Mighty Change of Mind: A Personal Finance Paradigm Shift

This may be a late update but, I just want to jot down the success of our Saturday's activity, June 9, 2013:

 

Our guest speaker being Mr. Tom Tandog, an Associate Financial Planner and Senor Marketing Director for IMG - Wealth Academy. Part of the lecture was also conducted by Bong Sanchez, President for The Academy for Creating Enterprise, Angeles Stake Chapter. 

From there, we learn about how to change our mindset about money. Now, why is this important? It is because many people though that getting rich can only happen if you get to be lucky in terms of heirloom or hitting a lottery jackpot, other think its investing but they don't know how and where to invest their money. This often leads to being scammed. During the said event we were taught the right way of budgeting which leads to proper saving and investing of our money in legal entities that can guarantee us our return on investments. 

The program was also in line with the letter of the First Presidency for this year, regarding sound investments:

Everything in the announcement agenda has been covered during the seminar, including some introductions to legal publicly listed investments such as bonds, mutual funds, insurances and stocks. What a great way to be taught and refreshed on what were suppose to do in order to achieve self sufficiency and reliance the way our Father in Heaven wants us be. It's one of the ways to build Zion.

Emergency Funds and Invest-able Funds

It's school time once again, and many parents are spending for their children's education. I've just finished watching the late night news and I saw that the schools are getting ready for the upcoming school opening. With this also comes the stores and kiosk that are selling books and school supplies at an affordable cost. Parents are trying to look for wallet friendly buys for their kids. 

That is a good thing. With the economy that is going on about our country, it is important to be economical and practical. Though many of us would say that it's important to save on the stuff that we buy. It is also important to consider saving the money that is left of us after all the important expenditures.

Though, tuition, books and school supplies are important things to buy this season. It is also important that we realize to turn the rest of the money we used to buy into two different kinds of Funds we need in our lives. That is to put money into our Emergency Fund, and Invest-able Funds.

What is the difference between the two funds? Here let me explain:

Emergency Fund - This is the money that you put aside to be used for emergency purposes. This is your "I'm in need" piggy bank. Ideally it should contain an amount of your three to six month salary. Why? Financial experts suggest this so that if something inevitable happens, i.e. loosing a job, it is a known information that the usual time frame for a person to be able to find or get a new job would be in about three months. 

Where should we put our emergency funds you may ask? Well, you can make a bank account savings for it. Piggy bank is fine only when you don't intend to earn from your savings, but always try to remember the adage that, 'a penny saved is a penny earned.' The bank will only give you 1% interest (current bank interest rates nowadays) but at least your money can grow from there. Also remember to circulate your funds in your bank. Some banks charge fees for dormant accounts. So this means, even if you have already reached your goal amount for your emergency fund you keep putting in more money for some cash on hand for future purposes. 

Invest-able Funds - These are funds that is a portion of your money you decide to put away for investment. If you feel that you are a person who is not into business. You don't have to pressure knowing how to build one of your own, although it would a  brilliant idea. In order to secure your future, you can at least learn how to make money work for you instead of working so hard for it. We'll you'll work a little hard for it at first of course, but once your emergency fund is set you can make more money by investing them in financial vehicles that can provide you better returns for your hard earned money. This way, you'll have less worry when you get older. 

Both emergency and invest-able funds have it's own social and psychological cost. It is because it will require you to have a lot of discipline in yourself in order for you to save and invest money. Notice how our generation is hand cuffed to consumerism. This is the main reason why people who can't afford to buy the things they want are drowned in consumer debt. Sometimes it's the covetousness in us. 

As was mentioned in the scripture, I can also relate that disciplining ourselves to save and invest our money needs some 'bridling of our passions.' If being a shopaholic is your passion then, let saving be your passion now. No need to covet our neighbor's lovely things. You'll thank yourself one day for being able to satisfy the demands of delayed gratification. 

Financial Checklist

I don't want to be mean, but I am, maybe... and judgmental even... And this may not be a very nice post. If you don't want to transgress, stop reading now, but if you want to keep reading, you may proceed at your own risk.  

