A day in the life of an OFW hero

Posted on December 7, 2011 by Randell Tiongson

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.

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Catch me in Macau!

Posted on December 6, 2011 by Randell Tiongson

If you are from Macau or have friends there, please catch me give a talk on Personal Finance this Friday. It’s for FREE!

See attached poster for details. Thank Every Nation and Philippine Consulate Office for inviting me.

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Write your own book

Posted on November 30, 2011 by Randell Tiongson

I am excited to learn how to write better and to finally write my own book. I’m really looking forward to attending a program by Salt and Light on how to write your book, traditionally or digitally.

For inquiries, send email to juliet@saltandlight.ph

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Finance for Singles, Free!

Posted on November 22, 2011 by Randell Tiongson

Inviting the singles for a no holds barred discussion on personal finance this Saturday, Nov. 26 at the Victory Center in Promenade, Green Hills. This is for FREE but only limited slots are still available. To register, please send email to vbaguios3rd@gmail.com

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Italian or Philippine debt anyone?

Posted on November 20, 2011 by Randell Tiongson

Italy is a first world country by any definition. This country is known for many things like architecture, history, Ferrari, Gucci and pasta. This is also a leading nation that employs many of our Filipino workers bulk of which are domestic helpers.  Recently, Italy has been in the center of a lot of talks with its ballooning debt & fiscal disarray. Many doom & gloom scenarios places Italy as a nation to follow the state of Portugal, Ireland, Greece and Spain (collectively known as PIIGS).

Just how risky is Italy? The worsening debt issue of Italy is scaring a lot of people, particularly financial institutions that owns a lot of Italian debt. Standard & Poors recently downgrades Italy from A+ to A but the downgraded rating still makes Italy’s debt ‘investment grade’. The economy of Italy is in a precarious state and the whole world is now looking closely as to how the Italians will handle their situation with much anxiety. Just recently, a new leader was elected in the Italian parliament, a technocrat who just might change the fate of a country rich in heritage.

The Philippines is considered an emerging market, a politically correct term for ‘third world’. Unfortunately, our country is considered a laggard even amongst Asia and not a favorite destination of foreign investments. Philippine sovereign debt is not a choice investment by many owing to many factors such as bad governance, debt issues, political instability, among others. The leading credit rating agency, Standard & Poors gives this Southeast Asian archipelago a rating of BB, two notches below ‘investment grade’.  The Philippines is one of those countries that send thousands of its workforce to work for Italians.

In investing, yield is always a function of risk – the higher the risks are, the higher the yields should be – at least in theory. Following the credit ratings of S&P and owing to the nature of the economy of Italy and the Philippines, it would be logical that our country is a much riskier one than Italy. If we are riskier than Italy, then it is only logical to assume that investing in Philippine debt should give a much higher yield than Italian sovereigns. That is not the case today. Italian sovereign debts now give a yield of about 7% p.a. (Yield to Maturity or YTM) while Philippine debts (popularly known as ROP) now yields about 3 to 4% p.a. While credit raters, economists and the media say we are a very risky nation, the market has declared otherwise. Price is a function of value – if Italian debt is now cheaper than Philippine debt, I would like to think that the market has made its judgment. Another question in my mind is just how credible and relevant are credit raters today? Raters have been giving the Philippines below investment grade (also referred to as junk) yet we continue to be faithful in the payment of our obligations, no scenario of default and our debt to GDP ratios are twice better than first world nations. Go figure!

When an investment grade country’s sovereign debt gives higher yields (ergo riskier) way above the sovereign debt of a below investment grade country (ergo less riskier) – that is the new normal in a new world order.

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Risk and return, part 1

Posted on November 16, 2011 by Randell Tiongson

Investment:  The commitment of funds made in expectation of some positive rate of return. If the investment is properly undertaken, the return will be commensurate with the risk the investor assumes.

I like the above definition of what an investment really is – it’s not just about returns, it’s also about risks. If the investment is properly undertaken, the risks determines the return and vice versa. Before anyone parts with his hard earned money, he should first understand the relationship of risk and return which is very fundamental and states that:

Low Risk = Low Return

High Risk = High Return

Regardless of how people will claim, the fundamental truth about risk and returns will not change. No amount of financial engineering will alter the fact that returns will always be a function of risks. Further, to say ‘low risks’ does not mean ‘no risk’. I refuse to believe that there is any investment instrument that you can categorize as no risk at all. Recent developments have made the world realize that ‘no-risk’ instruments like debt of first world countries are not really ‘no risk’ at all, in fact many now question if they are in fact, ‘low-risk’ at all.

For purposes of discussion let me give examples of low risk instruments common in the Philippines.

Debt instruments: Savings, Time Deposits, Special Deposit Accounts, Treasuries, Corporate Bonds.  The most common financial investments being transacted in Philippines are debt securities, also known as creditor claims. In essence, one lends and another borrows for these types of transactions.

