Wake Up, Philippines!

When Mom and Dad are in “Debt” Trouble

Posted in Credit Card, Personal Finance by Erineus on February 24, 2009

My friend called me last week in apparent distress about his retired mom and dad. He said his family had a little meeting over the weekend and they found out that their parents have four credit cards with overdue payments amounting to P450,000. With his permission, let me share his story with you.

They owned an old house in the province and another one that was being constructed courtesy of my friend and his two siblings. Two of them work here in the country while one is working as an expat Filipino. The one working overseas left his child in the care of the parents. Together, all three siblings send home P30,000 monthly for the retired parents’ living expenses.

An allowance of P30,000 monthly for two adults and one child in the province living in their own home is not something to sneeze at. So how could they have charged so much money to their credit cards?

I know you know how. Refurnishing the new home, splurging on the apo (grandchild), the many road trips they took as they enjoy their “newly retired” status all added up to P450,000—and who knows how much more if they didn’t talk about the situation openly. They didn’t want to let the children know at first, hoping they could fix things by themselves. But now, they had to come clean. The banks are knocking.

They are good people who made bad decisions,” my friend told me.

Bailing out parents, for some, is like going through a backyard full of land mines. You think you’re familiar with the territory, but a sudden misstep could cause a lot of damage. After all, they used to call the shots.

First things first, remember that it’s not all about the money. That’s, in fact, the easier part of the equation. It’s the psychology, the needed changes in lifestyle and the communication strategy that many people in this situation first have to worry about. Why? Because no matter how brilliant your strategies are to pay down the debt, if they don’t like it, sorry kid.

So you need them to agree and to agree with you wholeheartedly. Once that’s done, you can try the following strategies:

1. Cut the cards. First order of the day is to stop the wanton swiping. If that means having them agree to cut the cards, then that’s the best strategy.
2. Debt substitution. Find other sources of funds that don’t charge 42% per annum in interest. This may include a personal loan from the children (with interest but lower than 42%), loans from the Social Security System (I will not recommend borrowing from the Government Service Insurance System) or salary and personal loan from a thrift bank. Whatever you do, do NOT borrow from a loan shark in desperation!
3. Sell stuff to pay off debt. This will be tough, but it’s important for everybody to feel the pain so that the lesson is learned. If it means going without hot water or sacrificing the car, then so be it.
4. Pay down the debt as aggressively as you can in the next six months. It is important that all accounts are made current, so divide any cash between all four credit cards. The objective is to fix your parents’ credit record so that the bank can see that they are doing your best to settle the debt.
5. Visit a credit officer and let them know about the situation. We know that this may be a long shot—appealing to a credit officer for restructuring–but there’s no harm in trying.

Any more tips you can share?

http://blogs.inquirer.net/moneysmarts/2009/02/23/when-mom-and-dad-are-in-debt-trouble/

TAKE CHARGE OF YOUR MONEY: The perfect time to invest

Posted in Investment, Personal Finance by Erineus on February 3, 2009

(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question:I’d like to start investing my money this year, rather than just letting it sit at the bank. However, with the way the world financial crisis is unfolding, I am a bit apprehensive. Some people said wait first before investing in the stock market. Others say take advantage of the low prices now. When is the right time to invest given our situation globally? I want to make sure my money will earn. – Eric

Answer: The world is indeed experiencing a financial crisis which some say is similar to the Great Depression in the late 1920s. Times are hard, and no one is immune to the crisis’ effects. But that doesn’t mean that it isn’t a good time to invest.

The truth is, there is no perfect time when it comes to investing. Some might say that when the market is down, you should buy and invest, and sell when the market is up. While this may be true, the fact is we can never tell how the market will behave. Also, there is unlikely to be an extended period of time without some trouble brewing on the political or economic or even environmental front – there simply is no perfect time when everything is going well and you’re sure to earn from your money investments.

For instance, in a 20-year period, there will always be price increases (inflation), political scandals, oil price fears, business slowdown, and more. But this should not stop the savvy investor in going into the market. Business tycoon Henry Sy, for instance, started his mall business via the SM North EDSA mall in 1983 when the Philippines was in turmoil politically and economically. But look where SM is today.

The present financial crisis is still not over, and we don’t know for sure until when it will last. Those who can should take steps to position themselves in the market so they will be able to take part in the market’s recovery. And stay invested.

Over the long term, markets tend to trend up. Also, in the long run, equities have outperformed all other asset classes in terms of returns.

