Money Matters

Before you invest, protect your downside


Question: I have already developed the habit of saving and, in the process, brought down my debts to a more manageable level. I think I am ready to invest my savings. Is there anything I should consider before plunking my hard-earned money in investments?—30-year-old yuppie

Answer: The essence of personal finance revolves around four management pillars. These are cash, debt, risk and wealth management, or CD-RW. I know what you are thinking. The connotation with CD-RW is old technology.  But with personal finance, it is old technology that works.

First, using a familiar acronym for the numerous pillars of personal finance makes for easy recall.

Second, and more importantly, personal finance has to be practiced in the particular order of the acronym. You should not borrow (debt management) if you still have not mastered your cash flow (cash management), particularly budgeting. Writing down the allocation of your income on a piece of paper is not complete budgeting. It is the application of such allocation and the review of performance that makes budgeting complete.

If you were to borrow before mastering your cash flow, you may find yourself defaulting on your loans. What’s worse, you may end up in the negative database of financial institutions, which would make your name pop up as a credit risk every time you attempt to borrow money, even if you have a certificate of full payment on a past due debt. I am told it is difficult, if not impossible to get your name out of the negative database.

You should also not attempt to buy life insurance (risk management) if you still have a mountain of debts to pay. Between incurring penalty charges and losing life insurance coverage due to a lapsed policy, the tendency would be just to lose the policy coverage. This is because there is no immediately perceived loss with a policy lapsing versus incurring the interest and penalty charges on debt. Also, collection agencies will not allow you to easily forget past due obligations with their persistent tactics.

Before you try to enhance your income through investing (wealth management), either in financial securities or a business, you should protect your downside.

Investing is never guaranteed. As a fund manager for quite a long time, I have seen many types of investing, all of which bear risk. The higher the potential return, the higher the risk. That is why before you undertake the risks attendant to wealth management you should first protect your downside.

The downside is the prospect of leaving your family with very little in case of your untimely demise. Focusing on wealth management with all of its risks can accelerate the deterioration of your mind and body, and increase the prospect of your early departure from this world. The best way to protect your family from this is to get life insurance.

Buying life insurance need not be complicated. In the country’s first free personal finance mobile app named Ya!man, both Jatis Imagineering (Jatis) and the Personal Finance Advisers Philippines Corp. (PFA) espoused a simple formula in computing a life insurance coverage.

Just multiply your family’s expected annual living expenses when you are gone by the number of years you think they will be dependent on the money you will leave them (or the length of time before they will be able to fend for themselves). Add the product to the expenses your family will likely incur upon your death (last hospitalization, estate taxes, debt liquidation, funeral services). Deduct from the sum any existing life insurance coverage and assets that can be liquidated upon your demise.  The balance is the amount you will need to get in terms of life insurance coverage.

Ya!man does not only provide a tool for computing needed life insurance coverage. It also provides tools for the other three pillars of personal finance: cash, debt and wealth management. Each calculation comes with a brief analysis and the facility to consult with a personal finance expert (for free).

Currently, Ya!man is available for cell phones using the Symbian 40 operating system and higher and can be downloaded from Very soon, Jatis and PFA will also be launching the Android and iOS versions.

If you want a deeper understanding of life insurance as well as more knowledge on effective CD-RW management come and attend the EnRich© CD-RW personal finance training scheduled for Thursday, Oct. 18, 2012. You may also want to persuade your employer to integrate personal finance training into your company’s employee benefits by inviting your company’s employee relations manager to sample the EnRich©CD-RW personal finance training as well. There are limited free seats allocated for HR practitioners. Visit, e-mail or call 2161541 / 3593094 for more details.

Remember that it is in the order of CD-RW that you should practice personal finance.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-5050709 or e-mailed to To learn more about the RFP program, visit or e-mail

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Disclaimer: The comments uploaded on this site do not necessarily represent or reflect the views of management and owner of We reserve the right to exclude comments that we deem to be inconsistent with our editorial standards.

