I’d say, this is an asymptotic way of grabbing the moment: always approaching but never getting there.

a friend asked me that when i told her i have to cut the conversation short because i need to run ahead to make it on time for my yoga class. 

“what do you mean?” i asked her, without really asking her. i know what she means; she knows i know what she meant.   she gave me a stare and i sighed. “yes, everything is alright. i just need to go back and try to get healthy again.”

“you need a diversion.” she said, in a matter-of-fact way. “that’s not about being healthy. that is you playing that game again.”

i frowned and wrinkled my forehead. “how is trying to do yoga five days a week not about being healthy?  this is not a diversion.” i said and pouted. “this is not a diversion; i really need to make some few changes in my life. and besides, i prepaid 100 classes already- i have to use them all, they are non refundable!”

she started to grin. “what else did you do?”

“bought a camera.” i found myself smiling at the silliness of it all. “it is a very good one. very expensive at that, too.” i paused and then felt a bit sad. “could have sponsor ten kids to school for a year for that cost. i shouldn’t have bought it, on hindsight.”

“how many plane tickets have you bought?”

dear god, she knows me too well. 

i once told someone i couldn’t write as much when i am happy; and i did not say that in an arrogantly defensive kind of way. i really could not write as much when i am happy.  i think when things are going wrong and everything turns shit, i could make a fortune in my misery.  

am i sad? i honestly do not know. i do know there was a moment, a window, in the past three weeks that i felt so empty.  that the only way to live was to ask no questions, require no answer, and just plod along and move forward.  and the easiest way i have come in terms of doing that was creating a diversion. at least, unlike in the past, this diversion is a healthy one. 

“you know that if you do this, there is no turning back.” she reminded me.

“i know. i probably needed this.”

she shook her head. “you regretted the last one.”

“i know.  i still do.” i said sadly, “sometimes.”

and so, with heavy heart, i attended the first of the first one hundred classes of yoga after a long period of absence.  i felt brittle. i felt weak. the knees wobbled. the breathing struggled. as i was lying there in my savasana, i wondered: who am i doing this for?  

the mind is only strong with a purpose. 

i was surprised that people at the office started investing directly at the stock market. i was even more surprised that she thought i had something to do with it. i asked her how she knew they were doing it and why she thinks i had something to do with that. “oh, you know, that was mostly what they have been talking about the past few weeks and i know you are a believer of the stock market so they may have picked that up from your blog or something.”

i seriously hope nobody picked that up “from my blog or something”. investing in the stock market requires different set of skill set and requires a lot of psychological preparation. as a retail investor, you could drown yourself in a lot of stock market literature and still screw it up if you do not have the discipline to study your plan and stick to your plan. and the last time i check, you cannot buy discipline. it is just not available for purchase anywhere.

and more often than not, people lose money at the stock market for the lack of it, not so much for not understanding enough fundamental or/and technical indicators.

i thought that for the benefit of those who are seriously considering venturing out to the stock market, i would like to share what i have learned along the way of doing it.

know why you are investing at the stock market. let us settle an assumption that like me, you are not doing it for a living. you are not a trader or a stock broker. the only reason why you want to put your money at the stock market is because you want to grow your net worth in fifteen to twenty years time and you are willing to set aside money for this every month, not whenever you feel like it or only if you have something “extra”.

for the sake of your children’s future, do not put invest in equities that money you are going to use to send them to college in five years time. never venture into the stock market because everyone you know is really “getting into it”. do not buy stocks if your risk tolerance for losses is very low (the quickest indication of this is if you have the itch to keep monitoring your portfolio every day, multiple times a day because you have the need to know where you stand already).

my banker gave me a very wise advice a couple of years back. always know what you are saving (or investing) for. once you know what you want that money to do for you and when, finding the right financial vehicle to get you there will be easy.

invest the money you are willing to forget for a long time with high returns come greater risks. buying only blue chips stocks is not a guarantee for loss-proof portfolio. the market overreacts even at the slightest fear or optimism. putting in money you are likely to use for a definite expense in a definite near future is a very risky thing to do.

