The Importance of Setting up Goals

My financial mentor told me once, “To be able to go to your destination you must have a clear picture of your destination and a plan on how to do it.”

Family finance is different from personal finance because on the first you will deal with several people with different ideas, sometimes with not aligned goals and time lines. A harmonious relationship should have in-sync goals and timelines with complementary ideas. So the first thing to do is to talk to each other and agree on a particular goal and be willing to review them from time to time.

Our family finance has gone an overhaul when we both wanted to purchase a car. He wanted a second hand car while I wanted a brand new car. We were discussing the different scenarios for quite some time until he came up with a decision and convinced me to jump in the boat with him.

We are gearing towards the end of the year so I think it’s about time to rethink our financial goals and plans in the next few years or so.

Here is a clear picture of our budget and savings plan.

*Short Term Goals (those that can be achieved within 3 years)

short term goals	savings per month
emergency fund
pregnancy fund**
car fund

**pregnancy fund will become baby fund when applicable

*Mid Term Goal (those that can be achieved in 5 years)

mid term goals	payment per month
mortgage

*Long Term Goal (those that need more than 10 years)

long term goals	savings per month
investment surplus
educational fund
retirement fund 2.0

We also came up with our monthly spending plan which I think would make us more organized and more conscious of our spending.

household expenses

Association Dues

Electric Bill

Water Bill

Internet and Cable

Food

Leisure/Travel

Gas

Misc

Paul's allowance

Millette's allowance

With these savings and expenses laid out, we also need to utilize all our bank accounts to accommodate each expense so that it’s more organized and become pretty straight forward.

Yey brighter future. ;)

PS: Insurance payments included in allowances. * 

Till next time.

Look back for the lesson, move forward for the future

Past is past and the only things that we can learn from it are the lessons. Anybody can forget the past but never forget the lesson. If you have done something wrong in the past then let it be. It’s time to make a conscious choice of living in the present and hoping for the future.

This is also true when it comes to finances. You may have lost a lot of money during your early years because you felt that having a lot of pretty knick-knacks are the things that will make you the “it” person of your times. You may have been a travel junkie and have visited all the 80 provinces in the Philippines and maybe a few outside the “perlas ng silanganan.” These dramas are okay because the fact that you are reading my blog about finances is a conscious realization that you want to change something in your finance now. J

As I’ve said, it’s time to move on. Make the right decisions today to improve your financial life and work towards financial stability. You cannot go back in time and collect every single centavo that you’ve spent. Acknowledge that you have done wrong and admit it. That will only be the time that you will start to accept the reality and move forward. First focus on how much you are making today and start saving small percentage of it – say 10%. Then increase as necessary. If you have built the habit of saving then create emergency fund and start looking for other (legit) high yielding funds. As long as your savings plan has a goal, you will surely end up with it sooner or later.

Happy saving and investing. J

Do you feel miserable when budgeting?

I have read so many blogs about budgeting having the common description as “necessary evil.”

It may seem to be that way but for people who are used to it see it as a need for the family finance to work smoothly. For me, budgeting should not hinder your personal satisfaction. Rather, see it as your guide in achieving your personal goals. If you really want the new gadget then budget your way to it. It also pays to be smart and reasonable when choosing your goals.

Make budgeting fun!

Budgeting can be FUN!

Why not make a dream board and put the pictures of your goal/s in it then make it a habit to track how much you have saved for it? Fun isn’t ist?:)

Budgeting can be EASY!

Budgeting is easy. My personal strategy is “Save first then never mind.” Let me clear this. What I mean to say is, I save first then make the remaining money enough for me until I get my next pay. For example, I want to buy a bike worth 6000Php. I’d like to buy it 3 months from now. So I will be computing how much I should be saving for the next 3 months to realize my dream.

6000 / 3 = 2000

That means I should budget my money such that 2000Php will be saved for my new bike for the next 3 months. Now here comes the adjustment. What if, I am only able to save 1500Php per month? Well, the sound response to this would be to delay my bike until I have come up with the money needed. Another option would be to assess how I spend my money and work it from there. Maybe I should just bring my own lunch instead of buying from the cafeteria. Or I should just commute for a few weeks to save on gas and put that savings on my bike fund. Or maybe I should not drink soda for the mean time and put the saved money to my goal.

Remember, little things add up. It’s just a matter of perspective.

This was I hope I made Budgeting Enjoyable.

Till next time. J

What is your non-negotiable?

I have been living a very busy life in preparation for a brighter future. Least did I know that I am sacrificing the present in exchange of an exorbitant life in my golden years. My focus has always been “pagdating ng panahon” and I almost forgot to live today – as in the present.

During my early employment life, it has always been easy persuading me to do overtime work and weekend work because I have always been excited to learn the things that would help my career grow. It has always been my driving force to wake up early, go to work and get paid. It has always been the money that drives the people to continue to perform better. But believe me, life is not just how much money you have in the bank and in your investment portfolio. Material things are – just material things that we can easily do without and still live. So for today and moving forward I have to define my non-negotiables and live the life of a true wife.

~Till then.

To Buy a Car or not to Buy a Car?

Haven’t you been curious why car down payments are becoming considerably low and financing approval becoming faster than ever? Hmm. Well of course all the banks would love to stash some cash away from all of us. How? Through the interest that we pay when we take some loans.

Few months ago we should have bought a car through bank financing. I already gave the reservation fee to the dealer and determined to get the car soon. But I did some research and compared financing schemes so I came up to a conclusion of not buying a brand new car today. I got the reservation fee and went away. ;)

I’d like to illustrate my point by taking a closer look at payment schemes presented by the sellers.

