last night. Since my wife loves to watch movies and since the secret to a happy life is a happy wife, I instinctively knew she would prefer watching a movie.

I thought she would prefer watching the John Lloyd Cruz-Sarah Geronimo movie so I was trying to psyche myself to watching it, but I was so delighted to find out she wanted to watch something else. My wife knew I’m not a big fan of those movies so she wanted to watch something else for my sake. That’s one of the many reasons I love my wife so much—so unselfish! Not wanting to be a total jerk by asking her to watch an action movie, I suggested to meet half-way. As a result, we ended up watching the movie Confessions of a Shopaholic. I was actually intrigued by it because my daughter Gabbie said it was a great movie while another daughter Billie liked the book.

How was the movie? It was awesome! In fact, I urge everyone reading this to watch the movie. Watching it is like attending a financial-literacy seminar, only more amusing, more relevant and actually more effective.

The plot revolves around a character named Rebecca Bloomwood (brilliantly portrayed by Isla Fisher) who has an exaggerated spending problem and ends up being a columnist for a personal-finance magazine. The main character represented many of us, albeit in a humorously exaggerated way. We live in a society that is afflicted with a debilitating disease called “consumerism.” This burden has manifested itself in a “spending problem,” resulting in many of us  living a debt-ridden life—a life that robs us of true freedom and of victory.

As a financial planner myself, I was endeared with the character in the movie. Her column gives out a lot of practical and great personal advice and has a lot of followers, despite her financial life being in complete havoc. Well, I wouldn’t say I’m exactly like Ms. Bloomwood in the sense that I don’t really have a shopping addiction, and I’m not too sure if I do have many followers. While my financial life is not in havoc, it is far from being ideal.

Many times, I find myself “preaching” to myself whenever I write or speak. It’s not very wise for someone like me to say that I don’t have an “ideal” financial life, but I want people to know that I, too, experience the difficulties of putting my financial life in order. I went through a lot of mistakes that I have been trying to rectify. I was also afflicted with a spending problem that nearly left me in ruins. I made so much mistakes I later on regretted, which I wrote about in this column many months ago. But I learned from those mistakes and I am in a very long process of rectification. What is crucial is the realization of one’s problems and the resolution to learn from them, and have a lasting solution for them.

I do not only write or speak from a theoretical point of view. I am writing from painful personal experiences. We can’t “undo” many things we have done, but it doesn’t matter anymore as what’s done is done. Like anything in our lives, we must learn to stand when we fall. In doing so, we become more resilient, stronger and, most important, wiser.

Here’s a wise advice: To really fix a problem, go to the source of the problem. When I found myself with a financial burden, I tried many ways to “fix” it but I noticed that while some of those remedies worked, most of them did not permanently solve the problem. Like the many “solutions” we try, I found myself applying mostly short-term or “Band-Aid” solutions.

If we have a financial problem or a spending problem, we should determine the root cause of the problem. Is it the lack of income or the way we spend? Why do we spend the way we spend? In my case, I got into a financial mess because I had a “want” issue: I wanted this, I wanted that. It wasn’t just with me, it was with my family, too. But it was a “want” problem nonetheless.

Over the years, my “wants” became bigger and bigger and I found myself doing everything just so I can satisfy my “wants.” It didn’t really feel wrong at that time. In fact, some people might even say that it helped motivate me to work harder and harder. In retrospect, I now know it was very foolish of me not to have stopped my insatiable desire to want more and more. I am glad  I came into my senses and was able to curb my “want” issues. I guess those desires are still there as I am only human, but I have developed a strong willpower to overcome them.

How was I able to overcome my weaknesses? Simple. I merely reexamined what is really important in my life. Do I want to impress others because of what I have, or do I want others pleased with me because of my character? Do I want to please my family with a life that I can hardly afford and, as a result, become a preoccupied husband or father? Or do I want my family to be pleased with me because I am a real and approachable head of the family for them, always there when they need me? Do I want people to listen to me because of what I have accomplished, or do I want people to have hope that they can have a good future by learning from the mistakes that I chose not to hide?

In the end, I chose what really was more important. I chose to have a meaningful relationship with what really is important in my life—my family and my savior, Jesus Christ. In doing so, I found a permanent solution to my deeply rooted “want” problems—the cause of my financial fall.

I fell down, I stood up, but I know I’ll fall down again—all these happen because God is molding something that is very important in me: my character. “…But we also rejoice in our sufferings, because we know that suffering produces perseverance; perseverance, character; and character, hope.”—Romans 5:3-4 (NIV). Our character will determine our future, even our financial future.

