Setting up your emergency

fund
Randell Tiongson
@inquirerdotnet

1:00 AM | Wednesday, January 21st, 2015

By Randell Tiongson
QUESTION: Why do I need an emergency fund and how do I go about having one?Asked by
Arnaldo via Facebook
Answer: The reason why you need an emergency fund is plain and simpleemergencies happen.
This fact remains unchanged, emergencies happen whether we like it or not. An emergency can be
minuscule or it can be catastrophic. While we can handle small emergencies like changing the
batteries of your car, replacing a home appliance or dealing with a minor injury, some emergencies
can be stressful. A major health breakdown, loss of employment and business failure are some of
the major emergencies that we should prepare for.
It is foolish to think that we will go through life without dealing with an emergency. And most of the
time, emergencies cost a lot of money. Thus, the third step in achieving financial peace is setting up
your emergency fund.
Before starting an emergency fund, it is best to know how much you actually spend in a month.
Many people I know are clueless as to how much they spend monthly. During one financial planning
session, I asked someone how much he spends monthly. He told me that he wasnt sure about the
exact figure so he said he would just give me a ballpark figure. The figure he gave me was P40,000
to P80,000. If the discrepancy was about P5,000 to P10,000, it would have been understandable,
but P40,000? I politely asked the person to really think about all his expenses, examine his bills,
record his spending and get back to me.
If you already have a monthly figure, you are now ready to start building your emergency fund.
The rule of thumb is that your emergency fund should be equivalent to three to six months worth of
expensesthree months is good, four months is better, five months is great and six months is
excellent. Emergency funds come in handy for a variety of reasons: medical emergencies, loss of

employment, car breaking down, appliances needing sudden replacement.

But the most common reason for establishing your emergency fund is to prepare for a sudden loss
of income.
If you are an employee, there is no such thing as employment security anymore. Job security is
actually a thing of the past. Gainful employment can suddenly cease owing to the volatile nature of
business and the economy. I have given enough seminars to retrenched employees to know that
losing a job, despite your stellar performance, is now a common occurrence.
Markets and the economy go through radical changes and it is unfortunate that companies often see
the need to downsize just to remain profitable. Business owners face an even bigger risk of loss of
income. Business ventures are speculative in nature, therefore, business failures do happen.
I often advise entrepreneurs to set aside money for emergency funds just in case the business fails
or when the business suffers temporary setbacks. Regardless of the nature of your employment or
profession, an emergency fund is truly a prudent thing that we should all establish.
Having an adequate emergency fund is a must for everybody. Ive written on emergency funds in the
past and it is a whole chapter in my book, No Nonsense Personal Finance: A Step by Step Guide.
For the readers who already have emergency funds or are building one, congratulations! You are on
your way to achieving real financial peace. Here are some more tips for you:
1)

Dont invest your emergency funds. Yes, you read it right! Keep your emergency fund in cash

or near-cash placements like savings, current or time deposits. Do not invest your emergency funds
as these are intended to be a buffer and will likely be used immediately. Make sure that the deposits
can be withdrawn quickly and without huge penalties.
Investing in volatile instruments like mutual funds or Unit Investment Trust Funds, even the less
volatile ones like Bond Funds, may not be wise as these are normally sensitive to market changes,
and you might experience some losses if you keep your money in the short term.
2)

Keep some of those emergency funds in cash, maybe enough to cover expenses for one to

two weeks, as you may have difficulty in accessing your bank in sudden emergencies. During
calamities, ATM machines may not work, so you would want to have access to some cash.
Just remind yourself that the cash allocated for emergencies should not be touched unless its really
an emergency, otherwise you will deplete those funds faster than you should. Keep a portion of your
emergency fund in an ATM account. Emergencies do not necessarily occur during banking hours
and you may need more cash.
3)

While I dont recommend that you invest your emergency funds, it might be a good idea to put

them in some placements that will give you better yields than savings accounts. Time Deposits and
other money market accounts are ideal instruments where you can park your emergency funds and
still realize some minimal earnings.
4)

Keep your emergency funds to a maximum of six months worth of expenses and then invest

the rest.
5)

If you are comfortable with managing multiple accounts, having a separate savings account for

your emergency funds is a good idea and one I recommend.

