Credit Card as Emergency Fund?

Most of the people I have talked to consider credit card as an emergency fund. They will always tell me, “At least if an emergency, like hospitalization occurs, we have something to present at the hospital.” And I always tell them, "Can’t you make it with your cash?” Then they will reply, “Well, you know what, we have no cash at the moment that is why we need credit cards.”

Emergency funds and credit cards are two different things. You cannot treat the two as synonymous and similar.

Emergency fund is a part of our financial foundation. This is like a solid wall you can lean on. Why? Because it will act like a cushion if an emergency situation occurs. Imagine you are a bird and then a hunter came, aimed towards you and “Bang!” Your right wing was shot. You don’t have an option but to go down. You panicked. You didn’t know what to do. You are not prepared for this. You were going down so fast that you hit the ground head first. Then you died. What if this happens to your finances? You are a happy go lucky man. You live your life each day like there is no tomorrow. You shop too much, play so hard and eat like a king. Because of your lifestyle you got sick. You don’t have an emergency fund and nothing to present to the hospital.

Let’s go back to the story and pretend that you have a credit card as your emergency fund. If you get sick you charge the fees to the card. Yes you will be treated. Yes you can go out of the hospital. But because you don’t have spare cash you are forced to pay every payday depending on the amount. What if your 15-day salary can’t cover for the expenses? What if your 1 month salary can’t cover for it? Worst, what if your 2 month salary can’t? That will be the time your hospital debt will incur charges and fees. Instead of paying for the principal alone you are forced to pay for the interests and charges.

Imagine you saved three to six times of your monthly income and put it in a bank? You got sick and was charged 4 times of your monthly salary. Will you not be able to pay for it right away? Will you be happy to go out of the hospital, treated and free of debt?

Emergency funds are not just for hospital bills. They are for emergency situations. Like a sudden flood, house repair and most of all job loss. Can your credit card cover for your needs when you lose your job? For a month maybe but not for three months.

~till then

Failed Booking!

This was the second time I failed in my booking. First was when I booked Tacloban(TAC) instead of Tagbilaran(TAG). It made me shell out additional 1200php for the rebooking. I told myself this should never happen again but I failed BIG TIME!

I booked a seat sale from Cebu Pacific(CebuPac) last June bound for Davao(DVO). But before this flight I have booked another flight via Philippine Airlines bound for Kalibo (Klo). My Kalibo flight was okay. No problem encountered. I was very lax with my CebuPac flight that I did not bother to print it upon confirmation. Just today I found out that it was a major disaster. Notice the departure dates.

Good thing, I purchased this ticket for only 717.60php charged to a friend’s credit card. Bad thing is, if I am going to rebook it it will cost me around 7000php per passenger including taxes and other fees. If I am going to buy another ticket it will cost me 3600php per passenger. What a waste!

Lessons learned:

1. Check booking details before hitting the enter button.

2. Check booking details before hitting the enter button.

3. Check booking details before hitting the enter button.

Debt Trapped

It was January 10. Annie got off the train and walked to the office in her chiffon blouse and pencil cut skirt both from Zara. She wore a pair of Ferragamo shoes and carried a Channel bag held tight avoiding almost all passengers fearing a snatcher would take it away. She was so disgusted by the traffic in the train station because her hair-do got messed up. She brushed her hair away from her face and continued walking towards her favorite Starbucks shop. She thought she couldn’t start a day without her favorite white chocolate drink.

Annie works as the head manager of a giant firm in Makati. Being so, she needs to look great everyday. For her, looking great means having the best things she can have. Why not? Her salary is high.

Upon arriving in the office, her staff greeted her with a smile. Because of the train station traffic she just frowned. She went straight to her area and stared at the pile of papers on her table.

Poor Annie, she thinks she is miserable. Caught in the debt trapped, couldn’t drive any of her cars and couldn’t even pay her bills. This explains what a manager of a big firm is doing in a train station.

Let us take a look at her life style and check what is going on.

When she was promoted as the head manager, thoughts came to her that she should live the life she thinks she deserves. She bought a condo unit in one of the finest places. Paid the down payment from her signing bonus as a manager and is currently paying for the amortization. She lives alone in her condo full of electronic gadgets and accessories. She has a 2-door fridge full of junk foods and left-overs and has a very expensive electric stove used for frying only. (She doesn't know how to cook) She owns a microwave that she often uses to heat up foods from her fridge. While eating, she loves to watch movies from her flat screen television. While sleeping, she loves to listen to her favorite music from her iPod. She has a centralized air-conditioning system, a dishwasher, a fully automatic washing machine, a hot and cold shower and three cellular phones. She thinks she doesn’t have spare time so she hires a helper every week to clean the house.

In addition to her condo amortization, Annie is still paying for her Honda Accord and Toyota Fortuner. The Accord is half paid while the Fortuner has just started. Every single appliance she has in her condo was paid through credit cards and she is paying minimum amount every month. She maintains five credit cards and almost all of them reached credit limit already.