never borrow money to invest in equities. do not use your next month’s rent. do not use the money you are supposed to use to pay off your credit card bills. do not invest money you do not have. never finance your investments in equities.

set aside the money you are unlikely to withdraw before ten, fifteen, twenty years. just as it takes time for the giant, profitable companies to get to where they are, give your money time to start working for you.

the key is in cost averaging, not timing the market. even for the ones who do this for a living find timing the market is hard. and i kid you not, they watch the market all the time. for us retail investors with full time jobs, we do not have that luxury of time. invest in the market in small quantities but consistently. put in the same amount every month, regardless of whether the market is up or down. doing it this way will provide you an average cost that will be lower than the market in the long run because you took every opportunity to buy when the market was in the low end and you have minimize your exposure by limiting the money you invested when the market was at its peak.

know when to cut losses and move on. investing in the stock market is not an emotional exercise. determine when to cut loss and when that point is reached, do it. at some point in your investment period, you will pick the wrong stock. follow your plan and cut your losses and then move on.

this was the hardest lesson for me to learn. during the early months of venturing into the stock market, i bought a speculative stock to try it out. i bought it at its artificial high of 24/share. i watched it went down to Php20, and then Php18 and then Php15. because i did not cut my loss at a predetermined point of -20% loss (around Php20/share), i held on to the stock desperately in the hopes that it will bounce back. it didn’t. today, that stock is trading at a mere Php5/share. i have lost 75% of my capital beause (a) i bought a stock that did not pass my set qualifications and (b) i did not cut my loss when i should have.

know when to sell but keep your core shares. another difficulty for retail investors is selling when the target price is reached. this is influenced by the fear that the price of the stock may keep going up, thus, losing the opportunity to sell at a much higher price. set multiple target price levels and sell a part of your holdings when those levels are reached. but keep your core shares. as long as you are buying valuable stocks, your core shares will be fine. and on another hand, selling a piece of your holding will enable you to take advantage of the temporary spikes in the market price.

develop discipline. this is the most basic requirement before venturing into equity investing. without discipline, you will find yourself running after the bull and struggling to escape your losses. without discipline, you will make the same bad decisions over and over again. without discipline, you will find yourself in a far worse financial position before you started investing.

the next time you heard someone urge you to put your money into equities, do an honest to goodness reality check. the stock market is a very powerful wealth multiplier. but if handled incorrectly, you will end up like that gambler who is trying to beat the house. and as the famous saying goes, no one beats the house. not consistently, anyway.

but for the rest of the population (i.e. us), it would takes years and thousand of hours of practice and exposure to even come close. not everyone can efficiently run their own business and make it very successful. not everyone can pick an undervalued property and turn it around for a profit. not everyone can work from home and earn enough to cover for emergencies, healthcare costs and still have something set aside for their retirement years.

for someone in the rat race, what is your alternative?

a few days ago, an acquaintance pinged me on Facebook and asked if I could please remind her the formula she can use to sort voluminous data in excel. i listened to what she was trying to do and told her the solution. she is a certified public accountant; very hardworking and so full of potential. i did not quite understand why she was doing what she just asked for an excel tip from me for so i asked her if she her role has ventured out of accounting. she told me it was for her second job at a freelance site called odesk.com.

“why do you have a second job?” i inquired. “you’re working for a very reasonable-paying multinational company.”

“i cannot make both ends meet. both kids are now attending school and there’s the mortgage on the house and you know, life’s necessities and all.” she replied.

“but that’s more like a data entry kind of thing. shouldn’t you be doing something that is finance related at least?” i asked.