I remember some months ago, my hubby was browsing his Facebook page and he was looking at some photos of a friend of his who is a what we call, "a rich man's daughter. " I've been introduced to this friend some time ago as well. According to my husband's story, he's known this friend for a long time and the way he would tell stories about her is that she is a free spirited, happy go lucky girl. Someone who can get any boy that she wants and buy anything her money could buy. 

Anyway, back to that conversation while my husband was browsing FB... he called me, and showed his friend's picture at a beautiful place abroad. He said, "This friend of mine! is FINANCIALLY SAFE!"  

Smiling, I just said, "Really? How safe?"

How could she be financially safe when all she does is spend money? I get what he meant, as you can see she is a business tycoon's daughter. But for reals, let's elaborate. On top of this post, is a picture I stole from an FB  group called Journey to Your Financial Independence. The reason why it's there is because, when I saw it posted, It reminded me of my husband's friend. "How financially safe is she really?" 

With her kind of attitude and lifestyle. It'll be easy to gauge how financially safe she is by doing a checklist based on the picture above; and according to my husband's story of her. One by one: (bottom ladder step first)

Step 1: Work and Earn --> Check, well yah maybe, AFAIK (as far as I know) she just resigned from her job, because she is pregnant now and she just got married.

Step 2: Make a budget --> "Budget? What budget???"

Step 3: Record Expenditures --> "Sky is the limit!"

Step 4: Have a Bank Account --> We'll she probably has, one that daddy has been chipping money in, and her hubby's too!

Step 5: Carry life insurance --> One that her office provides for her, while she was employed or maybe daddy is the insurance provider. So, check on this one!

Step 6: Own you home --> Well, getting there, since the girl just got married, they're going to get a housing loan one day, in the meantime, almost is the same as never.

Step 7: Make a Will  --> Daddy has a will! or did he already make it? In time, she's gonna be like the Hilton heiress, watch out world!

Step 8: Invest Carefully --> Her dad owns some hotels! (oops, I hope I will not be too obvious), businesses! and her mommy has too! that's investment enough. I've never really heard from my husband that she mentioned about some shares of stocks or something great, though maybe she may have.

Step 9: Pay bills promptly --> check-ish! (Don't forget the savvy cellphone should never loose credit calls, it raises her status quo).

Step 10: Share with others --> Check! Her money or not, when it comes to her friends, she is all out. No matter how much money she spends so long as she is admired, and people should be happy or at least pretend to be happy while with her.

Question, how financially safe is she really? You decide! Now that I'm about to finish this blog, I have to be sure to make my life in order and focus on my priorities. Otherwise it would be embarrassing if I will not have any progress because of the consequence of judging her, and loosing my own focus. Time for self measurement!

As for me, I just don't believe that a person is financially safe if they don't live according to the basic financial principle that the truly rich have. Money takes time to earn, yet very easy to spend and loose. It drives me nuts, to know that some people are as vain as can be without being punished for it. Or if they are, they're not recognizing it. Not that I want these people to be cursed. I felt pity more that admiration. Maybe, it's just the stingy personality in me that questions, "When will they ever learn?" Now, let  me get back to myself, thank you.

To the those whom we consider as YOLO (you only live once) Open your eyes! There are ways to learn, and we ought to start to learn. To save, budget and invest. It's the only sure way to be financially safe. 

Financially Stupid

Nope, I'm not trying to be judgmental, but if you think I am after reading the first few paragraphs, then it is either you whose judging me wrongly or I may have to repent later after writing this blog. But first, let me tell you a true story.

After one of the Financial Literacy Seminar he was teaching, a certain attendee went to approach the speaker, he is a CEO and Marketing Directors of a prestigious financial institution. The man said to him, "Sir, you gave a great lecture however, I want to attest to you that my wife is an asset and not a liability. Look at her, she is very pretty."

Mr. CEO just smiled and said,  "My friend, the definition of assets are people or things that helps put more money into your pocket."

"Tell me, does your wife help you put more money or savings into your bank account or does she spends most of them?"

"Well," the man said, "She buys a lot of nice expensive things, like make-ups and stylish clothing using my money."

"Then my friend," said Mr. CEO, "You have to talk with your wife and discuss how you will turn around your finances, because according to your story she doesn't sound like an asset to me."

