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Money Matters

Before you invest, protect your downside

By: Efren Ll. Cruz, October 3rd, 2012 02:20 AM

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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