“it pays $8/hour. i will take whatever i can get.” she answered.

i sat there watching my laptop for a long time, feeling a bit disoriented. She was one of the few people i have always thought would be handling at least a managerial position by now. when she left the company to transfer to a bigger and more prestigious multinational, i thought that was the start of something big for her. there is so much avenues for career growth there- internal and external training, cross-country assignments, lateral transfers… you name it. and on top of that, it pays above the market, too.

i seriously did not see it coming that she will be taking a second job doing data entry to make ends meet.

what went wrong? it is pretty obvious that whatever she and her husband are earning is not enough to cover for their day to day family expenses. spending more than what you earn is a financial train wreck waiting to happen. that deserves another article in another time.

in this post though, i want to talk about how so many of the white collar workers throw away that opportunity to increase their market value so they are going to be worth so much more in the future. people are always telling me they are just waiting for that one big idea for a business and they will not take second thoughts of leaving the employment world and become entrepreneurs and create jobs for other people. seriously, there is nothing wrong with that if the same people are doing something about getting there than just waiting for it. a number of former staff (and probably present ones) always talk about “just spending a few more years here and there” and then join the next employer who can double their current salary. nothing is wrong with that plan if one actually is sincerely and diligently working on being better at their jobs so employers would clamor for getting them at a premium rate. i have also seen a few acquaintances turning their back on the corporate world to start working from home in the name of being able to spend quality time with their kid. that all goes well until the kid gets sick and two months worth of “work from home” salary get wiped out for a one-week worth of hospital bills because neither parents have healthcare insurance nor emergency fund.

very few professional ever take the opportunity to become better at their job everyday. very few take that investment to exert more time and effort in building their market value. i have seen employees not doing more than what their current role asks of them because they are not paid to do that other kind of work. for some reason, people keep forgetting that by doing so makes them professionally more knowledgeable. we sometimes have the tendency to treat the workplace like school- that if we just hang around long enough, we will soon graduate from it and unto the golden years of our retirement. unfortunately, that actually could happen minus the golden reference. no one ever enjoyed retirement years without preparing for it; that is just one of the harsh realities of life.

so, how do you increase your market value?

prepare to invest on your professional growth at work. learning takes time and requires a lot of attention. you do not learn enough by showing up for work everyday and doing your job. you have to be aggresive with it. learn all about how the company does business; do not be limited to your own scope of work. do not be afraid to ask questions; that is how you get informed. do not be too careful to not commit any mistakes that you miss the opportunity to know what works and what does not. learn the 80/20 rule; focus on how to get the same job done with less possible effort. efficiency is the key to effectiveness. then use that freed up time not on extended breaks but on getting involved in more projects that can introduce you to a bigger role.

work for a boss who can see your potential and is willing to nurture it. this is probably one of the most common mistakes early professionals make because it is so easy to make. it is a misconception to believe that for as long as you do your job and you do it very well, you will be presented with a lot of opportunities. it matters who you are working for. it matters a lot because not every manager cares and not every superior has the capacity and the desire to develop their people. you do not want to be working for this kind of manager.

work for a boss you are not afraid of; fear paralyzes growth. work for a boss who does not sugarcoat your performance and who can coach you how to get better; you need to know what worked and what did not and you need someone who can teach you where and how to get to where they want you to go.

on another hand, take that opportunity to work for a difficult boss for a point in time. it thickens your skin and you need it for survival. the path to career growth is not all milk and honey. you will meet different kinds of people. you will be passed up for promotion. you could end up as the sacrificial lamb. you can be caught in the middle of office politics. working for a difficult boss will test the kind of person that you are and the kind of manager you will be in the future. work with them and then know when to move on- regardless of how good the job pays. or how sympathetic the rest of your coworkers are. you are only there for the experience.

get a job that makes you happy. not because you like the people you see there everyday. not because your boss is ultra nice. not because the company is a household name. get a job you are happy about because it makes you feel good about yourself. get a job where you honestly believe you are contributing to its success. find that role that excites you, that gives you adrenalin rush, that makes your brain tick. get a job that does not feel such a struggle to wake up to every morning. find a job that does not make you feel you are choosing between career and personal life.

know when to move on. switching jobs is not easy, especially when you have built relationships with people at your current work. but learn when to move on. real relationships do not disappear just because you switched jobs. on another hand, a bigger pay (minus a better career opportunity) is a bad career move. it will make your pocket heavier but it will not provide you a bigger return in the future.

learn the art of finding and developing the right people. the key to your successful career is not about what things you get done right by yourself. it is all about how effective you are at creating avenues for good teamwork to prosper. it is about finding the potential in people and developing them. it is about accepting that sometimes you make wrong decisions on who to develop and that you need to move on. it is about recognizing credit where it is due and calling out opportunities to improve where it is needed.