So is this the best time to invest? There is no best time. But it would be good to be invested in the market at any time. The returns, for instance, may be more than what you may get if you just stay with bank deposits. There is a risk involved, as equities and bonds are not entirely safe investments. You may lose your capital. But you may also earn more in the long run.

To maximize your market investments, heed these tips:

1. Get into investments you know and understand. Study all investment options carefully before plunking down your money.

2. Deal only with reputable agents/banks/financial institutions.

3. Determine your investment persona, which is based on your appetite for risk. If you are conservative, make the bulk of your investment pot in more conservative instruments. If you are willing to take on more risks, you can put more money in riskier investments.

4. Make sure you have an emergency fund first. This should be at least 6 months’ worth of your expenses. This will be your safety net. Over this amount, invest.

5. Diversify your investments. Don’t put all your money in one type of asset class (stocks alone, for instance) or one type of currency. With this, if one asset class is down, the others can still earn for you.

If you are serious about investing, take time to talk to an investment specialist. Citibank clients can avail of its wealth management services. Non-clients are also welcome to schedule financial check-ups at no cost. Or talk to your bank manager and explore all investment options open to you.

We wish you the best this year!

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader’s reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Related Site:
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TAKE CHARGE OF YOUR MONEY: Money mistakes seniors make

Posted in Personal Finance, Retirement by Erineus on February 3, 2009

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TAKE CHARGE OF YOUR MONEY
Money mistakes seniors make

INQUIRER.net
First Posted 09:28:00 01/20/2009

Filed Under: Personal Finance, Retirement

(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question: My aunt is in her early 70s. She used to work as a nurse in the US but has retired here in the Philippines. We assumed she had built up some savings for retirement because she worked hard abroad for more than 30 years. So we are puzzled that today she has difficulty paying for all her medical expenses and other bills. She bought a car in cash a couple of years ago and hired a driver, but other than that we are not aware of other high-ticket items she purchased. What could have gone wrong? How can I avoid ending up like that? – Paula

Answer: Many people think that retirement would be a breeze; after all, they have earned it after working for so long. But as your aunt may have found out, retirement is not really a bed of roses if one hasn’t prepared for it.

It may be possible that your aunt has indeed saved up, but it may not have been enough or the fund was not taken care of for it to last long. This is a common mistake seniors make in managing their finances.

Below are common mistakes seniors make when it comes to managing their finances. Think about what you can do to prevent committing them.

1. Not having a retirement fund. It’s in the Filipino culture to take care of our aging parents. That is why nursing homes for the elderly are very few in the country. Most Filipinos expect their adult children to take care of them when they are old, thus they have not saved up for funding their own retirement.

The reality, though, is not all adult children have the means to support their aging parents since they may also be having a hard time supporting their own families. This is why everyone should save up for his own retirement. This may be in the form of a pension fund or a do-it-yourself investment portfolio.

2. Not maximizing the potential gains of a retirement fund. Put simply, this means not investing your retirement fund well before you retire such that you miss out on potentially higher gains.

For instance, putting all of one’s savings in a savings account will yield only about 0.75 percent interest per annum. Contrast that with a special time deposit which could earn you about 6 percent per annum in five years. Even a retail treasury bond may yield 8 percent in three years’ time. Bonds and stocks and pooled funds (unit investment funds and mutual funds) may even earn you more depending on the market.

3. Not adjusting investments as retirement looms. Ideally, when you are nearing retirement, you should shift your investments from risky assets (such as equities) to less risky ones. As high risk investments may earn you more but may also make you lose, you can’t afford to put your entire retirement fund in peril so close to retirement age.

When you are young, you can take on more risks in investing by exploring investments that may give you a higher yield. You will have enough time to ride out the market volatility and recover any losses. Then be more conservative and protect your capital as you see retirement in the horizon.

4. Being asset-rich but cash-poor. Your aunt, for instance, has a car, but has difficulty paying her regular bills. Would it not make better sense to let go of the car so she can buy her medicines and pay for her living expenses monthly?

For some seniors, liquidating assets may be a good move to fund living expenses. Put cash in more easily accessible investments such as bank deposits.

5. Overspending. Living it up sounds so wonderful at retirement, but seniors must recognize that money will dry up with no income coming in. This is why one must live within his means. Live simply and make your retirement fund last longer.

6. Having inadequate insurance. It is during one’s sunset years that health care and medical bills rise. So it is just right that one should avail of health insurance while still young. In that way, you will be protected and new chronic illnesses (such as hypertension) cropping up afterward will still be covered in old age. Make sure you have health insurance, disability insurance, and accident insurance.