  • Jay Carpena

    Sooo confused….I came here because I am thinking of taking the huge leap of investing in a franchising business…..but I feel like….eh…..I have capital but I do not know which road to take…bonds, stocks, franchise…..etc…

  • Pang Disqus

    Just found out that this certain Iggy Ramirez is an associate of this writer. In short, these people scratch each others backs to mislead every reader who in good faith seeks straightforward financial advice into believing that every word they write is the gospel truth and absolute means of attaining your financial dreams.

    Somewhere out there an article by this Iggy Ramirez will or does come out who will be praised as well to high heavens by this Efren Ll. Cruz himself, in some other guise or disguise in return. A not so new modus operandi, nonetheless truly hurtful to the innocent readers.

    Repent, for what you feed your family harbors on stealing, stealing other people’s dreams that is.

    • efren

      Thank you once more Pang Disqus.  May we request that you recheck your sources.  You may even visit our web site to see that we do not have an associate by the name of Iggy Ramirez. 

  • gary

    Real Estate, Stocks and Bonds are three asset classes to consider when Investing. Real Estate requires huge capital and for most a mortgage is required. A rental property though offsets the costs and may yield 8 to 10% to an enterprising Investor. Stocks provides ownership interest in a business and can be considered as near cash and can easily be liquidated. Bonds provides a fixed  interest income . The Phils richest people have their businesses listed in the stock market. That should give us an idea where to start our own investments.

    • efren

      Well said Sir Gary.

    • Jay Carpena

      So…I am thinking of getting into franchising as a form of business investment (tea house). I am nervous about it and quite hesitant to take the plunge….in your opinion, what is the “safest” thing i can do with my money to earn me a good profit with less risks involved. Should I look into buying stocks instead? I know it’s risky too but at least you can somewhat predict it with good, stable companies.

      • gary

        The safest thing is to invest in an Index Fund if a first time Investor. On a 10 to 20 year time horizon this is the best to accumulate wealth. 

        Stocks are actually risk free if bought at bargain levels. The goal of the Investor is to value the business and buy when it suits their book. Due diligence is required.

        Our criteria for buying stocks

        Large Company with Wide economic moat
        leading or strong 2nd in the industry it is in
        Management with Owner like orientation
        Pays a dividend
        Available at an attractive price.

  • GHiem

    humihingi po ng advise kung saan pwedeng mag-invest , instead binebentahan mo agad ng insurance…Insurance is not an investment…

  • Pang Disqus

    I was in tears after reading this “personal” insight.

    2:20 am and you are still up just to feed us with a contrived acronym that best serves only your interests that puts you and your colleagues in financial planning to the curbside. 

    And I thought Investopedia will feed me the most misleading advice.

    It was too irresponsible to stop people from buying life insurance while in debt . . .
    It was misplaced to call investment as wealth management . . .
    It was ludicrous to instruct readers to behave (financially) in the order of the letters of your acronym . . .

    All these for the shrouded interest of selling your story of financial planning through trainings and “free” (as in free advertisement for your so called services) Symbian app for your phone.

    God is really good to have practically wiped out all Symbian phones so that nobody will sell their souls to the (financial planning) devil.

    • efren

      Thank you for your candid remarks.

    • GHiem

      humihingi ng investment advise kay efren cruz pero ayun binebentahan agad ng ay parang may utang ka din na hinuhulog-hulugan

  • KpTUL

    CR-RW ? Seriously ? why not you use DVD-RAM ?  Albeit you live in the era of CD-RW. Well, sir it is obsolete now. Find some better acronym ! This is cheesy and so sloppy !
    A waste of time ! I knew this was a dud when the contributor started to mention about CD-RW. But im so stubborn and gave it a chance not to misjudge it right away, but then i was right all along. This is nothing but crap and the “Ya!man” just cemented everything. Shoot! what happens to Inquirer ? We really need tougher cyber laws to avoid these kind of submissions in the net. What a waste of time !

    • efren

      Well sir, you went this far to read the article.  Why not try to download the app to make a full judgement.  After all, the app is free. 

  • gary

    Start reading.

  • Iggy Ramirez

    This is the lesson and training every Filipino should get in order to properly plan their finances and avoid drowning in debts.

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