This is my confession.

Whenever there is an opportunity, give others a break. Help them get into something that will help them realize their potentials.

I have been blessed that there were a lot of people who believed in me and gave me the breaks. There were bosses who hired me, clients who trusted me, friends who showed opportunities and more.  I will not be where I am if not for them and the Lord and I am sure many of the readers experience the same.

Paying it forward is a great concept – giving others a break is not a dole out and not a favor. It is making us realize that our purpose in life is always bigger than us and it will always involve others.

The Bible is full of stories about people getting breaks – Moses, David, Daniel, Nehemiah, the Apostles and many more. If God believes in us and gives us the break, shouldn’t we be doing the same? I am blessed that the people who I gave breaks to always go back to me to thank me but that isn’t always the situation of others. Despite of some being ungrateful, we should not dampen on our zeal to give others a break.

Why should we give breaks to others? Because God wants us to. The Lord, through others, will give us all the breaks we need in order to have a victorious life. Read the Bible and be encouraged. However, what we do with those breaks is entirely up to us. When you get the breaks, be grateful and always acknowledge the source of those breaks – God.

Here’s a good exercise – think of one or two names and give them a break. Kaya mo yan!

Appeared at the Business Mirror, 02.08.2010

You often hear the word “diversification” when investments are discussed. Diversification is important; in fact, it is considered one of the most effective risk-management tools, minimizing investment losses.

What does Investopedia (a favorite online site for investment stuff) say about diversification?

“A risk-management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

“Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.”

Diversification is often misunderstood and its execution has always been a mystery to many. To many of us, diversification is just putting your money in different banks or buying different pieces of property in different areas. However, diversification is much more than that and here are some ways to diversify:

1)                  By asset class—Cash or near cash (savings or checking accounts, time deposits, treasury bills or money market accounts); fixed income (government securities, corporate bonds); equities (stocks); real estate; collectibles (paintings, jewelry, etc.); enterprise (business)

2)                  By time frame—short term (about a year); medium term (up to about five to seven years); long term (over seven years)

3)                  By risk—conservative, moderate, high or speculative

4)                  By liquidity—highly liquid vs. nonliquid

Above are just a few ways to consider classifying your assets/investments regarding diversification. Here are some diversification tips: vary your asset classes; combine short-, medium- and long-term investments; combine highly liquid and nonliquid assets.

By practicing diversification, you are also practicing sound risk management. A properly constructed diversification strategy will minimize the risks of your investments and, at the same time, give you better yields as compared with taking an ultra-conservative position. With a good diversified portfolio, the risk of totally wiping out your wealth is highly unlikely, but at the same time, allow you to experience better growth which will be more than inflation.

But diversification also has its downside. Sometimes, a portfolio that is too diversified can also prevent you from earning properly, as the volatility of many of the players in your portfolio can cancel each other. However, having a very risk-averse position can be just as dangerous as taking a risky option, as inflation can erode the value of your wealth. The more prudent option then would be to learn diversification.

Do not be too afraid to try out diversification, it is not rocket science. Come up with a diversified program that is consistent with your investment objective, risk tolerance and time frame and you are on the road to achieving financial peace.

I really like the way the Bible talks about diversification. Yes, the Bible is a good source of investment wisdom and here’s proof: “But divide your investments among many places, for you do not know what risks might lie ahead.”—Ecclesiastes 11:2 (New Living Translation)

Since the Bible advocates diversification, I am assured that it’s a great idea.

I did something new today and last Sunday. I am a public speaker and trainer but I was given a new challenge – instead of being the trainer or speaker, I became a host and a moderator.

When I was offered a job to be such, I wasn’t too sure if I was the right person for the job and really gave the offer a lot of thinking. I was used to being introduced and being guided by moderators but being on the other side of the fence made me think twice. Why? I was not sure if I was the right person for the job. I accepted the job because it was difficult to say no to my friend who organized the program (Tom Gotuaco) and I will be moderating for three of my most respected colleagues (Efren Cruz, Suzan Bigay and Melvin Esteban).

It was a good thing that I took the challenge because I really enjoyed the ‘new’ challenge. It is a great feeling making other people look good, redirecting attention away from you and towards others. I am not sure if I did a good job but I definitely enjoyed it.

