Still earning peanuts? Make peanut butter

QUESTION: I don’t have a particularly large employment income and I am the breadwinner in my family. Pay increases in our company, although regular, are far from monumental. What are some ways my family and I can make more money and enjoy life better? We want to go on annual vacation trips, do home improvement projects, perhaps buy a second car, set aside enough money for our children’s college education and retire comfortably.—posted at PFA’s “ask a friend, ask Efren” service.

Answer:   The typical answer to your question would be to reduce expenses, increase income or do both.  Reducing expenses is easier said than done but is still safer than taking risks when trying to increase income.

Yet, expenses can only be reduced by a maximum of 100 percent, and even that is not realistic.  The better strategy is to combine reducing expenses to realistic levels with increasing income by working hard and smart.

Financial securities

Increasing income can come from investing in financial securities or in a business.  For this article, let’s focus on some of the rules on increasing income through setting up and managing a business.

First, allow me to say that the employee cannot expect to do well in his job while moonlighting.  That is why it is ideal to get help in setting up and managing a business. You will just be the capitalist for now.

Setting up a business starts with the same step as with investing in financial securities.  You will have to first know your financial goals so that you can work backwards to determine what you need to earn on your investable funds and what risks you need and are willing to take.

Next, you will need to know if you have enough funds, expertise and time to launch and manage your business.

You need to remember that on top of set-up costs, businesses need permanent working capital, the funds needed to circulate within the business, much like the oil that lubricates an engine.

Third, you will need to know where to get business ideas. The best place would be in your own home.

Try to come up with an idea that nobody else has in the place and the target market that you want to do business with.

If you can’t find any, which is highly unlikely, move your idea search from your house to your current employer.

You can even expand the search for ideas to malls, current business owners, online Internet discussion groups, trade associations, trade exhibits and many others.

But don’t sink your teeth just yet in the first business that catches your eye. Crunch the numbers to see if profits will eventually come your way. Create a business plan that will be your partner in progress as you run your business.

Microenterprise law

If qualified, you should also take advantage of the Barangay Microbusiness Enterprise or BMBE Law that gives exemptions from income taxes arising from business operations and coverage under the minimum wage law. Registration or renewal is also a maximum of only P1,000 every two years. There are eligibility requirements and you will do well to study them. The BMBE Law, implementing rules and regulations and even application form are available from the website of the Department of Trade and Industry.

Fourth, try to do inter-cropping business style. This is just another term for coming up with a portfolio of diversified businesses.

Businesses will produce irregular income at the start, if at all. That is why it is advisable to come up with businesses that complement each other.  You don’t have to come up with businesses that are in entirely different industries.  If you decide to distribute school supplies, you may also want to distribute office supplies to provide more stability to income.  You may also want to add value to your offerings.  If you started out with selling plain pan de sal, you may want to add value by selling ice cream sandwiches.

Lastly, you will need to create “dashboards” to quickly monitor your performance and allow you to make adjustments as needed.  This means that whether you like it or not, you will need to come up with financial statements.  Now you don’t need to do the accounting entries yourself or buy expensive software.  There are many accountants who are willing to perform bookkeeping functions for fledgling businessmen.

Human capital

So whatever your situation, you can still make peanut butter out of your peanuts of an income.  After all, your main asset is not your income; it is your human capital—your body, mind and soul.

What I have outlined are just some of the things you will need to take into consideration. I suggest you do a lot more research on setting up businesses before you plunge into it.  If you want to learn more about effective wealth management, please visit www.personalfinance.ph. There are many free resources there for you to benefit from. You may also attend EnRich™ personal finance training on Nov. 9 in Davao City and March 1 in Baguio City. Details for EnRich™ may be found in the website.

(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 09175050709 or emailed to [email protected]. To learn more about the RFP program, attend a FREE orientation on Nov. 7, 7pm at the PSE Center. E-mail [email protected] or text <name><e-mail><RFP> at 0917-3464126 to register.)