7. Not having guaranteed income. To ensure a worry-free retirement, one should consider having a steady guaranteed income stream even during retirement age. And it would be best if this income stream can beat inflation, meaning, it would earn at a rate higher than the inflation rate. Examples of such income sources would be money market investments and real estate rentals. With these, money would still come in even if you’re not working and toiling in an office eight hours a day.

Or if you still can, consider working even part-time. Aside from keeping your mind sharp, a job at retirement age will give you income that could help you with your day-to-day expenses.

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader’s reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Related Site:

Citibank
INQUIRER.net
First Posted 09:28:00 01/20/2009

How to extend your appliances’ life

Posted in Leisure, Lifestyle, Personal Finance, Tips by Erineus on February 3, 2009

Homeowners can significantly extend the life of major household appliances by observing preventive maintenance. This helps keep devices running as smoothly and as long as possible. Repairs cost money but replacing a major appliance can really dent one’s budget.

Save thousands of pesos with these preventive maintenance tips shared by Orland Rivera and Rodel Villamor of Western Marketing, Festival Mall Alabang branch and main office, respectively; Joel Tiu of Ansons Makati: and Robert Rosete of eShop Computers in Alabang, Muntinlupa.

A word of caution: always remember to disconnect plugs from the power source before you start cleaning.

Washing machine – Make sure this is set up on an even flat surface. Unbalanced machines cause uneven distribution of wash loads and may cause the appliance to “walk” or move little by little, which can eventually damage the barrel.

Don’t load your wash to above the maximum capacity (i.e., stick to 5.5 kg or less if your machine says 5.5 kg!). Every six months, check the hose for leaks and kinks, and replace promptly if needed as cracked hoses waste water. Periodically clean the lint screen by turning it inside out and washing it with soap and warm water to eliminate buildups. Check the hose vent for clogs.

Refrigerator – After delivery of a new ref, wait at least eight to 10 hours before plugging in. Let the Freon settle down first. If you live in areas where electricity fluctuates, protect your ref with an auto-voltage regulator (AVR).

Don’t load too many food items inside the ref; this makes the blower work harder. Twice a year, clean the condenser coils located either at the back (for older models) or the front (newer models have grills that cover the coils near the bottom) of your ref.

When defrosting freezers, never scrape ice from the walls to avoid damaging the appliance. Merely turn off the ref and remove all the food. Clean the ref’s interior while you’re at it. To check the gasket, close the door on a piece of paper and pull. If it easily slides out, it’s time to replace the seal.

Air conditioner – Always follow the rule of starting the aircon in fan setting for a minimum of three minutes before turning it up to high-cool to avoid overworking the compressor. Sustain airflow by cleaning the filter monthly with soapy water and a soft toothbrush. Wipe the exterior with a damp cloth and remove all debris from the central air unit to maximize air current.

Electric fan – Once a week, remove and clean the blade and grills. If you are adept at dismantling things, you can remove the shaft and apply industrial grease/oil to postpone wear and tear of the bushing parts. Let the grease dry for about three hours before using the unit again so the oil won’t enter the motor.

Television and DVD player – Avoid placing the TV near a window where splashes of rain could damage the circuits. Wipe the exterior with a damp cloth. Clean DVD players using a commercial disk cleaner once a month and remember to wipe CDs thoroughly with a soft, non-abrasive cloth before playing. Take good care of the remote controls as well.

Microwave – Never put any metals inside (and that includes aluminum foil!) and don’t let splattered food stay inside for long. Use only microwavable dishes for heating. Before cleaning, heat a cup of water with a teaspoon of baking soda in a bowl for three minutes. This makes it easy to wipe off all sticky food particles with a sponge or soft cloth right after. Don’t forget to clean the door gasket too.

Rice cooker – Dry the bottom of the pot before putting it over the hot plate every time you cook rice. Position the cooker on a flat, even surface. Clean up any overflow on the sides right after cooking.

Electric air pot – Always boil water at the correct water level. Avert or remove hard water deposits by pouring pure white vinegar just above the water stain. Boil in one cycle, leave overnight, then clean as usual. Remind members of the family to gently press on the controls so as not to damage the pads.

Avoid abusing and misusing your appliances so that they last longer. By finding time to make preventive maintenance a habit, you not only get the most out of your home appliances, you also save money in the process. In this case, the old maxim “an ounce of prevention” is certainly “better than a pound of cure.”

(This article is from MoneySense, the country’s first and only personal finance magazine. Visit http://www.moneysense.com.ph for more.)

