Look at the forest to not be the poorest | Inquirer Business
Money Matters

Look at the forest to not be the poorest

/ 02:01 AM November 16, 2022

Question: Wow. There is runaway inflation, and yet my income has not increased. My debt payments are becoming a burden, and so are my life insurance payments. To top it all, some of my investments are down 30 percent for the year. How am I to manage my finances in this situation?

Answer: You may be over thinking it. Take a step back. Take a deep breath and “chillax.”


All you need to do is look at the forest or the overall framework for personal finance management called EnRich™ CD-RW management. CD-RW stands for cash, debt, risk and wealth.

On cash management, it is good that you have income. But have you determined your breakeven income? This is the level of income that you will need to pay for your mandatory or voluntary deductions for Social Security System/Government Service Insurance System, PhilHealth and Pag-Ibig, and income taxes with the balance enough to cover your cost of living and your needed savings for a better future (i.e. which savings you will not just leave idle in a savings account but will turbo-charge through investing).


For better management, separate your living expenses into “Must Spend” (i.e. what you need to pay for like food and utilities even if you are not earning) and “May Spend” (i.e. your optional expenses like eating out and vacation travel). Just contact financial planners who have breakeven income calculators to help you with the computations.

Please note that there are savings accounts that pay time deposit-like interest. Just make sure you read the fine print and the net yield is what you really need to save for a better future.

Now, if your actual income is below your breakeven income, the way to make ends meet is to cut back on your May Spend and recompute. There may not yet be the need to find ways to increase your income. If cutting on May Spend expenses will not be enough, you will now need to question your beliefs on what your Must Spends truly are. For example, using an air conditioner from 6 p.m. to 6 a.m. may not actually be a Must Spend.

If your actual income is larger than your breakeven income, do not celebrate just yet. The excess should be reflected in your assets, preferably earning ones. If not, then you may have just underestimated your living expenses, taxes, mandatory deductions, voluntary contributions or what you need to save and invest for a better future.

On debt management, having zero debt is the ideal but not the absolute goal. Debt can be good if it is used to buy assets and not just to afford consumption of goods with short-term benefits, some of which you will just later flush down the toilet. And it would be better if debt is used to buy earning assets. In other words, debt does not need to be zero, just manageable.

As a rough rule of thumb, your total amortizations of debt should not amount to more than 30 percent of your gross monthly income. So, if you are repaying debts on a monthly basis by P20,000, you should not be earning less than P66,667 or 20,000 divided by 0.3.

If you are having difficulty with repaying your debt, consider refinancing first, which is getting new creditors to pay off your existing ones, provided the new creditor will afford you lower amortizations through a longer term or lower interest rate. If you immediately ask for restructuring, that will sound alarm bells with your creditors that you are already in debt trouble. If you need guidance on getting out of past due debt, try the absolutely free EnRich™ GOOD (i.e. Getting Out of Debt) program, which is searchable via Google.


Risk management is all about life, health and property insurance. While investing is great, absolutely no investment in the world is without risk. Would it not be great to have the backing of a stable company that will plug the shortfall in your wealth accumulation goals if you are called from this life early, suffer a major disability or loss to property? That is why risk management needs to come before wealth management.

When it comes to life insurance, build your coverage by starting with the death benefit. Then add the riders you only need like critical illness benefits. And in insuring your children. If airline safety rules say you should put on your oxygen mask first, you should likewise adequately insure yourself first.

Wealth management is all about determining the future (inflated) cost of your goals and comparing them with what you have to start with and what you can periodically invest to derive your required investment return as tempered by your risk-taking preference. This return/risk parameter is what you will use to buy the investments that you will need.

Do not be sidetracked by short-term market fluctuations. And do not second guess the in-house expert fund managers that come with the pooled funds or investment management accounts that you bought. Just focus on your own expertise, which is earning money through your employment or business.

Finally, remember: Ask not whether an investment is good for all legitimate investments are good. Rather, ask what good an investment can do for you. Follow the EnRich™ CD-RW way of personal finance management and you will hardly go wrong with your money. INQ

Send questions via Asked at “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram, and Facebook.

Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. To consult with a YAMAN Coach™, email [email protected] To learn more about personal financial planning, attend the 99th RFP Program this January 2023. To inquire, e-mail [email protected] or text at 09176248110

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