TIPS BEFORE YOU INVEST: a GUIDE TO BUILDING A STRONG FINANCIAL FOUNDATION

Kids are going to college very soon.....

Retirement age is quickly approaching.....

I've been an employee for over 20 years.

Yes, I have my paycheck every month and some perks,

but one is never too sure of what the future brings.

I WANT MORE MONEY!

 I’m in my mid-40's and truly, its a bit late  to start learning and taking these things seriously . . .

(If there are some of you reading this blog in your 20’s or  30’s,

I encourage you to start financial planning early…. )

But better late than never.    

                                   

To prepare for these financial woes, I started attending a couple of FINANCIAL coaching seminars, started reading personal finance books and subscribing to magazines like

MONEYSENSE  and

ENTREPRENEUR ...

Highly Recommended!

Before writing about what I learned so far…

Here’s my story:

                                                       

As a 9-6 regular employee, I  got hooked on finding ways to earn extra income and how to have passive income.

I should START INVESTING 

LOOKED into

Business

(Crazy attending all those trade shows, Franchising stuffs to food carts and joint ventures)

Stocks

Mutual Funds / Trust Funds

Pension Plans

Bonds

Securities/Commodities/FX Trading

Real Estate Investment

I thought  I should start SOMEWHERE...INVESTING  my hard-earned savings. ‘wasn’t that much though.

I was already choosing among these wide range of Investment products.

I was drawing my own INVESTMENT PORTFOLIO.

                                                                                                                       

I believed  “INVESTING” was the way to EARN MORE.

YES, But that is only PARTIALLY CORRECT.

L-E-A-R-N-I-N-G-S

Through the books and magazines I read, financial coaching seminars I attended, I’d like to share what I learned:


If you are an average person, a regular employee or worker, living in a third world country or someone NOT born with a silver spoon…. There is always HOPE to conquer all your financial woes.


We just need to work for it and most of all be DISCIPLINED in managing our CASH FLOW.

I learned we should not just JUMP INTO ANY FORM OF INVESTMENT. Before we embark on ANY  AND START EARNING MORE, we should:

1.    first and foremost ELIMINATE DEBT so you do not just PULL-OUT on your investment to pay for this later. There are 2 kinds of debts:

a.       Debt that transforms into an asset and will eventually give you extra income or    passive income; and,

b.      Debt that doesn’t fall in the description in letter a. above  

The one that we should eliminate are  those debts in letter b., like our CREDIT CARD debts, 5/6 debts (a term in the Philippines which means loans with usurious interest rates. This is very common even if interest is high because it is very accessible – no documentary requirements, no cashflow evaluation like in banks, immediately available. Lenders of 5-6 debt usually know you, or you are probably referred, they know where to hunt you down in case of default or non-payment… some lenders require just post dated checks)

2.   Find a short and long term Health Care Program. No one wants to get sick or be caught in an accident but we always need to be prepared. Securing a “HEALTH INSURANCE” will protect us from expensive hospital bills much so we do not PULL-OUT our investment in case the inevitable happens.

3.   SECURE A LIFE INSURANCE OR PROTECTION. Investments are risky. We also want to leave something behind for our loved-ones (and not debts).

4. Build your emergency fund.  I always read save 6 months of your regular NET TAKE HOME PAY... if you're still in your 30's or 40's, at the or near the peak of your career and healthy, I'd say 3 months would do; of course if you can afford, 6 months is always better. This is to answer for your needs in case there are emergencies like someone in the family gets sick, or you (knock-on-wood) lose your job, etc.

INVESTMENTS have risks too. We also do not want to PULL-OUT on what we have INVESTED when we need the funds. Following the steps above will PREPARE us to be successful in our financial endeavors and GET BACK OUR MONEY'S WORTH WHEN WE START INVESTING.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

BASIC DOCUMENTARY REQUIREMENTS WHEN APPLYING FOR A LOAN

There are 3 basic types of documentary requirements lenders usually ask from loan applicants:

1.  Proof/s of Identity;
2.  Proof/s of Residence; and,
3.  Proof/s of Income or Source of Repayment

PROOF OF IDENTITY:

Lenders require valid IDs. The preferred IDs by lenders are  government-issued IDs such as passport, driver's license, SSS ID. Some borrowers require at least 2 IDs. Further,  some lenders classify IDs as  primary ID or secondary ID - Primary are those issued by government and Secondary by non-government entities such as employment ID.  Rules also vary depending on the comfort level of the lender. (eg. 1 primary ID or 2 secondary IDs, etc.)  ID/s submitted must  be updated or not expired and shall contain the client's recent photo, correct basic information and importantly, the signature.