A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers
the consequences.Proverbs 27:12, NLT

What to consider before

investing
Randell Tiongson
@inquirerdotnet

Philippine Daily Inquirer

5:13 AM | Wednesday, December 17th, 2014
There has been a tremendous increase in interest in investing money.
Filipinos are earning more money and all the efforts towards financial education are finally yielding
results.
Yet, a lot of people are still clueless about the fundamentals and unfortunately, there are those who
even lose money to scams.
People have always asked me about investingwhere to put their money, how much to invest, do
they buy stocks or mutual funds, etc.
These are all great questions and important issues to address.
First things first
However, before even thinking about putting your money somewhere, there are a few things that you
need to take care of first:
1) Money managementproper management of your finances is the foundation of your quest for
wealth.
If you are like most of us, your money doesnt come in just one shotthey come in and go regularly
and your investments will do well when you can add to those investments regularly.

You can only keep on adding to your investments if you know how to save properly and you can
only save properly if you know how to spend properly.
Create and stick to your budget, as that will be your most important weapon in building your wealth.
Emergency fund
2) Emergency fundI cannot emphasize enough the importance of building a buffer fund before
investing.
Investments are volatile, well at least the good ones are, and there is always a danger that when you
liquidate your investment, it may have not earned yet or worse, it ends up smaller than the original
amount.
The buffer fund will allow you to keep your investment funds untouched since you have another fund
to dip your hands into when emergency strikes. The equivalent of three to six months worth of
expenses is a good emergency buffer fund.
3) Investment objectives and time framewhat are you investing for? Many people invest without
really know why they are investing in the first place.
Knowing your objectives and time frames will allow you to find the best investment instruments to
suit your needs.
4) Risk toleranceit is good to determine your risk appetite before jumping into any investment.
A lot of people invest money in risky instruments and yet they are not prepared to handle investment
risks, which cause a lot of frustration that leads to a lot of stress.
Always remember the risk-return relationship: High returns have high risks and vice-versa.
Never invest without knowing the risks.
5) Timethink long term. There are no shortcuts to wealth and you need to be patient in building
your wealth over time.
Do not take shortcuts and do not be in a hurry as those actions can cause you to make a lot of
financial mistakes.

6) Competencebe prudent. Never invest money in something you dont understand.

Take time to study what you are investing in, an investment in education will pay off handsomely.
Take time to read about investing and investments or attend a seminar or two, they will come in
handy as you start investing.
Hype, scams
Be careful; avoid get-rich quick programs, promises of high returns and the like, as they are most
probably scams.
Good investment programs do not promise high guaranteed returns.
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.-Proverbs 21:5,
NLT
Get both my books: No Nonsense Personal Finance: A Step by Step Guide & Money Manifesto:
Lessons in Personal Finance at discounted bundles, visit http://www.randelltiongson.com/get-mybooks/ to order.
Merry Christmas to all, always remember that Jesus is the reason for the season.

MONEY MATTERS

Money vampires
Efren Ll. Cruz
@inquirerdotnet

Philippine Daily Inquirer

5:21 AM | Wednesday, November 5th, 2014
Question: My family and I have long been practicing the rules that the growing number of financial
planners in the country are espousing. For some reason, though, whenever we tally our finances by
yearend, we find that we had barely moved from the start of the year. What do you think is the
problem?Asked at Ask a Friend, Ask Efren service at www.personalfinance.ph.
Answer: Honestly, I would have to take a closer look at your finances to see what is holding back
your flight to financial freedom. But perhaps we can start with some process of elimination. Try to
see if you have money vamps (short for vampires). Money vamps are those seemingly harmless
behaviors and transactions that slowly but surely suck the life out of your finances. To be orderly
about it, lets use the cash, debt, risk and wealth (CD-RW) management pillars as our guide. The
following guide is not comprehensive. But it is a good start nonetheless.
Cash vamps
Do you do a lot of interbank ATM transactions? Interbank ATM withdrawals can cost up to P15 per
transaction. If you did just 5 of those, you would have already foregone the opportunity of enjoying a
hefty fast food meal.
Are you aware of the actual cost of using your appliances? You will not find your closed room cool
when you go back to it after leaving your electric fan running. A 16-inch electric fan left running for 8
hours a day, 7 days a week and 4 weeks will cost P196 in monthly electricity. In a year, that equates
to P2,352. Now think of the many things you can spend P2,352 on.
Money that is intended for the college tuition of your children that is merely invested in time deposit
will be eaten up by inflation. Assuming an average inflation rate for tuition of 5 percent a year and a

