The new year: One giant magic slate
Question: How can I best keep my new year’s financial resolutions in 2012? More specifically, I truly want to stay within my budget, significantly reduce my debt, get adequate life, non-life and health protection for me and my family, and invest for a better future.—E-mail inquiry
Answer: Many resolutions are made at the start of the year, including those that have something to do with earning and saving more money. To help ensure that financial wishes come true, we Filipinos rely on some unique practices like wearing polka-dot clothes and displaying 12 round fruits on the dining table on New Year’s Eve, with the round shape symbolizing money.
Bad news: history has shown that these practices do not work. Only those selling such clothes and fruits end up with more money.
What works is if you seize opportunities to create, grow and preserve money using strengthened positive beliefs about money as your foundation. For example, it is written that money itself is not bad. Rather, it is the love for money that is evil.
Strengthen this belief further by adding that money is never the target; it is just a tool to achieve your ultimate goals in life. Here are some other strengthened positive practices about money according to the cash, debt, risk and wealth management pillars of personal finance:
• Save and invest your money before you even see it. The way to do this is to sign an auto-debit arrangement against your payroll account with your bank. A good part of the amount debited is automatically transferred to an investment account. The balance is transferred to a passbook savings account to discourage you from making frequent cash withdrawals which you could easily do through an ATM.
• Refinance expensive and cash-draining short-term loans with cheaper long-term ones. However, be sure you choose a lender that imposes minimal or no pre-payment charges. You will not have to shell out much additional cash just in case you are able to save enough from the reduced amortization to liquidate the entire loan prior to the last payment date. Needless to say, you also save on future interest charges with full loan pre-payment.
• Get life insurance to protect your downside but get only the amount of coverage that is appropriate to the lifestyle that you want your loved ones to enjoy when you are gone. Excessive coverage will make you pay premiums through your nose. Ask your life insurance agent to build an insurance product for you according to your basic insuring needs and then slowly add the riders. This is the equivalent of telecommunications companies offering basic monthly plans plus add-ons of your choice.
• Create your own education and pension plans with the invaluable assistance of a Registered Financial Planner (RFP). Then execute such plans either through directly investing in money market instruments, bonds and stocks, or by indirectly investing through pooled funds. Mutual funds, unit investment trust funds, variable unit-linked insurance and pre-need plans are the pooled funds currently available in the country. While real estate investment trusts or REITs are now enabled by law, the country has yet to see the launch of the first REIT product. And do remember that in choosing an investment outlet, it is not all about the return but also about the risk involved.
The New Year is an invaluable tool in helping you achieve your goals in life. As a fund manager for quite a number of years, I have seen how the New Year acts like a giant magic slate by instantly zeroing out year-to-date returns and making fund managers start again from square one.
The only choices are to build on the lessons from the previous year’s shortcomings in investment returns and/or to level up to churn another stellar performance in the coming year.
In the same manner, lift your personal finance magic slate in the coming New Year. Out with the old unproductive beliefs about money and in with the new and better ones. Also, keep your eyes peeled for opportunities to improve on creating, growing and preserving money.
But never, ever lose sight of your ultimate goals in life; money is just one of the tools to reach those goals.
If you want to start the New Year right financially, consult your friendly RFP and/or attend personal finance training programs like the EnRich training scheduled on Feb. 16, 2012. Visit www.rfp.ph for a list of RFPs in the country and call (632) 216-1541 for information on the EnRich personal finance training program.
Happy New Year!
(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and author. Questions about the article may be sent by SMS to 0917-505-0709 or e-mailed to [email protected].)