In some cases, lenders would like to further establish the identity of borrowers and hence require more proofs of identity such as  marriage contracts, birth certificate, for single loan applicants - a certificate of no marriage, photo ID, etc.

PROOF OF RESIDENCE:

The most commonly submitted proof of residence is a recently issued billing statement mailed to the borrower's residence.  Some lenders have preference and specify the issuer of the billing statement. The more acceptable billing statements are those issued by electric, phone, or water (utilities) companies, and bank account or credit card statements.

PROOF OF INCOME OR SOURCE OF REPAYMENT

Lenders need to be assured that there will be repayment. Proofs of income or source of repayment is a mandatory requirement.  Proofs of income vary base on the loan applicant's occupation.

1. Locally Employed - Income Tax Return (ITR), Certificate of Employment with Compensation, payslips or Employment Contract.
2.  Overseas Filipino Worker -
      a.  Land-based: Employment Contract, Payslips
      b.  Seafarer: Employment Contract, History of Embarkment/Employment, Allotment slips
      Proofs of Remittance are also being required by some lenders.
3.  Self-Employed/Partnerships/Corporations: ITR, Audited Financial Statements, Operating Account - Bank Statement, List of Customers and Suppliers

The above are also in compliance with the Anti-Money Laundering Act (AMLA). Follow this LINK, to know more about AMLA.

LIST OF PHILIPPINE BANKS FROM BSP

The Bangko Sentral ng Pilipinas (BSP) or Central Bank of the Philippines - is the best source of directory of banks located in the Philippines. If you need a bank's Contact Person, Contact Numbers, address and website, check BSP's list...... Follow link below:


http://www.bsp.gov.ph/banking/directory.asp?BankName=&InstitutionTypeID=1&submit=Find

 Please see sample snapshot of BSP's Directory below.

PERSONAL FINANCE: THE X CURVE - WEALTH VS. RESPONSIBILITY

The X-CURVE  simply shows the relationship between WEALTH and a PERSON'S RESPONSIBILITY.  Unless a person is born with a silver spoon, normally, the average Filipino has NO SAVINGS when he gets out of college and bigger responsibilities as the family starts to rely on him/her when he starts working. As he/she reaches 30 to 45, he/she normally has more responsibilities with the family. Ideally, we all would like that as we age and reach retirement of 60 or 65, we would like less responsibilities and  big savings. By retirement, we would like to accumulate so much wealth and Live On Interest (LOI).

The X-CURVE also shows 2 kinds of risks:

1.  Dieing too soon - Here we all need to be prepared. In case the the inevitable happens, we should make sure our loved ones that we might leave behind are amply protected.
2.  Living too long -  The problem if  we live too long and we do not have savings is we become a burden to our families since hardly will any employer hire someone over 65.

The question now is, where are we in the X-CURVE? Are we prepared for any eventualities?  We only need to draw our FINANCIAL GOALS and make that DECISION and work hard towards reaching our DREAMs.

If you have any questions about the X-CURVE or would like to be guided or know how to be protected or what investment product best provides a solution that matches the X-CURVE, please do not hesitate to reach me at mtcm.deleon@gmail.com.

SOURCE:  In the first quarter of this year 2011,, I attended Bro. Bo Sanchez' Truly Rich Club FINANCIAL COACHING Seminar. A speaker  from IMG lectured on the X-CURVE. Incidentally, there was a young lady in the table where I sat and invited me to a free financial literacy lecture at  WFMA.. The same X-CURVE was reinforced in WFMA. I am grateful  for these  2 companies that I learned about the X CURVE this early. . Both IMG and WFMA have exactly the same operations. They carry almost the same investment products.

THE CREDIT PROCESS

Below is an illustration of the CREDIT PROCESS in Philippine Financial Institutions.  