By Ruth Manimtim-Floresca
MoneySense
First Posted 13:08:00 01/08/2009

TAKE CHARGE OF YOUR MONEY Good debt vs. bad debt

Posted in Personal Finance, Tips by Erineus on February 3, 2009

(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question: I’m thinking of taking steps to improve my family’s life this 2009. For starters, we’d like to buy a house so we can stop renting. It would also be good if we can get a car so it won’t be hard to get around with my family–a wife and two small kids. To do all these, I’m hoping to get a loan from the bank. Is this good or bad, considering the state of the world economy? I don’t like having debts to pay, but if I don’t avail of a loan, it would take me forever to save up for a house and a car. – Joseph

Answer: Most people who buy cars and homes for their families do not have the cash saved up to pay off these purchases right away. If they did, they would be millionaires and part of the upper crust of society. Almost all home buyers and new car owners avail of loans which will allow them to enjoy a new home and a car now and amortize the cost of buying them over a number of years.

Although you don’t like going into debt, this may be one time when it would be good to go into debt. There is such a thing as good debt and bad debt.

Good debt is when you avail of a loan to buy an asset that would appreciate over time or will give you good value or use over the years. Examples of good debt include availing of a loan to buy a house or fund a business that would generate income for you.

Bad debt, on the other hand, is availing of a loan that would be used to purchase something that would depreciate or decrease in value over time. This will cost you more over the years.

Debts have a cost attached to them. You have to pay for the cost of borrowing, which is interest. And when you miss a payment, you would also have to pay other charges including penalties, depending on what’s covered in your loan contract.

Debts are a great responsibility. If you default on a loan, your credit history will be affected, which may disqualify you from taking another loan in the future. This is why one should think twice about going into debt. If you can, take only good debt.

If you are serious about availing of a loan, heed our tips to make the most of it:
1. When choosing a home, consider its location. It should have the potential to appreciate in value over time. Some indicators of good location and appreciating value include proximity to schools, shopping malls, business districts, and commercial areas. Visit the location first before committing to buy a home.
2. Think of ways to maximize the use of the asset you’re buying. For instance, you can rent out the property if your family will not use it as a residence, or rent out one room to a boarder. If you are getting a car, consider carpooling so as to lower your gasoline cost.
3. Shop around for the best terms before signing on the dotted line. Go to several banks and financing companies and compare rates and other terms. Generally, in-house financing offered by real estate companies and car companies are the most expensive. Choose the one that offers the best.
4. Find ways to lower your cost of borrowing. Check out loans available with the Social Security System, Government Service Insurance System, and PAG-IBIG Fund. If you are buying a car, consider trading in your old one to lower the cost of purchasing a new car. It may even be wiser to buy a one-year-old car than a brand new one. It will be cheaper, yet still give you good mileage.
5. Always read the fine print before signing documents. Read about penalties, defaults, and the like. Find out if there are penalties for prepayments. If none, pay off the loan faster if you can to save on interest expense.
6. Safeguard loan documents. Keep them in a safe place but make sure your spouse knows where these can be located.

A debt can be a good tool to secure your financial future. Go into it only after careful thought and manage it well.

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader’s reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Related Site:
Citibank

INQUIRER.net
First Posted 16:45:00 01/13/2009

TAKE CHARGE OF YOUR MONEY: How to make a spending plan

Posted in Personal Finance, Tips by Erineus on February 3, 2009

(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question: The year 2009 doesn’t seem to be starting out right for me. We just got word that our company will be downsizing, and that means some of us will be let go. People are telling me to make a budget, but I think what I need is not a saving plan, rather a spending plan to know ahead what my bills are. Can you help me make one? – Adel

Answer: Financial experts tell us that this year will be a hard one. Unemployment is on the rise, not just in countries like the US, but also closer to home. News reports say that the contracts of Overseas Filipino workers in Asian countries are not being renewed, and some companies are planning layoffs.

You’re not alone in being anxious about losing a job. But add to it the fact that you have bills to pay and if you don’t have enough savings, you’re in for some belt tightening this year.

This is exactly why you need a spending plan or a budget. A budget is the very tonic many households need. It is a guide to help you be wise about spending so your needs are met foremost.

According to Use Credit Wisely, a booklet published by Citibank Philippines, a budget can help you:
1. take control of your finances
2. keep out of financial trouble
3. become a smarter consumer
4. set and achieve financial goals
5. pave the way to a secure future

A budget doesn’t have to be painful or difficult. You should control your budget, not let it control you. To do that, you have to spend some time organizing and planning. Then once you’ve set a budget, it’s easy to maintain.

Here’s how to keep a budget, according to Use Credit Wisely:

1. Set your goals. What is important to you? What do you need? What do you want? Group your goals into short-term, mid-term, and long-term ones.

