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.

From my perspective, I don’t think inflation is just at 4 to 5% — and my wallet agrees with me.

Just what is inflation? Investopedia defines inflation as “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.” In practical terms, it means that prices will rise according to the inflation rate over one year (per annum); if inflation is at 4%, a P100 per kilogram of Chicken today will cost P104 per kilogram next year.  Consumer Price Index or CPI is the barometer to which inflation is measured. In general, the consumer price index reflects changes in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The basket includes the most basic goods the average Filipino family consumes – general food items, utilities, oil, etc.

Alright, enough economic gibberish – no one wants to be reminded of the boring economics classes we had to take during our student days. Unfortunately, the ‘boring economics’ we all hate is pretty much the reason why we are all dumbfounded – trying to figure why the value of money in our wallets are shrinking.

Our knee jerk reaction to rising prices is always to be overwhelmed, and for a good reason. I’m not sure if this applies to other folks but here’s how I react whenever inflation is very high: disbelief, anger, frustration, blame, acceptance, indifference. I get shocked that prices goes up so fast so soon (like fuel); then I am annoyed as to why prices are going up such as external factors (middle east situation, financial crisis, etc.); I move on to being frustrated – frustrated at the government for not making the right responses, frustrated at myself for my microscopic income; then I blame the government for being inept and sometimes blame myself for missed business opportunities that would have cushioned the rising prices; I slowly begin accepting the harsh economic realities that life is as such and there’s really nothing I can do about it; finally, I move to being indifferent – after all, my ramblings will not bring prices down and I resign to the fact that there’s nothing I can do.

… to be continued.

I love coffee, brewed coffee to be more precise. I will not take anything butbrewed coffee. Don’t make me drink instant coffee, 3-in-1, I feel like throwing up whenever I am forced to drink those stuff, haha… I always hear so-called ‘personal finance experts’ tell their listeners to avoid buying brewed coffee from Starbucks and just take 3-in-1. I agree, buying coffee at Starbucks is so expensive and we should avoid it. If you are a certified Starbucks addict and buy their coffee regularly, consider this: Let’s assume that your average cost is P100 per day (some of their coffees are even much more expensive) or about P 3,000 per month. Let’s also assume that you can find an investment at about 8.0% p.a. (you can actually get better rates). If you invested your Starbucks expenses for the next 10 years consistently (monthly compounding), your savings will grow to P 470,543.30! If you are a risk taker and opted for riskier investments that will give you an average of 12.0%p,a. yield, your Starbucks expenditure can yield you P 593,626.24 in just 10 years!

Ok, point taken, forget buying Starbucks (well I still do from time to time). But drinking 3-in-1? Hmmm, I’m not sure if I’m prepared to do that. So what shouldcoffee addicts like me do? Brew my own! If you really can’t live without Starbucks Coffee, do the next best thing. Buy their coffee beans and brew it yourself. Buying coffee beans is a fraction of a cost. A 250g coffee beans at Starbucks costs you about P300… that can make you dozens of coffee already. If you are so fixated with Starbucks, you might even want to buy their Starbucks mug that they sell for about P400. One time purchase is all you need and you can experience the real thing, in a cost effective way.

Tips for serious coffee drinkers… the best way to brew coffee is through a coffee press, much better tasting than using automatic coffee makers and no electricity cost. Just dump your ground beans (coarse for press), add hot water, wait for about 2 minutes, and press… great tasting coffee! There are other great tasting coffee beans other than Starbucks — go to your local grocery and buy the cheaper local beans, they taste as good. But, my favorite beans are the mountain beans in Baguio. If you got a friend who is going to Baguio, ask him/her to go to the palengke and buy you a kilo of baguio coffee (mountain coffee is best) at about P200 per kilogram! That will brew you over a hundred cups, talk about cost savings and at the same time, great tasting coffee. Baguio mountain coffee is one the cheapest coffee I ever saw, and it is the best tasting coffee I ever had. Trust me, I know coffee! Batangas Coffee, Tagaytay Coffe… they’re all good as well.