---0---

On the next seminar schedule, the same man approached Mr. CEO again and said; "Sir, thank you for your advise. My wife now is truly an asset. We've spoken and she now started to be frugal. Also, she manages to save some of the money to our bank account every time I give her money from my salary." 

--The End--

End of the story now on to my blog. In one of the talk show videos I keep watching on you tube there is this episode I came across with, on which the main topic is the stupidity of women when it comes to finances. The guest of the show a financial expert said this about women; "Many Women are Peso smart but Million foolish." 

We'll, I believe that not all women are financially stupid, but most are... and men too! I didn't get to finish watching the whole episode but I have my own presumptions I have my own presumptions and here are just a few:

1. Women know where the latest mall bargain is but they don't know which companies of the stock market are on sale. 

Men, may or may not know where the mall sales are or they wouldn't even care; but they also don't know when the stock market is cheap or they don't even care about the stock market, period.

--
2. A hair re-bond session that charges a fee of not less that Php 1,000.00 is not so much to pay for, not knowing that 1,000.00 at 12% interest will turn into 1Million in 24 years.

What is a car loan when he can show off a brand new Porsche to his friends and dates.

--
3. They'd rather date a handsome guy who likes to spend his money more than he earns them, instead of dating the one who has potentials.

Men, would date a pretty girl instead of dating the smart ones who can make sense about money. 

After all is said and done, both of them are living in financial disaster!

In reality, most men and women of all sizes and shapes, many are still lacking in Financial Literacy. People still make unnecessary purchases and get scammed in wrong investments, which just proves that in this day and age; People are financially stupid. According to an anecdote I've once read, there are two kinds of people.

"The One who is rich, and The Other who wants people to think that he is rich. "

The other use to love fancy-schmancy things. To die for shoes and apparels,  Expensive perfumes, cool phones and gadgets and other branded items. In short, 'the must-haves that they don't really have to have.' They are lured into the world of consumerism. They feel they don't want to do anything with savings and financial investments since they feel that it's (1) only for the experts, (2) they just simply don't care about their financial future. 

I'm not saying that buying nice things are bad stuff. To be honest I like those kind of stuff too. I would love to have those if only they are given to me as gifts, I would appreciate it. Otherwise, I will have to make a way to afford it, otherwise... I can do without it for now.

If we try to secure our financial future by living frugally at our present status. We can rest assured that we can be comfortable in our old age. In short we can delay our instant gratification for a long term return of our investment. 

Others would contest, why study Financial literacy when "money is the root of all evil."? If that's the case, I who wrote this blog should have been cursed now? and if not now then maybe later in my life.

My take on it though, is this; We are stewards of God's creation, and as children of God, we can try to be abundant as much as we can in order for us to help build Lord's Kingdom on the earth. Money is Not the root of all evil. Take note that in 1 Timothy 6:10 the exact words were, "For the love of money, is the root of all evil." see the difference?

There is a need for a change of mindset if we'd lime to build a strong financial foundation. Discipline also, instead of spending money on useless stuff, we can still consider the difference our money makes as investible funds.

So, instead of upgrading your cellphone every month.Why not invest them on assets that can generate you more income in the future. There is a cost of course. It may affect our lifestyle a bit, and social life a bit but trust me, you'll survive without what you thought you can't live without. 

The question of so many of us then is this; Is it possible that people can really study and get into, Stocks, Bonds, Mutual funds and or UITF's to improve their financial status in life?

Why, yes! and if you ask why... then why not?

The Law of Building Wealth and Decreasing Responsibility

During a lunch break of the marriage counseling and family planning seminar that we were attending. My fiance and I got to talking about the movie we've just seen the night before. The movie was Wall Street - Money Never Sleeps, which stars Michael Douglas and Shia LaBeouf. 

Though the movie is about the stock market, I recall mentioning to my fiance a concept that I learned a few years back about savings and investment (courtesy of IMG). I remember saying "as we increase our savings, it will bring down our financial responsibility in the future." He looked at me with amazement at what I had just said, or at least I want to believe that he was amazed at how smart I am, thanks to my mentors.

Kidding aside, we kept talking while heading back to the seminar class. I thought to myself "this is good that I'm marrying a man who has hopes and plans for the future and sooner or later, these plans will need to be executed after we're married."