Short-term goals are those that you will achieve within the year. Examples are paying off credit card debt, purchasing a new appliance, or saving for a vacation. Medium-term goals, such as saving up for down payment on a house or buying new furniture, target the next two to five years. Long-term goals go beyond that, such as retirement and college expenses.

2. Gather information. To capture an accurate picture of your finances, find out how much your household income and expenses are monthly. Look at pay slips, income tax returns, checkbook records, credit card statements, payment information for major purchases such as car loans, and financial statements from banks and financial institutions.

Income may include salaries, interest income, dividends, etc. Expenses may be fixed and variable. Fixed expenses do not change, and one example is rent. Variable expenses change monthly, such as food and gas or transportation.

3. Find out where you stand. Total your income and deduct all your expenses, and you will see how you stand financially. This step should give you an idea about your spending habits.

4. Check your bottom line. This will tell you if you are spending too much. If the difference between your income and expenses is positive, you have discretionary income and can use the amount to meet budget goals and for emergencies.

If it is negative, then you are spending way more than you should and are probably living on credit. Go over your expenses and find out where you can cut down.

5. Keep track of expenses. Start listing down all your expenses daily in a small notebook. Carry the notebook with you everywhere. This way you will see where your money goes.

You will be surprised that you can totally do away with some expenses. Examples are ATM fees when you use another bank’s ATM, or late fees for not paying your bills on time.

You will also be able to identify where you can lower your expenses. For instance, instead of eating breakfast every morning at a fast-food place, eat breakfast at home or bring baon to work. At P100 a day, those fast-food breakfasts will amount to nearly P24,000 a year. Even “fixed” expenses such as electricity can be lowered. Iron all clothes at the same time and use more energy-efficient light bulbs to decrease your power bill.

If you are keeping spending in control, congratulations! You will be able to meet your financial goals in no time. Now try to improve by reducing a different spending category by 5 to 10 percent.

If you still can’t keep to your budget, regain financial control by adjusting your spending. Get your whole family into it. Also, try to increase your income by looking for additional sources. Good luck!

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader’s reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Related Site:
Citibank

INQUIRER.net
First Posted 09:14:00 01/27/2009

How we spend, save may help us survive

Posted in Personal Finance by Erineus on February 3, 2009

“Our actions with money should incorporate wisdom, and not just reflexes.”

This thought comes to mind as the world reels from an economic slump that has paved the way for mass layoffs—warning signs that everybody should brace himself for the tough times ahead.

Frank Hanna, a leading Catholic entrepreneur and author of the book “What Your Money Means and How to Use It Well” says “too many of us are not thoughtful enough in the way we behave with our money. If we understand our money correctly, it becomes a force for good in our lives, rather than a source of anxiety or downfall.”

He argues that money is not a necessary evil.

“It is a gift from God that is frequently abused because of our lack of understanding of its proper use,” he says.

The Filipino adage kapag maigsi ang kumot, matutong mamaluktot (when you’re given a short blanket, learn how to curl up), and the habit that requires one to tighten one’s belt (maghigpit ng sinturon) are timely and applicable.

Financial experts are one in saying that everyone should stay vigilant, save, live within (or better yet, below) your means, and put a stop to bad habits (like drinking and smoking) that drain your income and savings.

Here are some practical tips on how to prudently spend or save money:

Slash spending. Cut back on nonessentials by distinguishing between needs and wants.

Pay your debts and don’t spend money you don’t have. (Read: Go slow on that credit card.)

Stick to your budget. Those envelopes for monthly bills and expenses will help you manage your budget. Keep track of how much money is going out and how much is coming in and how much you have left.

For those lucky enough to have a job, save for an emergency fund that can cover basic living expenses for three to six months and expenses for illness or emergency. Set a goal to save for this fund within a year.

Consider your emergency fund a bill you have to settle. Open a separate account just for this fund. Once you have saved enough for this fund, consider moving it in higher-yielding investments (such as time deposits or mutual funds) so it will earn higher interest.

Despite the gloomy economic forecast, the good news is: Filipinos are a pliant and persevering lot. They scrimp if they have to or make do with what they have.

Their sense of sacrifice—as in the case of overseas workers—for the welfare and well-being of loved ones escapes many Westerners.

They cope with the hard times and keep their sanity by believing that things will turn around through dint of hard work, prudent use of their earnings, and trust in Divine Providence.

By Lilia Borlongan-Alvarez
Philippine Daily Inquirer
First Posted 21:05:00 02/01/2009