More tips — avoid coffee makers that uses paper filters. It’s quite difficult to buy paper filters, costly and it actually reduces the flavor of your coffee beans. There are just a few people who still insists on using coffee paper filters — I don’t think they know how to drink proper coffee. The Coffee Press (also known as french press) is the best way to brew, but percolators, drip coffees are ok too. Starbucks sells coffee presses, pretty sturdy as mine is about 6 to 7 years old now. I also see coffee presses in department stores that can range for as low as P100.

I need my brewed coffee, once or twice a day. I will not take 3-in-1, ever — plus, instant coffee has a lot of harmful chemicals to make them soluble. I will argue that brewed coffee might even be cheaper anyway.

Take your coffee daily, and still save. No need to sacrifice quality for cost.  Okay, all this writing about coffee makes me want to go down and brew me a cup — I got baguio mountain coffee around, courtesy of a good friend who always knows how to make me happy. There are lots of practical savings tip at this site, you may want to check out this site and sift through the blogs. Before the readers think that Starbucks paid me to write this (I wish they did), I am not endorsing any coffee shop – I just want to make a point and write something close to home for many of us. Save money and drink your favorite Starbucks, its like having your cake and eating it too. Just drink it like I do. If that’s not Personal Finance for some ‘experts’ well, that’s Personal Finance to me! Happy savings, and have a caffeine blast!

“You who are simple, gain prudence; you who are foolish, gainSave  understanding.” – Proverbs 8:5, NIV

Why are so many of us finding ourselves wanting? Why is it that we find ourselves trapped in life’s maze? Why are so many of us lost? This is true not just in the psychological aspect; it is also true for our financial situation, as well. Why are we always lacking? Why are we buried in debt? Why are we unsure of the future? These are common questions we often wonder about, me included.

Here’s a thought: If we were guided and taught properly as children, would we become better adults? What if someone instructed us patiently in the area of money management in our youth, would our financial standing be better today? What if we were raised as a disciple of Christ in our formative years, would we have avoided a lot of the mistakes we foolishly found ourselves into? I don’t know about the others, but I can definitely answer YES!

We need to be deliberate in teaching the next generation—help mold values that will be critical for their future. How? Teach them, remind them and let them experience the learning by assimilating how we live our lives.

“Tell it to your children, and let your children tell it to their children, and their children to the next generation.”— Joel 1:3, NIV.

Let me try to quantify the 25 year cost of my subtle addiction on diet sodas. Let us assume that the cost of a can of soda today is P25.00 and on an average and I consume 2 cans a day (I go more than that). Let us also assume that the price of soda goes up by an average of 6% and the cost of money will be also at 6%. For 25 years, my addiction to diet soda will look like this:

Allow me to make a confession of my addiction – diet soda. While some people will not look at drinking soda as an addiction, I still need to get off this stuff for 3 major reasons:

1) My kids – I am not setting a good example for them. We often teach our kids not to drink soft drinks because it’s not good for them. When I drink my diet soda, I am telling them that it’s ok to drink soft drinks. Fathers who smoke cigarettes have a horrible record in preventing their children from smoking. Whether we admit it or not, many of our children’s wrong behaviors were because of us parents and especially us fathers.

2) My health – diet soda or soft drinks are very unhealthy. Caffeine, sugar and sugar substitutes, etc. are clinically proven to be bad for us. Aspartame, the sugar substitute being used in diet sodas can do so much damage to our body. Imagine drinking diet soda for 20 years; it definitely will have some adverse effect on us one way or another. I am 42 now, imagine how many liters of soda I have gulped in my life.

3) My wallet – while a can of soda typically costs us about P20.00 or so (depending on where you take it), the accumulated value of this addiction can be very costly.