A year after our marriage, and a baby. My husband and I with our baby went to attend a Personal Financial Strategy Seminar in Makati. This was the seminar that I use to go to when I was single. Now that I'm married, I decided I want my husband to come with me, and see where I'm coming from with regards to finances. This way, we can build our dreams together in providing for ourselves, our family and our old age with the same understanding.

On our way home from the seminar, my husband told me that the X-curve was one of the greatest concept he has ever met. I agree! From the first time I've heard of it until this time, I still so agree! Even financial experts believe that it is the most powerful Temporal Concept in the world.

What is the X-curve anyway. Here let me share it with you:

 

That's it bye! Nah, kidding again! We'll that is just the representation of what an X- curve would look like when you are looking at it from a distant. Unlike any other graphs that either trends upwards or downward, this graph's shape is X. The sense of it will come as it is being laid out one by one. So, let's dissect the graph to find out how this concept came about.

In the story of our life, every human being who has ever lived on the earth, whether they like it or not have responsibilities. That is represented by the X-axis on the graph. 

As much as we can, we all try to make a living to provide for our family and our self. No matter how large or small, we earn money with the time we are given on the earth. Theoretically by the age of 21 (according to Philippine Education), a man or a woman must already have finished a degree in college and will already have been able to find a job that pays. So, lets assume he/she started earning early at 20 years old, Y-axis will represent wealth over time, Point 0, starts at 20 years old.

As we indicate what your responsibilities are on the left side of the X-axis, the question you have to ask next is how much? If you don't have a plan, you won't really care, but let's say you are a goal oriented human being; and would want to provide the best for your family, wouldn't you ever wonder, if you could ever reach your temporal goal? How will you go about starting it, when bills to pay are never ending and the cost of commodities are high?   

Let's calculate. This is how we were taught. In order to find out how much our financial responsibility is, you need to know your income figures. This is the formula:

Annual Income x 10 years = Financial Responsibility 

Let's say you are earning Php 15,000 a month. That makes it:

15,000 

x    12 months

 180,000

x        10 years

 1,800,000

Php 1.8Million, That is how much your responsibility is. Whether you think that it's a lot or not at all, do not judge yet. You will find out later why it's that so. Now, let's proceed.

There goes the question! Presented there, is the first risk that your family will have to face if ever YOU as the breadwinner will pass away (knock on wood) too soon. Will you leave them with debt and more financial problems or will you leave them a fortune of Php 1.8Million plus interest? 

As we age, our primary temporal goal should be to fill that savings into our bucket of wealth in order to lessen our responsibility. How do we do that? Remember my previous blog about the rat race cycle. We need to break that habit. 
So we turn this:

Income - Tithes and Offerings - Bills - Lifestyle = Savings or none at all 

 into this:

Income - Tithes and Offerings - Savings - Bills = Lifestyle

See the difference? Now remember:

Here we go: Php 1.8M responsibility, 

If you save Php 450,000  your remaining responsibility  Php 1,350,000.              

Raise your savings up to Php 1,350,000 you will have Php 450,000 left to save.

Continue saving up until you're savings becomes Php 1,800,000. How much is your responsibility? That's right! ZERO!

 

Presenting, the 2nd risk in this theory. What if you Live too long? This is where another important aspect of finance comes in. Introducing the role of investment.

Let's assume you have saved up up to Php 1.8Million and you decided to invest that in a financial vehicle that will give you 10% interest per annum(per year).

 1,800,000

x    10% int. pa 

 180,000

Earlier, we calculated that you, earning Php 15,000 a month will bring you Php 180,000 a year of income. In this scenario, Php 1.8Million at 10% pa is Php 180,000.  Now, wouldn't it be nice, if you are earning Php 180,000 per year from your investment, never having to work anymore? That my friend is called Income Replacement. You should by then be Living On Interest (LOI).  

The perks of living on interest are shown in the diagram graph below.

If you follow this concept in execution you there will come a time where you wouldn't have to worry about your family and your old age! Because of your hard work, and smart move, you can definitely say that you did the best that you can for your family... and yourself. 

The question now is, where are we in the X-curve? Are we prepared for risk 1? How about risk 2? Hope you learn something!