Savings Account and Time Deposits : Simplest and most common form of a debt investment. A depositor gives money to a bank and the bank guarantees that the money is there after a stipulated period of time; and in return, the bank pays the depositor for letting it use the money for operations (lending, treasury, etc.). Since these instruments carry the guarantee of the bank and most of these are very short term in nature, hence highly liquid instruments (cash or near cash), the interest one gets from these transaction are really low, quite negligible if you ask me. The risk of said investments are really low and if the bank is a reputable and stable one, the risk of capital loss is minimal and none at all if the amount is covered by the PDIC (up to P500,000). The stability of the bank largely dictates the amount of interest it can give so the bigger/stronger the bank is, the lower the interest you can get. Smaller banks need to compete with reputation so they need to entice depositors with higher returns. This is a clear example of risk and return. However, investments in these instruments are relatively safe. Further, the Central Bank ensures that banks are solvent and must meet all its obligations through reserve requirements and other regulatory measures. Unfortunately, even good systems can be flawed and quite a number of ailing banks slips in to the Central Bank’s watchful eye. For savings, the market rates ranges from 0.5 to 1.0% p.a. (yes, per year!) and about 2.0 to 4.0% p.a. for Time Deposits. Smaller banks like Commercial Banks and Rural Banks offer higher rates, from 3.0 to 6.0% p.a. ranges.

Catch for more of these in my next blogs…

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Life Insurance vs. Small Business

Posted on November 9, 2011 by Randell Tiongson

Question: Should I invest in a life insurance or use the money to expand my small business?—Mary Anne Maloles Tesoro via Facebook

Answer: I am a firm believer of life insurance. I make sure my life insurance policies are always in force as they give me and my wife peace of mind. With the way I travel and the many hazards I face like sleeping audiences and bored readers, life insurance is an important risk protection tool for me. Life insurance is first and foremost a tool for risk management by way of a risk transfer mechanism. Simply put, certain life risk such as untimely death or serious physical breakdown can be assumed by way of an adequate life insurance policy. Since I am married, happily at that, and have four lovely children, having the protection of a life insurance policy is a priority.

Life insurance as an investment is another story. The primary purpose of life insurance is to provide financial protection against life’s risk but investment can be a secondary benefit. It is difficult to compare life insurance with other forms of investments because of the nature of insurance itself. Life insurance needs to deal with actuarial tables and a lot of probabilities because of its primary tables. All those probabilities need to be accounted for and adequate provisions must be made. When you invest in a life insurance policy, not all the money goes to investment as some is allocated for insurance premiums. There are many types of life insurance but since you are referring to it as an investment, I assume you are talking about the variable universal life or unit linked insurance—an insurance  policy with an attached investment similar to Mutual Funds or Unit Investment Trust Funds. Variable type insurance will not perform at par with a mutual fund or a UITF because not all the money is invested in the funds—premiums for insurance protection are allocated from the money invested and these are recurring charges. The bigger the coverage, the smaller the amount goes to pure investments. Its advantage, however, is when the insured (or investor) dies, the named beneficiaries will get both the insurance coverage and investments as well as some estate tax benefits.

Comparing life insurance and small business is like comparing apples with durian, which are worlds apart. Further, the issue of risk and return comes to play in this concern and business is always risky and speculative. Business is also where you can really earn a lot of income and it can substantially grow your capital, albeit all the risk it carries. I’d like to look at insurance as a way to protect future income while business or investments is a way to maximize income. Will business be better as an investment? Definitely! A good business idea coupled with a good business plan and impeccable timing can make your capital grow bigger and faster than paper assets. But, as the saying goes, the higher the yields, the higher the risks. Most start-ups fail and the percentage of those that succeeded is quite disappointing. Yet, I believe we should take a wee bit more risk with our money and be a tad more entrepreneurial—as cliché as it sounds, no guts no glory. Just be prudent and know what you are getting into.

Know your objectives. If your objective is substantial capital gain or adequate provision of income, life insurance products are not the answer—business or other investments are. If your objective is moderate capital growth with financial protection against life’s risks, then life insurance is something you can consider. Also, life insurance products are long-term in nature.

Should you choose between life insurance and business? I say you may need both. If you have loved ones depending on you and your income, you definitely need to assess your life insurance needs. If you are disappointed with the gains you get from other investments like time deposits or special deposit accounts (yields are lower than inflation) then do consider other investments, small (or large) business being one of them.

Just a friendly reminder: Before letting go of your hard-earned money, investigate before investing; check out your alternatives and if need be, talk to professionals. Remember, prudence is always a good virtue.

This article also appears at the Philippine Daily Inquirer

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Steps to Financial Peace Davao

Posted on November 8, 2011 by Randell Tiongson

The biggest personal finance event in Davao for 2011!

Catch me, Francis Kong and Jayson Lo this November 11, 2011.