time deposit rate of 1 percent a year, you are losing 4 percent a year (in simple terms). You will need
to plunk in a much larger investment or higher periodic contributions toward your childrens college
education.
Debt vamps
How much effective interest is charged by those dreaded 5-6 loans? The lender would say 20
percent because if you borrow P5 and repay it with P6, the additional P1 is 20 percent of the loan
amount. But this computation does not take into consideration the duration of the loan nor the
frequency of loan payments. Given a P1,000 loan repaid with P30 a day for 40 days, the equivalent
effective interest rate is 332 percent a year!
How much interest is there on a one-year personal loan with quoted interest of 0.99 percent a
month? Mind you, it is not 0.99 percent x 12 or 11.88 percent a year. The effective interest is 21
percent a year. How? Such loans are usually computed based on add-on-rate where principal is
simply divided by the term and the monthly interest is always based on the original loan amount.
Risk vamps
Are you still buying life insurance out of pakikisama or friendship? Life insurance affords your loved
ones the continuation of your level of lifestyle even without you. That cost of lifestyle does not only
grow because of inflation but also because of changes in life situation.
If you dont review your life insurance coverage periodically, you may be setting your family up for a
disappointment if you are called early from this life.
Wealth vamps
Are you still investing in instruments that charge higher-than-average transaction fees (e.g. entry/exit
and management fees)? Shop around.
Are you being unduly risky or risk adverse with your investments? How will you know? Get a
financial planner to compute how much you need to earn from what you have now and what you can
possibly add periodically to meet your long-term objectives. You can also use Ya!man, the
countrys first personal finance mobile app, to compute how much your total future obligation will
cost, whether it is your childs education or your own retirement. Ya!man is free for download to
iOS, Android and Symbian 40 running mobile phones.

Finally, are you still fixated on returns since inception and 5-year returns that give too much weight to
ultra-long term performance without really tackling consistency? Such performance measures can
give unduly high numbers when they use a low base price that is way into the past. Try this: Apply
the following 60 percent, 30 percent and 10 percent weights to a funds 5-year, 3-year and 1-year
performance, respectively. Then compare funds side by side. This method will help balance out
consistency with long-term return.
The foregoing are just some examples of money vamps. So what money vamps do you still have
hovering over your finances?
Know more about personal finance by logging into www.personalfinance.ph. There is a wealth of
free tools to allow you to hit the ground running with financial planning, whether you are a financial
products consumer or a financial planner. If you are from Northern Luzon, you may also attend our
Baguio EnRich on Jan. 3, 2015. Details can also be found in our website.

MONEY MATTERS

Are you ready to be

financially fit?
Henry Ong
@inquirerdotnet

Philippine Daily Inquirer

5:07 AM | Wednesday, March 26th, 2014
Q: I have always wanted to save and invest, but I never seem to get the discipline of spending. My
personal expenses have been increasing more than my income. I am afraid that I may not have
enough savings to support my needs when I retire someday. I want to be organized financially. What
should I do?Johnny Oca by e-mail
A: Many people aspire to have a comfortable financial life when they retire, but they never take the
effort to plan for their finances. Failing to plan is planning to fail. Some people who make good
income think that they do not need to plan for the future because they are already secured with their
savings. This is not necessarily true.
The more money you have in the bank, the more you need to plan on how to secure it for the future.
You want to make sure that your fortune will last through the next generation. You need to find ways
on how to make your money grow so that when you retire many years from now, you would have
already built your nest egg that will pay for your daily expenses.
On the other hand, there are people who barely live paycheck to paycheck, thinking that they do not
need financial planning because they dont have the savings with which to plan. There may be
nothing to account for, but the harder your financial situation is, the more you need financial planning
because you must make sure that you will eventually have enough savings by the time you retire.
You need to start thinking how to increase your current income so you can have some extra cash to
invest. Maybe you can begin looking for other sources of income aside from your current salary?