Some take-away lessons for me:

1)      I may think that I am good at what I do but in reality, there are people who are really much better and they deserve the spotlight, or the stage;

2)      Just like in life, everyone has an important role;

3)      Making other people look good is not only a humbling experience, there must be sincerity in it; and

4)      Challenges are meant to be met, not feared.

This activity is also a good reminder about our purpose in life. Your purpose is never about you and will always be bigger than yourself; and whenever there is an opportunity, redirect whatever glory there is away from you and towards God – He is the only  one who is worthy of any glory.

If ever I will be offered a job as a moderator and host, I will not think twice anymore.

First ever UAP business themed convention.

For inquiries, please send an email to jcignacio.magalong@gmail.com

So what’s the problem with the pressures of education? Well, if we put nearly all our resources in it, we tend to neglect other things that are important, such as retirement. Let me use myself as an example. I have four kids. If I opt to send all of them to über-expensive schools at our current income level, I will not only neglect our retirement, I will be broke. My wife and I will not have resources to be able live a quality life after our kids leave the nest. As my youngest graduates, I will be retired. The pressures of financing their education will drain us to a point that as soon as I retire, my wife and I will be dependents. The question is, dependent on whom? Our kids? Isn’t that unfair to them? With the pressures of surviving, it will be severely difficult for them to take care of us while making a life for themselves. Isn’t that very irresponsible of me and my wife, as well?

Solution? Well, priorities and common sense. Yes, education is our priority as parents, but so is preparing for our own future. Let us not sacrifice our future in the guise of education. Look for balance, there are many other practical solutions. Look for schools that offer quality education without the hefty price tag. The success of a child does not come from the school but from the home. One study proved parents, grandparents and other older members of the family are better tutors than those expensive tutors or tutorial schools.

Another practical suggestion: Home School. If done properly, home schooling can help children fare better in life compared with those who went to expensive schools. Both husband and wife need to work to make ends meet; with educational costs taking a drain, it may make more sense if the wife stays home and home- schools the kids. Most mothers I speak to will often tell me that had it not been for financial pressures, they’d rather stay home and take care of their kids. Do the math: If you spend about P300,000 on education for all your kids and the mother makes just about P300,000, it is financially feasible to just home-school the kids.

Moms can take a job from the house or start a home business, as well, while taking care of kids, including their education. Fathers can help too; there are many things husbands should be doing to help wives—taking care of the kids should be up there especially when you decide to try home schooling. There are many good Department of Education-accredited home-school programs around at a fraction of the cost of normal big-school education. I’ve met a lot of home schooled kids who are doing great – smart, grounded, has great values and strong leadership. There are many successful stories around. CCF and Victory Christian Fellowship have really good home-school programs. They also have regular interactive programs that allow home-school kids to interact with each other. Imagine the savings if you home-school your kids. . . better yet, invest the money you saved from education and see it grow. . . . You will have more than enough for your retirement, for health care—with some extra to leave for your kids. Set aside part of the savings for their college education, as well, and invest it well. I guess I’ll do a follow-up article on tips on investing for the education of our kids. You can get many practical tips from http://www.income-tacts.com/ on educational investing.

Well, I did mention that I still have two more kids, Riggs and Chino, my wife and I are now home schooling them. I am sure we will be better teachers to our own children. . . so will you. Our decision to home-school our boys will allow us time to properly take care of our daughters’ college education. . . prepare for the boys’ colleges, save for retirement and hopefully enjoy quality living. It’s not good to worry, but it’s great to plan.

Catch the debut of my column “NO NONSENSE” at Money Sense Magazine, Jan-Feb issue.

Please grab a copy of the country’s only Personal Finance magazine, it’s truly worth the investment.

Thank you Lord for another blessing.

People say that it is quite a challenge to send our kids to school nowadays and I agree 100%!

Just how difficult is it? About 14 years ago, our eldest daughter Billie entered preschool. I can still remember her anxiety. . . how she didn’t want to be left alone in school and how she clung to her mom’s legs so tightly out of fear of her new environment. . . great memories indeed. Two years later, our second daughter Gabbie had a different experience. . . she didn’t have the fears of her ate and entered the school like a very confident little girl.

Aside from their first-day school experiences, I also remembered their tuition. My first child’s Kinder 1 tuition at her school was about P35,000, and my second daughter’s slightly increased to about P38,000. Today, me eldest daughter’s tuition is now about P 195,000 a year while my second daughter’s tuition is about P 105,000 – that’s a whopping 457% and a 176% increase respectively in a span of over a decade. These figures are not inclusive of books, uniforms, etc. — just tuition! By the way, I don’t have just 2 kids, I also have 2 more sons.