There are  3 PHASES:

1.  Initiation Stage- Covers marketing the loan product, prospecting, discussing loan packages, negotiation of loan terms and conditions, credit investigation, property appraisal, credit evaluation and loan approval.
2.  Documentation and Closing - After approval is obtained, the terms and conditions agreed with the borrower is documented into a Loan Agreement.
3.  Portfolio Management -  These phase includes credit administration, regular credit review, billing and collection, loan restructuring or remedial. If client with a collateral mortgaged defaults on payment and collection is impossible, the account ends up in foreclosure or dacion en pago or the voluntary surrender of the property mortgaged.

HOW SAFE ARE YOUR SAVINGS IN PHILIPPINE BANKS?

 

"Mama why are there too many people infront of  BANCO FILIPINO?  What's going on?",

"Oh, son, that bank closed-shop yesterday. They're angry they cannot get their savings"

"Why did the Bank close down?"

"I'm not so sure son, but in the news, the bank was charged of unsound banking practices, meaning, they were suppose to follow certain banking laws but they did not comply."

"I pity those people mama, they worked so hard for their money and they can't get it"

"Some of them will get their money back but will take some time. Our money in the bank is PROTECTED by another company - an insurance company which pays up to P500,000. So if you  have more than that, you probably wont get the rest of it. I'm not so sure though how else to recover more than 500,000.. maybe for a long time"

-o-

This was the scene with my 12 year old son, Nicholas, when we were walking in the malls of Greenhills last March 2011.  It was the same scene, with the same bank, I experienced when I was 10 years old. I was asking my mother too.  
What will happen to my HAPPY SAVERS CLUB Bank Account, mama? 
Mama said: Dont worry, we'll get it back. Our money is insured by an agency called PDIC.
HISTORY REPEATS ITSELF...

-o-

Banks do play a very important role in the economy through their main role as  INTERMEDIATORS - Simply put, they encourage people to save  then they borrow the people's deposits to lend it to businesses and help them grow (These businesses in turn gives jobs to the people and people who earn saves and puts it in the bank - and so is the cycle .)

Question is how safe is our deposit? The bank has various types of deposits - the regular savings and the investment products. The regular savings and checking and time deposit accounts are insured by PHILIPPINE DEPOSIT INSURANCE CORP: (PDIC) up to P500,000 per depositor. If you have 2 accounts with P500,000 each - only one is insured. They do not insure the investment products.

The PDIC has a very good article to guide the depositors. The article's no.1 tip is  "KNOW YOUR BANK" - it simply means we also have to conduct our own due diligence with the Banks we deal with. See below PDIC's 

7 HABITS OF A WISE SPENDER. 

Personally, if your bank is a conservative bank and  already has a track record, (for me it means existing say over 30 years), then there is really nothing to fear.  Second, we always have to read the news - As long as the country's economy is stable and strong and the bank you have chosen is conservative - then our deposits - whether insured by PDIC or not- will always be safe.

 

KEEP SAVING!

7 HABITS OF A WISE SAVER -PDIC 1.  Know your bank Know the owners of your bank -- the people behind it and the people who manage it. Find out and ask about your bank's finances and its strengths and weaknesses. PDIC, BSP, SEC, and your bank's websites, newspapers, magazines, television and radio will provide most of the information you need. 2.  Know your bank products Understand where you place your cash. Don't confuse investments with regular deposits. Read and understand the fine print and don't hesitate to clarify with bank personnel terms and conditions that are not clear. 3.  Know your bank's services and fees Choose the right bank for you by knowing your needs and matching these with your bank's services. Be aware of bank charges and fees. 4.  Keep your bank records safe and updated Secure your passbook, ATM, certificate of time deposit (CTD), checkbook and other bank records at all times. Have your passbook and CTDs updated every time you do a transaction. Inform your bank whenever there are changes in your contact details to avoid bank mails with sensitive information getting into the wrong hands. 5.  Transact only inside the bank* with authorized bank personnel Do not hesitate to ask personnel to present an ID and always ask for proof of your transaction. 6.  Be informed about PDIC deposit insurance PDIC guarantees deposits up to P500,000 per depositor. Investment products, fraudulent accounts, laundered money and deposit products from unsafe and unsound banking practices are not covered by insurance. 7.  Be cautious Simply walk away from offers that are too good to be true. Generally, excessively high interest rates carry more risks. Please refer to Bangko Sentral ng Pilipinas Circular 640 for more information.