get a mentor. if there is just one advice i would give to people who are looking at improving their professional capacity, then this is it. find a mentor. listen to what they have to say. learn from their mistakes. let them show you how to get from where you are to where you want to go. success is never an independent effort. behind every successful person is a collective influence. let this mentor be one of yours.

having said all these to a friend of mine at a different time, she poses a very good question. “what has my market value got to do with my quest for financial freedom?”

unless you have multiple sources of income, the best way to increase your income stream is to make yourself more valuable anywhere (not only at your current employer). although higher salary does not guarantee a quicker path to financial freedom, it is a very powerful capital in building your net worth for the future.

when you earn enough to cover for your day to day needs, you can increase the percentage of your net pay that goes to your egg nest without having to strain and struggle making ends meet. an increased value put aside for the future battles the impact of inflation and provides you access to financial vehicles otherwise unavailable to you. when you earn enough, you can afford to splurge a bit on that family vacation you’ve been meaning to do for a time knowing you would still have enough set aside for retirement. when you earn enough, you would have enough cashflow to afford that life insurance policy, the tuition for MBA school, or sending your two kids to that very good but expensive school. when you earn enough, it does not feel like you are caught in a rat race and working too much only to spend it all.

and when you earn enough because you have made yourself professionally valuable, you limit the risk of career strain brought about by being one of the thousand mediocre employees. companies will always pay a premium to get someone who has something to bring to the table. and when that time comes that you eventually take that big leap and start a business of your own, your corporate experience will teach you how to hire the right kind of people.

but then, i realized that when i really think about it, i spent more time talking with my daughter than any working mother i know (and a good bulk of full-time housewives i know). i may not be holding her in my arms when i do it or i may not be able to see her from across the room when we talk but we actually make pretty interesting conversations together. her grandmother (my mother) and she would do a doctor-mother of the patient roleplay for me. she would ask me to read her fairy tale stories. she would do ballet dancing for me. she would show off her new parody of nursery rhymes (yes, at two years old, she knows how to do that). she would ask me what stuff i bought for her and asks me to describe how mickey mouse reacted when i told him she is coming to see him. we would put on make up together and she would assess whether i look prettier than her after that is done.

and because i do not get to see her everyday, i always ensure these conversations are all about the wonderful things about life and about her. i do not take these moments for granted because i do not have a lot of them at my disposal.

peole feel i am missing a lot of my daughter growing up because my work takes me away from her. sometimes when things are rough at work, i thought the same as well. but then, i realized, i have the best job in the world. i work for the most family-oriented boss i have ever known. i can spend longer time with my daughter before and after my frequent business trips. i love my work; it does not make me miserable. it does not make me feel i am giving up something to put food on the table and provide for our future. it allows me to foster even stronger relationship with my family which allows my daughter to grow up in a family that loves and cares for each other. my daughter does not wonder when she wakes up and she sees me sleeping with her; i would see her smile and i know she understood it is that time that Mummy is home again. she does not cry when she wakes up and found me gone; she knows where i am going and she knows i am going back to her. my daughter, at age two, understands the nature of work and why i do it. she does not see it as a threat; she understands it is one of the means to an end.

i never talk to my daughter; i am always talking with her. we talk about her dolls; we talk about Mickey and Dora and Cinderella and Snow White. we talk about the snow in Japan and the scuba diving in Indonesia and the lure of Europe. she doesn’t understand a lot of it but it excites her and she would ask me where else i would like to bring her and i would watch her, over facetime, with that pure innocence and authentic excitement as she grins from ear to ear.

i do not believe you need consistent physical contact to make great relationships. you need consistent positive contact, physical or otherwise. you do not foster great relationship with a kid when all the kid can remember is how many times he got scolded for not doing things as you expected. you do not build a strong relationship with your daughter when most of the time you are around her, you are doing something else- preparing dinner, arguing with her father, complaining about housework, worrying about money, watching television. quality time is not all about being there all the time; it is all about what you do when you are around them and when you are away from them.