Why not try investing in yourself to learn new skills or develop new business ideas? The younger
you are, the more opportunities for you to build a financial headstart.
Building a financial future requires having the right money mindset. It is having the right financial
habits that determine your attitude towards managing money. Lets say, one day you won the lottery
jackpot worth P50 million and you have the cash at your disposal, how do you intend to spend it?
Are you going to spend it by traveling around the world with your family? Are you going to spend it by
buying your dream car and building your beautiful mansion? Or are you going to invest the money
and make it grow?
Having the right mindset helps you build your core values in financial planning. Without it, no matter
how much money you have in the bank, you may eventually lose it all. Just imagine how many
famous celebrities who became financially successful went bankrupt? How many business people
do you know have closed shop because of financial mismanagement?
Regardless of your situation in life, whether you are just starting out in the workplace or already a
successful professional, you need financial planning. You can start planning for your finances by
setting a goal for yourself. When you work on achieving a financial goal, you will realize your own
weaknesses when it comes to spending. This will enable you to set your priorities so you can focus
on getting what you want.
Once you have identified where you want to go, you need to determine where you are now
financially so you can measure up how much you need to save and how long you need to achieve it.
Do you have any idea how much you are worth now? How much of your monthly expenses can you
possibly save? Which personal expense do you consider necessary and which are discretionary?
Where should you invest your savings in order to achieve your financial goal?
Your ability to balance your financial goals with your current needs will reflect how financially fit you
are. Achieving high level of financial fitness requires continuous learning.
You need to learn different aspects of personal financial planning, such as cash flow planning,
investments, insurance, retirement, taxation, estate planning and even education. It may take some
time for other people to learn this especially if they come from nonfinance background. But more
than this, becoming financially fit is having the right financial behavior. If you have this discipline,
learning will be easy.

The Registered Financial Planners (RFP) Philippines is organizing the annual Financial Fitness
Forum 2014 on March 29 at the SMX Taguig Convention Center in SM Aura. The forum will feature
RFP speakers who will talk about how to grow your money and build wealth.
If you are always struggling with saving money, you will learn how to prepare yourself to tackle with
any money challenge from best-selling author Efren Cruz in the forum. You can also learn how to
autopilot your finances to build your long-term savings from Alvin Tabanag, best-selling author of 12
Steps to Build Wealth on Any Income. You can get ideas on how to prepare your financial roadmap
from investment expert Jeff Gonzales, and some tips on stock market investing from RFP Marvin
Germo.

Where do I put my money?

MONEY MATTERS
Randell Tiongson
@inquirerdotnet

Philippine Daily Inquirer

11:20 PM | Wednesday, January 23rd, 2013
Question: Where should I put my money? In a bank, property, business or stocks?Miccael Ibarra
Naig via Facebook
Answer: I always believe that investing is a great idea and I pray that all Filipinos think and act the
way you do. Before I answer your question, I encourage you to first consider three things: your
investment objective (the reason why you are investing), time frame (how long you will keep the
investment) and risk tolerance. It is critical that you know these three things before even selecting an
investment option.
There is no such thing as a best investment. The investment instruments you mentioned have their
advantages and disadvantages, their own merits and flaws. Let me discuss those choices that you
are considering.
Banks are the most popular choice of many. Banks are everywhere and this makes depositing your
money in banks a convenient option. When you say bank, Im assuming that you are referring to
traditional bank products like savings accounts and time deposits. These bank products are among
the most liquid investments you can make and the risks are also among the lowest. The downside,
however, are the yields. They may be the safest options but they give the lowest returns. As they
say, low risk, low returns. Having low returns, especially if below inflation rates, will erode the value
of your money in the long run. Banks today offer other products other than the usual deposit
products. You can invest in the instruments they offer like Unit Investment Trust Funds, mutual funds,
bonds and insurance. Take time to know what your bank offers other than traditional deposit
products.