For inquiries, send email to jddoce@yahoo.com or visit www.stepstofinancialpeace.com

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Small talks for big changes

Posted on November 3, 2011 by Randell Tiongson

Catch me at Coffee Bean’s brunch series “Small Talks for Big Changes” as I give a short talk on ‘new financial habits for a brighter future’.

It will be this Saturday at the CBTL in Greenbelt 3 from 10 am to 12 noon. It is FREE but you will need to register and there are only limited seats still available.

Check out www.facebook.com/coffeebeanphilippines or send an email to itallmatters@coffeebean.com.ph

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Are you a real man?

Posted on October 27, 2011 by Randell Tiongson

For the last 3 weeks, our church (Victory Green Hills) ran a series on manhood. It has been eye opener to many of us who have been attending the services and a more focused big group discussion for the last 3 weeks.

Today’s perception on what a real man is so obscure because of culture and media. When you talk about a real man, one would think of a typical half naked and unbelievably buffed model you see in EDSA billboards (are they really men to start with, me thinks). To others, the picture of a real man is one who is fierce, stoic, can take in a lot of alcohol and ready to jump into a brawl. Whether the image of a real man is one who has sculpted abs or a beer belly, our society has a twisted image of what a man should be and for us men, we seem to be clueless on how we should act, think and behave.

In a radio show I co-hosted (as a fill-in), we had a guest who had an incredible story. He is your classic rags to riches story and against allodds, even on the brink of death, our guest survived, thrived and became very successful. He seems to be a nice person, kind, generous and willing to share his knowledge and even his wealth to better the lives of those around him. He truly is an admirable fellow and it was really a pleasure conversing with him. No person, no matter what he has achieved is perfect. This nice guest of ours has an incredible story, besides his rise to success. He is a father of 14 children with 14 different women. While many were amazed at his life story, more were impressed upon his virility and people started to call him ‘idol’. While I do not judge our guest, I am saddened that many will find his ‘adventurous romantic episodes’ as something to be admired and worse, emulated. Well, I guess it’s ‘to each his own’, I suppose.

If society has conflicting views and many of us have settled for less than what a man ought to be, the last 3 weeks have made me realize that God expects his men to be more than what society can ever define. Here are 3 critical learning on the role of real men I picked up from our Pastor Dennis Sy:

1) Provider: lead financially. While there is nothing wrong with women working and helping their family financially, the role of the man of the house is to provide for the needs of his loved ones. Man should go out and work for a living and provide a comfortable life for his family as best as he can. Providing doesn’t mean that men should give his family an ostentatious lifestyle that will make him a slave to work and be an absentee father as a result. Having a stable home and providing for such a home will always be the responsibility of the men. It is sad to see many women work hard and their husbands are left at home. Call it the modern family and call me old-fashioned but I believe there should not be reversal of roles in this case. I wrote about my thoughts on this in an earlier blog.

2) Warrior: lead physically and emotionally. In the family, the man is the head of the family and he should act as such. There is a reason that the men were created to be sturdier, stronger and maybe even less emotional as the women. Men should not abdicate his role as the leader and hold the family together. Being a warrior does not mean he canbe insensitive and push his weight around, that’s a sign of weakness. A real man would know when he should acknowledge the wisdom of his wife, accept his limitations and yet stand firm for his decisions. I don’t think women would like their men to be a push-over, indecisive or cannot take his responsibilities seriously.

3) Pastor: lead spiritually. While our faith in the Lord is an individual concern, the real man should act as the spiritual head of the family. As a husband and a father, the Lord has bestowed upon me the spiritual covering for my family. It is imminent for us men to pray for our loved ones regularly and with intensity. Our faith in the Lord is something our children can emulate, not from lengthy sermons but from what they actually see in us. I once had a friend who got concerned that his young children decided not to go to church; I gently reminded him his children only copies what they see from him and since he is infrequent in going to the church, they started to think they shouldn’t as well. The good news is my friend started going back to church regularly and is now walking with Christ. Our children read their bibles not so much because we tell them so, but more so because they see us read, especially me.  Filipina women have traditionally been more pious but let me tell you that when the men exhibit a close relationship with the Lord, it is a totally different ball game. As the spiritual head, we can actually intercede for our loved ones and I am certain the good Lord listens to all our prayers.

Further, and more importantly, the real man submits to the real authority. He submits to the authority of Jesus Christ who is the real master of his life.

Whew, writing this blog has overwhelmed me if I am to be totally honest. The burdens of being a man, and a godly man at that, is not easy task nor for the faint hearted. However, it is also only by the grace of God can we do all these. Apart from Him, I can’t really do much. “For I can do everything through Christ, who gives me strength.” – Philippians 4:13, NLT

Be a man according to culture or society? Or be a real man in the image and likeness of the Lord? The choice is ours to make.

To learn more on being a real man, check out Act Like a Man

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