Our concern has always been about providing for our children’s educational costs and after sending kids to schools for over a decade, it doesn’t get any easier.

It’s all about priorities. Filipino parents are so admirable that they move heaven and earth just to send their kids to school. They labor, they sacrifice. . . . It is not uncommon to find deserving students in expensive schools even if their parents can’t really afford it. While that is indeed an admirable trait, it is also a big concern. Why? Many parents pour everything they have into their children’s education without really planning for themselves. The result? They will be dependent on their children in the future, an offshoot of putting everything in the education of their kids.

This is a very controversial argument. It is every parent’s concern and priority to provide for their children, education being one of them. I am not saying that parents forfeit this obligation; on the contrary, I often coach parents on how to properly prepare for education costs. But parents must put things in their proper perspective. The ability to provide for their kids’ education is commensurate with their ability to put their financial life in order. We can’t sacrifice quality living and preparation for the future in the name of our kids’ education. When it comes to expensive education, I often say “go!”, but just make sure you can truly afford it. There are preschools today that cost P200,000 or more. The sprouting of “international” schools that charge outrageous tuition is an indication of how we put value on education. I often ask myself if sending my kids to expensive schools is really worth it. Often, our finances are so drained because of education that we tend to sacrifice other areas like retirement planning, investments, etc.

Is expensive tuition really worth it? Is quality education really all about expensive schools? How much money do we spend on private tutors? We live in a culture that encourages sending our kids to schools—at a price we can hardly afford that it puts too much pressure on us parents. Sacrificing for our children’s future is admirable, and I agree with that 100 percent. But I disagree with putting our children’s hopes solely on educational institutions. Being a training professional myself, I know that the ability to teach people is not just about good teachers, materials and facilities. It’s really more than that. Honestly, did we really use what we learned in college when we started to work? Probably for doctors, dentists, lawyers. . . but for the rest of us? Hmm. Did school really prepare us for life? Do expensive, exclusive schools increase the chances of success?

There really is no way for us to validate these arguments, but there is something I am sure about. Not having gone to expensive schools will not prevent a person from being successful. How many successful people did not go to an expensive university? A lot! I often check out many executives and successful entrepreneurs for their educational background. There are just as many successful people who did not go to an expensive school as those who did….

Catch part 2 of this blog soon!

… conclusion.

For some reason, and despite the obvious importance of taxes in the daily operation of the state, it has exempted life-insurance proceeds from the ambit of tax laws, save for some exceptions, of course.

Our Tax Code recognizes the role and importance of insurance to the family of the person insured. It also exempts insurance proceeds from garnishment, attachment and execution of judgment-creditors. For those who have accumulated a hefty estate, life insurance can do wonders for them.

Most, if not all, estates left and brought into the inventory of the Bureau of Internal Revenue (BIR) are comprised of illiquid assets. If the typical Filipino would put it, the heirs are already in their advanced ages before they step into the succession, and the grateful recipients are not individually willing to shell out money for the settlement of estate tax and money claims of creditors. Others do not simply have the means.

In one case, the Supreme Court sustained the BIR when it assessed and collected the entire tax due from one of the heirs among several even if it means that all he had inherited would be dissipated in the process.

This need not happen unless we forget that life-insurance proceeds can be used to pay the taxes and claims and, in the process, keep the assets intact. A person can also use insurance proceeds to provide for his illegitimate descendant who may be left out of any shares in his estate. An illegitimate child gets the equivalent of half of the share of a legitimate child, and that share will be taken from the free portion, if any.

In other words, life insurance can promote “equitable” sharing. Most important, for a person with modest earnings, life insurance can provide an estate as big as his millionaire neighbor who did not believe in his insurance, the latter probably has very little or none at all.

Life insurance is just one of the tools for your estate plan. To emphasize its importance, Black’s Law defined estate planning as “the preparation for the distribution and management of a person’s estate at death through the use of wills, trusts, INSURANCE POLICIES and other arrangements, especially to reduce estate-tax liabilities.”

Do not just plan on the aspect of accumulation, plan for its conservation and distribution, for in the latter is where your absence will be.

Life insurance is not the only way to go about estate planning, it is just a tool among many. However, life insurance is a very powerful and cost-effective tool.

“A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.” – Proverbs 13:22, NIV