The 60 months pay scheme

The difference of the loan amount from that of the total payment is the total interest paid by the buyer. It is obvious from the illustration that the higher the down payment, the lower the interest paid in the long run. And if for instance I would take out the car by taking an 85% loan, I would have easily burnt almost 250000Php in interest alone.

The variable number of months pay scheme

From the illustration above, we can sum up that the faster you pay for the loan the lesser the amount of interest paid. But of course, a person paying 52000Php in amortization should have more than a hundred thousand salary per month to get in the deal. (Not me.)

How about we take a look at it on the other side?

Assuming that the car price is your final goal and you have initial savings equal to the desired down payment. Question is, how long should you invest the money (monthly amortization) at 12% interest rate so that you can come up with the amount needed to complete your final goal?

From the illustration above, it would only take you 3 years and 2 months (38 months) to complete the goal. This time interest becomes your best friend and it will work for you day and night.

Let us take a look at the other example. For instance you have 30% of the final goal already, how long do you need to save to achieve your final goal? 

It is noted from the example above that when you increase your monthly investment by a few thousands, you can achieve your final goal the sooner.

Where did I get 12% interest?
The 12% interest was derived from the average performance of Mutual Funds and other legit investment facilities in the Philippines. Click here for reference.

In conclusion
People who can wait and know where to put their money can have a very good advantage over the interest charges. Diligently saving and investing your hard earned money can be your ladder to achieve your dreams faster. It is also important to weigh your preferences. As the saying goes, "Patience is a virtue."

*Credits to Paul for helping out on the computation.

Please note that this post is based from our experience and how we deal with money matters. =)

The Real REAL score between VUL vs Term + Mutual Fund

My officemate approached me one day and consulted about VULs. Fact #1: Most people don’t know how to analyze when it comes to insurance coverage.

Tip # 1: if you want to finish RICH, take charge of your finances.

Financial life is not all about saving, it’s also about investing.

I asked her if she has the illustration of benefits and she showed me the PDF emailed to her by the agent. I studied the file and came up with my own excel sheet.

Disclaimer: Some of the details of the given illustration of benefits were hidden for the protection of the seller. If you find something similar to this, that may have only been a coincidence.

Assumptions and Considerations:

•       The Proposed Plan Holder is a 34 years old non smoker.
•       Policy Premium is P24,000.00
•       Although the VUL involved should be paid until age 99, I only considered until age 65.
•       Only the Living Benefit was compared.
•       Interest rate used for the VUL was that of illustrated. The interest rate in Term + Mutual Fund is at 10% (same as that of the illustrated in VUL.) Fact #2: VULs and any other investment companies DO NOT guarantee returns. This is for illustration purposes ONLY.

VUL				Term + Mutual Fund
Age	Premium	Living Benefit		Insurance	MF	Living Benefit
35	24000	35		4,813	19,187	21,106
36	24000	74		6,651	17,349	42,300
37	24000	11,984		6,651	17,349	65,614
38	24000	29,176		6,651	17,349	91,259
39	24000	49,938		6,651	17,349	119,469
40	24000	74,589		6,651	17,349	150,500
41	24000	101,280		10,017	13,983	180,931
42	24000	130,116		10,017	13,983	214,406
43	24000	161,333		10,017	13,983	251,228
44	24000	195,091		10,017	13,983	291,732
45	24000	231,625		10,017	13,983	336,286
46	24000	271,134		14,854	9,146	379,975
47	24000	313,898		14,854	9,146	428,034
48	24000	360,182		14,854	9,146	480,898
49	24000	410,302		14,854	9,146	539,048
50	24000	464,562		14,854	9,146	603,013
51	24000	523,299		22,971	1029	664,447
52	24000	586,807		22,971	1029	732,023
53	24000	655,427		22,971	1029	806,357
54	24000	729,495		22,971	1029	888,125
55	24000					976,937
56	24000					1,074,631
57	24000					1,182,094
58	24000					1,300,304
59	24000					1,430,334
60	24000	1,313,714				1,573,367
61	24000					1,730,704
62	24000					1,903,775
63	24000					2,094,152
64	24000					2,303,567
65	24000	2,048,849				2,533,924.03

Comparison:

1.       Comparing the living benefit, it is EVIDENT that all throughout, my officemate will get better returns if she combines the Term Insurance with a Mutual Fund.
2.      On the VUL, my officemate will still continue to pay even after age 55 but will still get lower return. On the other hand, even if my officemate will stop paying for the insurance [Please NOTE: I don’t believe that a person needs a WHOLE LIFE insurance.] the Mutual Fund will still keep accumulating still beating the return of the VUL. Please refer to the Living Benefit at the age of 65.
3.       Even if the insurance cost increases for the Term (Age 51-54) please note that the living benefit STILL beats that of the VUL.

My opinion and recommendation to my friend:

1.        Finance is all about the numbers game. If you are lazy to compute and compare, you might be losing millions in a span of “how-many” years.
2.       This is just for illustration purposes only. I just presented here the facts that I know. And I don’t believe that a person needs whole life insurance. 
3.       The insurance component is an actual product.
4.       A 35 year-old should be able to save Php24,000.00 a year provided that he/she is working. That is equivalent to 1 month pay.
5.       With all the expenses in the family, how can I afford to save P24,000.00 a year? Simple. Your 13^th month pay will suffice.
6.         Hassle on claiming? Hmm. Not for me. J

Disclaimer: This is not rocket science. 

Till next time. ^_^