Let us take a look where her salary is. Since she lives alone she converted one of the rooms as a walk-in closet. Three cabinets are full of clothes – used and unused. There is also a cabinet dedicated for shoes and another cabinet for bags. She also has an array of accessories. Watches of different sizes, rings of different stones, necklaces of different ornaments and a lot more. Every single piece in the room is signature that is why she calls this room the “investment room”.

January 9, bills came from the electric company and water provider. She has to pay 10000 pesos for electricity and water consumption. She doesn’t even have 5000 pesos in her payroll account. Where in the Philippines will she get 10000 pesos for the bills? She is ashamed to borrow money from friends because all along she pretends to be rich

Question: What causes Annie to be in so much debt?
Answer: It is actually the way she thinks.

Nowadays, people in the society feel there is a need to upgrade lifestyle everytime salary upgrades. Look at what Annie did. She immediately accumulated things she thinks she needs after being promoted as GM.
Let us discuss one by one the mistakes Annie did in her financial life.

Bought a condo unit that is way beyond her means.
Before signing a contract, make sure to compute your cash flow first. Just because Annie wants to stay at the limelight, she thinks a posh condo will make her shine more. Think 10 times before owning one. Or better yet, live within your means.

Bought a new car even if the old car is not yet fully paid.
Annie should have thought about “One at a time” principle. Paying a condo and a car is heavy already. Having another car is too much. Maybe Annie was thingking that having a bigger car is better for out-of-town trips. What she did not realize was she’s putting her financial status at the brink of devastation.

Accumulated so many clothes and accessories.
They say a lady always wants to shop. I say, “So true.”

But a lady can always choose what to shop for. A very common mistake for ladies is the high tendency to shop whenever they feel excited or depressed. (By the way, the writer is a lady.) Annie should learn how to discipline her self and to control this tendency.

Too many credit cards.
In the movie, Confessions of a Shopaholic, credit cards are synonymous to magic cards. They actually are magic cards because they can magically fool you to spend more and more and can magically increase yoyr debt tremendously.

What Annie needs to do is to rank her cards from 1 to 5, 1 having the highest interest rate. All she has to do is simply pay off the debt from credit card number 1 first and then number 2 until all the cards have been paid off. Best thing to do after paying everything is to maintain just 1 card and pay debt before cut off period.

No savings account. (I only mentioned the payroll account)
Annie has to learn the fun way of saving money. She always depends on her salary and on her credit cards. It’s time she focuses some of her attention to saving money and eventually on investing them. Ooopppsss. Not on material things but on real investment facilities such as mutual funds or stock market.

Did not try to balance her in-flow and her out-flow.
As you can see from Annie’s spending habits, she was not able to balance her salary and expenses. This is crucial. If Annie wants to have a worry free life then she has to take time to study about finances and apply the concepts. She should always bear in mind that having big salary is good but managing the big salary is better.

Disclaimer: This story is written for illustration purposes only. ^_^

~till then

A Small talk from Sir Joen

If you are a financial planner like us, most of the times you will encounter people telling you something like this, “You know Millette, I don’t believe in insurance.” Or maybe this, “You know what, I am not a believer of insurance.”

Well then that’s great! Because insurance is not a religion. You don’t have to believe in it.

~till then

Money Doesn't Make a Man

True enough. It is not the most important thing in this world. You can have a simple life without having so much money in your bank account. You can live a day without having a fat wallet. You can survive a week with only a few hundreds in your pocket.

Money can't make a man. It simply cannot. You can be a man or a "manster" depending on how you use it.

Because money simply can't buy happiness. True happiness comes from within. The level of contentment you have determines your happiness.

Happiness means having a meaningful life. A meaningful life means having a life following Jesus. And Jesus's way is becoming a servant. And becoming a servant means sacrificing for others. And sacrificing for others mean enduring all the pain. And these pains will keep you strong as a person. And being a person means being a man.

But sacrificing doesn't mean you have to be poor. Jesus is not poor. It can be manifested by the robe He wore. A priest told me that.

I love brother Bo's quote on money.

He says, "Money is not the most important thing in this world. But money affects the most important things in your life."

For example your health. Health is wealth. You have to take care of yourself. You have to nourish your body with nutritious foods. But we should always remember that most sickness comes when we are old. That is why we have to prepare. Without money you will not be able to go to the hospital and see a doctor.

Having a lot of money doesn't necessarily mean you have to boast about it. If you are wealthy, it is your responsibility to share it.

There are two ways to share. One, give money to the needy. Give donations. Give gifts. But giving doesn't solve the problem. The second way of sharing is teaching them. Teaching other people how to have abundance is better than giving them money. Donations can only last for a few days while education can give them lifetime abundance.

Do not be a slave of money. Always remember that money is not your boss. Spend some time to execute a financial plan but don't overdo it. Your time should be well spent. Time lost is lost forever. Time should be spent with the most important things in your life - your family, friends and of course God.

Money is just a tool in accomplishing your financial goals. But it cannot determine you as a person.

Man should be the boss. He makes financial decisions. He makes the calls. Money should follow him. Money should move according to his decisions. It should not be the other way around.

See? Money cannot make a man. Because it is man who makes money.

~till then