Let me try to quantify the 25 year cost of my subtle addiction on diet sodas. Let us assume that the cost of a can of soda today is P25.00 …

Catch part 2 soon!

When I was a child, I have always loved the Christmas season like every other child. I have often looked forward to the season with joy, excitement and much anticipation.

I have to admit that I still have the childish feeling when it’s the Christmas season and, as a father, I love seeing my children enjoy the same excitement I had decades ago. Buying our daughters a doll house, and my sons their action figures. Reunions and all those wonderful Christmas experiences are memorable moments forever etched in my heart.

While I still have those youthful warm feelings about the Christmas season, there is one thing that us adults always have to contend with: Christmas spending.

After all the Christmas festivities have winded down, have you ever found yourself hoping that you did not have to spend as much as you did? Have you ever vowed that you’ll never spend as much again, yet you find yourself spending more again the following Christmas?

If you do, welcome to the club! But don’t despair because if you really want to curb your Christmas spending, here are some easy tips:

§          Make a priority list. Determine who should be an absolute “must” to receive a gift from you. You can set an order of priority, like spouse, children, parents, siblings, etc. While you may want to be a generous giver, you are not the fictional Santa Claus. Your boss or your officemates will not take it against you if you only give them a simple Christmas card this year, or better yet a sincere greeting. If a friend of yours will feel bad that you don’t have a gift for him/her, he/she may not be such a good friend after all, right?
§          Set a budget. I know this is not easy, but it is best that you have a budget for your Christmas spending. Determine the amount you are able to set aside and make sure that this budget will not eat up on your mandatory expenses, like rent, food and utilities. It really doesn’t make sense that you give Christmas expenses a priority over your necessary expenses. After determining your budget, you may now allocate them according to your priority list.

§          Be creative. Most people will always equate a good gift with an expensive gift. Year after year, well-meaning friends will churn out really expensive gifts which I really appreciate, but can’t reciprocate. Sometimes, I’d like to tell them that the gesture is more important than the gift. I will have the same appreciation if they gave me a card or an uber-expensive Christmas basket. It may be cliché but it’s really the thought that counts. I have a good friend who gives me the best Christmas gift year after year—an offer of prayer.

§          Never buy your gifts on credit. Don’t use your credit card, don’t buy something on “gives” and don’t use deferred payments. Buying gifts to please others and yet bury yourself into consumer debt is one of the most unwise things you can ever do. If I go home with a nice expensive gift for my wife and yet I purchased it through credit, she will definitely have an issue with it and it will really spoil the gesture. Give what you can afford, if you can’t afford it, don’t give it. I’ve always subscribed to the saying that “you can’t give what you don’t have.” Buying gifts on credit is the same banana.

My biggest advice to the readers is to remember what Christmas is all about. There was once a wonderful commercial on television where they started the ad with the photo of Santa Claus. There was an eraser and pencil that changed the photo of the jolly old Santa to the picture of the real reason for the season, Jesus Christ.

We should start thinking less of the ho ho ho’s and more of the hallelujahs! Christmas has been replaced with rabid commercialism, which has engulfed all of us. I don’t think that was what the Lord expects from us.

While there is nothing wrong with sharing the spirit of Christmas by merry-making and gift-giving, let us always remember that we can’t let social pressures affect proper personal finance management or our faith. Besides, we are already recipients of the best gift we can ever have and the Bible made it clear in John 3:16: “For God so loved the world that He gave His one and only Son, that whoever believes in Him shall not perish but have eternal life.”

As financial planners, are we getting our message across? Are Pinoys any closer to financial freedom? I am elated to see more and more financial planners, more books and articles and a gazillion blogs on personal finance. I’ve seen, heard, read a lot about personal finance of late—some are great messages; while others are really rubbish, but at least the message to do something about one’s personal finance is being mentioned. Let me repeat my earlier question, are we getting our message across? From my perspective, it seems that whatever we are doing is a mere drop in the bucket, and my colleagues in this field need to realize that we are not as effective as we believe we are (apologies to bruising the egos of my colleagues).