Property is the investment every Filipino wants. Your parents and grandparents had probably told
you that the best investment was land. However, saying that land is the best investment may be too
ambivalent. Real estates greatest attraction is its being a tangible investmentyou can see and use
it unlike paper investments. Land usually appreciates in value giving you capital growth, or it can
generate a steady flow of income through rentals and capital gains, when you decide to sell it. There
are times, however, when real estate investments do not appreciate or, in some cases, their
appreciation does not meet your expectations. Also, there are recurring costs in property
investments such as real estate tax, administrative or association dues and common area charges.
When you sell a property, you will be slapped a hefty capital gains tax on top of the brokers fees.
When you sum up all the money you need to spend during the time you are holding your real estate
investment, you will realize that your gains are not as substantial as you thought it would be. Another
downside in real estate investment is its costyou need to spend a huge sum to buy land. If you
decide to borrow money to finance your real estate investment, the interest that you have to pay may
just eat up the gains you will make. Buying real estate because you need to live in it is another story
as it is not an investment.
Businessanother Filipino dream. Everyone wants to be an entrepreneur and why not?
Businesses can potentially give you the highest returns. A business that succeeds can make one a
millionaire, even a billionaire. There are many success stories of people who started with little but
are now very wealthy because of their businesses. However, business endeavors are the riskiest
among all these investment options, as they are speculative in nature. There are more businesses
that fail rather than succeed, which is not encouraging for a newbie in the business world. Further,
putting up a business requires more than just capitalcompetence, passion, timing, market and a lot
of studying are needed when you are considering to do business.
Stockstodays rising star. There is so much attention to the stock market today as more and more
Filipinos are being enticed into investing in equities because of its stellar performance in the last two
to three years. Many investors are very optimistic with our local stock market and you will find many
experts predicting that our stock market will further go up this year. Investing in equities today is also
more convenient. Even with only a small amount, you can buy stocks through brokers (and also
online) or through pooled funds such as mutual funds or UITFs. Let me reiterate the risk-return
relationship herehigh returns, high risks, and vice-versa. While it is true that the stock market has
been giving extremely good returns lately, there were also times when investors lost a lot of money.
The stock market is not as predictable as people think it is and all the gains over the last three years
can also be wiped out in a short period of time. More so, investing in the stock market, especially

when you plan to trade, requires a lot of competency and time. If you dont have the competency and
the time to trade in the bourse, you should keep your day job.
My advice is for you to consider all the pros and cons of all the investment options you mentioned
and choose those that will suit your objectives the most. I also recommend that you diversify your
investments. All these options have their advantages (and disadvantages), but if you have a
diversified portfolio, you are spreading your risks. A common but very wise saying we often hear with
regard to investing is this: Do not put all your eggs in one basket. Heres an even wiser advice for
you: But divide your investments among many places, for you do not know what risks might lie
ahead.Ecclesiastes 11:2, NLT

The best investment

Randell Tiongson
@inquirerdotnet

Philippine Daily Inquirer

2:17 AM | Wednesday, October 10th, 2012
Question: Ive been reading your articles and blogs for sometime now, which have been of great
help to me. I think I am ready to make some investments now and I would like to know what
investment would be best for me.

Answer: Thanks for reading my work, I am honored that what I write helps you. Your question is one
that has been asked of me over and over again. If I had a hundred pesos every time I am asked that
question, I would probably have enough to retire today.
The answer to this question depends on the person being asked. If you ask a real estate agent, he
will say real estate; a stock broker will say blue-chip stocks; a banker will offer the latest bank
products like time deposit or special savings accounts; a mutual fund representative will say mutual
funds; an insurance agent will probably recommend a variable life insurance. The best investment
for me? Well, I cant really give an answer.
I must admit that many people give me a dumb-founded look whenever I answer them, I dont know,
it depends. For someone who claims to be a personal finance guy who has been in the financial
services industry for more than two decades and a trainer in financial planning, I am pretty clueless
aint I? I simply cant tell anyone what the best investment is because theres no such thing. My
answer will always be it depends.
I have a simple four-rule guide that I recommend to people whenever they are perplexed as to where
they want to place their hard-earned money.

Investment objectiveWhat is the investment for in the first place? Where do you plan to use it? Is it
for retirement, education, purchase of a house? Or is it just to park your money while you are
scouting for other investments?
Time frameWhen do you intend to use the money you are investing? Is it short (less than a year),
medium (up to 7 years) or long term (more than 7 years)? It is unwise to put money in long-term
investments when you will need it in the short termyou might end up realizing capital reduction or
you may be levied with steep penalties should you liquidate your investment. It is also unwise to
invest in short-term instruments when the purpose of investment is for the long term like education or
retirementyou will not realize a good appreciation of your investments as short-term instruments
give lower yields. In other words, your investment would be drastically reduced by inflation and youll
find yourself with not much funds when you need it the most.
Risk toleranceInvestors can be conservative, moderate or aggressive. Determine your risk
tolerance. Is liquidity and capital preservation an absolute must for you? Or are you willing to risk
some potential capital loss in favor of potential capital hike? Remember the golden rule in investing
the higher the yield, the higher the risks and vice-versa.
AcumenThere are simple products and there are complicated products. If you are investing in the
stock market and you are not familiar with some form of fundamentals, you might regret ever putting
money there. If you cant distinguish a structured note from a time deposit, you might want to
reconsider your decision. I have a simple advice with regard to thisnever ever invest in something
you dont understand.
Before parting with your money, you should go through the four-step rule first. Matching the right
instruments with your needs will be the best investment for you.