There’s definitely nothing wrong with what we are advocating, and our message is extremely relevant. I believe that there is something wrong with the manner we convey our message. To the real world out there, we sound like condescending self-righteous bigots telling everyone they are wrong and we are right. Have you heard personal-finance speakers? They will tell you not to drink Starbucks coffee and stick to 3-in-1 or not to buy a flat TV or a new car. They will tell you that gratification is evil and will burn you. Let me use an analogy here: It’s like hearing a preacher tell you that ogling a beautiful woman will cost you eternal damnation. Yes, they are probably right, but they may not look at things from the right perspective. It’s not just about the message, it’s also about the delivery of the message.

I think it’s about time people like us realize that folks have dreams and they must enjoy these while they can. Dreams do have a deadline, as my mentor aptly phrased it. Are you going to have that dream family house when all your children are grown up and have moved out of the house? Will you buy that nice flat TV when your eyesight has become so weak? Our life has a timeline and we must act according to the set time we have. I like how the Bible puts it—“Man’s days are determined; you have decreed the number of his months and have set limits he cannot exceed” (Job 14:5, NIV). Knowing what we want in life is critical and the way we live should be reflective of our goals. It’s not all about accumulation of wealth that we should be concerned about but also the purpose for accumulating wealth.

It’s about time we really know what our dreams are and that our “dreams have deadlines”; it’s about time we know the purpose of our dreams. Oh, it’s also about time for financial planners to change the way they sing their song.

“The man who plants and the man who waters have one purpose, and each will be rewarded according to his own labor” (1 Corinthians 3:8).

Financial planners are not known for extravagance and flamboyance—in fact, people have always looked at us as misers. Financial planners are very prudent people; they are not the kind that will spend money on a whim and will really take a lot of time trying to ascertain needs from wants.

My friend Rex was very much a financial planner in all sense, highly knowledgeable in the aspect of personal finance and one who really practices what he preaches. However, the Rex I was having lunch with seemed to be a different person, a changed man singing a different tune. What happened to my old mentor? Has he gone to the dark side? I was trying to figure out who I was having lunch with. Years ago, this was the guy who was telling me that every peso counts, that Starbucks coffee was evil (because of the cost) and that investing was the only activity we should engage in…get the drift? The “new” guy I was having lunch with was talking about expensive LED lighting, koi pond and exquisite veneers for his house renovation, playing golf every weekend, traveling all over…and I almost choked on what I was eating when he mentioned driving a Porsche. That’s it, I am certain that my old mentor and friend has been possessed, cloned or just plain, well, lost his marbles. I was just about to gag this guy to ask him what he did with my friend when he uttered something that pretty much left me speechless for a few moments: “Randell, after all these years, I finally realized that ‘dreams have deadlines.’” Er, what—say that again?

My lunch encounter with a former mentor got me into thinking, and the words “dreams have deadlines” seemed to me like experiencing LSS (last-song syndrome). Financial planners have been preaching about living a life of extremes while the real world has a totally different view with regard to the use of money. Filipinos and financial stability are two words you don’t normally see in one sentence. Just look around you—how many of your acquaintances do you know need a spanking with the way they handle their finances? Our country remains to have the lowest savings rate even in Asia, yet we see a steady increase in consumer debt among our population—a definite recipe for disaster. The solution: financial literacy. If our brothers and sisters become financially literate and have a better mindset with regard to the way they use their money, we would definitely see a lot more happier people. The solution is simple—or is it?

… catch part 2!

What does Investopedia say about diversification? (a favorite on-line site for invesmtment stuff)

“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.”

What does the Bible say about diversification?

“But divide your investments among many places,
for you do not know what risks might lie ahead.”

– Ecclesiastes 11:2. New Living Translation.

Both definitions are essentially the same but I like the one from the Bible better — I understand it better and I am sure it is the truth.