MONEY MATTERS

Take the P3.50 challenge

Efren Ll. Cruz
@inquirerdotnet

Philippine Daily Inquirer

3:59 AM | Wednesday, July 18th, 2012
Question: The Philippine economy is roaring ahead. In the just-concluded quarter, the country was
among the fastest-growing economies in Asia, next only to China. S&P just upgraded the countrys
credit rating to one notch below investment grade. Consequently, I get the feeling that I am being left
behind. A lot of people say that the best way to ride the countrys economic growth is to become an
entrepreneur. But I am just an ordinary employee with no knack for running a business and definitely
not enough money to start investing like the rich. Moreover, I believe that I have found my calling in
being an employee. I love what I do, I do it well and my employer pays me commensurately for it. Is
there no other way to become rich and secure my familys future?Employee who is sleepless in
the struggle to become rich
Answer: Allow me to point out some misconceptions about becoming rich. First, a rich person is not
one who has the most. Instead, as pointed out in the New Interview with God, he is one who needs
the least. This means that a person must learn the value of contentment to be truly rich.
Second, not everyone can be an entrepreneur. If this were true then how could businesses flourish
when there would be no one left to hire as employees? Ironically, though, everyone is in business,
just in a different sense. Yes, even a full-time employee is in business because he sells his skills and
talents to his employer who is his customer.
At this point you are probably saying that were back to square one because an employees income
is fixed whereas the businessmans goes up the harder he works. Compared to the rising cost of
living, a businessman would naturally be in the better position to balance his finances.
Heres the pin to burst this bubble.

I once did a personal-finance training program for the maintenance people of a school. One of the
participants fascinated me. Lets call him Pedro.
Pedro understood well his capabilities and his limitations. So rather than blame the rest of the world
for his fate, he learned the value of contentment and employed the surefire way of getting rich. He
spent less than what he earned and invested the difference.
To be certain, it was not a well-paved road for Pedro. He needed to be patient, a very hard thing to
practice. Just ask Nick Vujicic, one of the worlds best motivational speakers, who was born without
arms and legs. But like Nick, Pedro persevered such that despite his meager maintenance mans
pay, he was able to send his children to school, buy a car and invest in a business managed by his
wife.
In a sense, Pedro and his wife worked as a team in reaching their familys financial goals.
Employment plus investment, or emvest, is the base strategy for getting rich. It is not enough for
you to just earn a wage or salary. As an employee, you must save and turbo-charge these savings
through investing. You could follow Pedros example and invest directly in a business through a
family member or trusted individual who is truly business-minded.
If you cannot find somebody to invest in a business for you, the next best thing is to invest indirectly
and periodically in financial securities. This is done via investing in actively managed pooled funds.
Pooled funds in the Philippines come in the form of mutual funds, unit investment trust funds,
variable unit-linked insurance and even pre-need plans. Opening an account is not difficult. The stiff
competition among these product providers has compelled them to devise ways of making investing
more affordable and automatic.
Critical to the emvest strategy is the discipline of saving even small amounts. A little thing truly
goes a long way. And to prove this, take the P3.50 challenge.
What can you buy with P3.50 nowadays? Not a whole lot. Perhaps it is just about the amount of
change you get every time you pay for lunch at work. But save P3.50 a day for five days in a workweek, four weeks in a month and 12 months in a year. You would accumulate P840.
Now compare that to putting P100,000 in a savings account with a large bank for one year. You get
to earn a net of only P300 (using a net savings interest rate of 0.30 percent a year.) In fact, it would
take 2.8 times as much money or P280,000 to match what you could effectively earn through the

P3.50 challenge. And all you needed to do was dig into your pockets and save P3.50 each work day
for a year.
We actually practice the P3.50 challenge at home. But we dont just save P3.50 a day. We save all
of the change we have at the end of each day. The minimum we save is P1,000 a month. Multiply
that monthly amount by 12 and you get P12,000.
Thats the equivalent of earning a net 12 percent a year on a P100,000 savings deposit (but without
the capital). No large bank will pay you a net 12 percent a year on a savings deposit. Only your
pocket will.
Personal finance education is the key. It is a structured way of learning how people can become
financially free in the least distracting way. Personal finance is applicable to all, from full-time
employees to full-time businessmen.

3-step approach to solving

debt problems
Efren Ll. Cruz
@inquirerdotnet

Philippine Daily Inquirer

12:56 AM | Thursday, February 9th, 2012
Question: I am drowning in debt. My income is simply not enough to pay the monthly amortizations,
even the minimum required payments. Many times, I get a headache just thinking about the next
payment due date. What can I do?Plant Worker
Answer: February is known to be the month of hearts. So lets talk about your heart. Did you know
that in an average lifetime (according to the Philippine Heart Association), the heart pumps 3 billion
times? But some dont reach that many heartbeats because they die early of heart disease. Heart
disease kills more people in the world than any other disease or sickness. And what is the leading
cause of heart disease? Its hypertension. In the Philippines, 20 percent of individuals suffer from
hypertension more commonly known as high blood pressure. With symptoms not readily manifesting
themselves, hypertension is also known as the silent killer.
What are the leading causes of hypertension? These are a high fat and salt diet, being overweight,
the lack of exercise, excessive alcohol intake, smoking, unsupervised medication, and excessive
physical, mental and emotional stress. Your huge debt problem is already giving you high stress and
making you a candidate for developing hypertension.
So how should you manage your debt problems and hypertension? Follow the Personal Finance
Advisers or PFAs three-step approach of:
1. smiling;
2. talking to your creditors, and

3. staying debt-free.
By smiling with your eye and mouth muscles and bundling that smile with laughter, you will produce
endorphins, the bodys muscle relaxant. This act will not only counter your stress but will also make
you ready to talk to your creditors.
Be warned: your smile has to be sincere. A half-baked smile will not win you sympathy from your
creditors. Take the worlds most famous smile, that of Mona Lisa. Did you know that her type of smile
indicated that she was not fully happy? The University of Amsterdam came out with emotionrecognizing software and ran it through the painting. The University found that Mona Lisa was only
83-percent happy, 9-percent disgusted, 6-percent fearful and 2-percent angry.
When you are already in the proper disposition, you can now talk to your creditors. Creditors are not
emotionally bankrupt. Who knows, they too may be suffering from debt problems. Talk to them about
the possibility of:
1. getting a discount on interest and penalties;
2. getting a discount on the principal, and
3. repaying your debt over a longer period of time.
Recent international news bannered headlines on the European debt crisis. Currently at the front
and the center of this debt crisis is Greece. It is said that Greeces outstanding debt is much higher
than its annual income. So what has the country resorted to?
Greece is asking its creditors to take a 50-percent cut in the principal that is owed to the latter plus a
repayment of the balance over a longer period of time and at a lower interest rate. At PFA, we have
several clients who were given a 50-percent discount on their past-due debt obligations. In absolute
amounts, these discounts ranged from a low of P50,000 to a high of P17 million.
Whether its Greece or you, getting a discount on interest, penalties and principal plus repaying the
balance over a longer period of time affords a lower cash outflow for debt payments. This will give
you elbow room in running your finances and will probably even allow you to save. Please note,
however, that the savings should be used to accelerate debt payments as a longer repayment period
also means more interest. Do not attempt to invest such savings as it is always best to protect your
downside first. Your interest expense from your debts is guaranteed while your returns from
investments are not.

Lastly, the concessions you get from your creditors will not be without something in return. For
Greece, creditors are asking for austerity measures to be put into effect. For you, creditors may ask
for a token up-front lump sum payment. Nevertheless, you still have to implement your own austerity
measures.
Your self-imposed austerity measures will help you avoid contracting new debt. And if Steve Jobs
says you shouldnt live someone elses dreams, so too should you not live someone elses income
level. In other words, live within your means.