i know this is so because my parents have mastered the art of quality time. we came from a poor family and they need to work very hard to make ends meet. they wake up very early to open the store and comes home late. they were rarely in the parents-teachers meeting at school (but who cares about those shit really?). but i have to think really hard of these moments when they are not there with us because the ones i remember easily are those times that count. they have always been there when we need them to. my father worked overseas all his life but he can remember every single name of every friend i have (even if he has not meet them); he remembers the poems i wrote long after i forget them. my mother reared every single one of us while juggling the aftermath of our bankruptcy and the stress of day to day life and she reared us well. she has always been there way after we moved out and started living on our own. she is the rock unto which we all draw our strengths because when we talk, she listens. and when we are loss for words, she offers her wisdom. my parents do not have all the luxury in the world to own their time but they have never made us feel that it was either us or making a living. they never took those moments they can bond with us for granted because they do not have a lot of them at their disposal.

sometimes, when i am away from my daughter, i thought of these things. and because i am away from her a lot, i thought of these more often than i need to. sometimes, my strength wavers and doubt starts creeping in. but then, my iphone would ring and Grape would call.

and then i find happiness again.

for first time investors, however, the bigger question is not whether right now is a good time to enter the stock market. the more important issue to address is whether you are properly covered financially when the usual monetary inconveniences hits the fan.

why is this so? investing in the stock market is a long term activity. when you invest in stocks, you acknowledged and respect the law of the farm. the law of the farm recognizes the natural laws and principles that govern the work and determine the harvest. a sugarcane plantation requires certain investments in money and time for the harvest to be bountiful. doubling the money you put into a sugarcane plantation does not make the harvest season to arrive earlier.  put it another way, having all the time to wait for the harvest without putting enough investment on the farm does not guarantee you will generate quality crop. investing in stocks require you to allow time to grow your money (assuming you have picked stocks of solid, profitable companies).

when one invests in equities, one should do so using funds they can afford to not need for a couple of years.  and the only way for this to be possible is to ensure that you are covered financially when shit happen.  and this is one of the major role of an emergency fund. an emergency fund allow you to address unplanned event in your life without you having to sacrifice your investments.  emergency funds can pay those hospital bills, or fix your broken car, or that Hong Kong disneyland trip you promised (and did not fund for) to your kid if they end up at the top of their class.

you need to set up an emergency fund even before you venture into high risk, high return financial investment vehicles.  this will keep you from having to prematurely liquidate your investments because you do not have enough cash to cover for emergencies.

when is an emergency fund considered enough?

financial experts have different opinion on how much emergency fund is considered enough.  the number varies from three months to one year’s worth of expenses. personally, i built three month’s worth of emergency fund before i ventured into investing.  and then, i continuously added funds to my emergency fund alongside investing with a goal of having one year’s worth of emergency fund. as of this writing, i am covered for eight month’s worth of my expenses. hopefully, i never have to drain it out for emergencies.

what should be covered in an emergency fund?

i answered this question by looking at my monthly and annual commitments. when i started, i only covered for the basic necessities like rent, utilities, meals, transportation and the monthly allowance for my siblings whom i was (and am) currently sending to school (if you have family, your children’s basic needs should definitely be added in the list).  after building three month’s worth of fund for these, i started considering annual commitments like premiums for my life, car and health insurance. i have also started covering tuition fees for my dependents. when i get to six month’s worth of that, i added another budget for my splurge fund, having developed quite a habit of buying promo airfare tickets to just anywhere else in the world.

the first step is always the most challenging.

the difficult thing about building an emergency fund is insisting discipline on it.  Filipinos are naturally optimistic people and that optimism provides us a brighter outlook on everything.  on the bad side, it also makes us a bit lax when it comes to instilling commitment on building a fund for bad things that may or may not happen.  when things are smooth sailing, it is kind of hard to imagine things going suddenly wrong.

on another hand, when we are living from paycheck to paycheck, the excuse has become centered on the fact that we barely could meet our day to day needs that it is almost close to impossible to set aside money for a future emergency.  the irony of this argument though is the fact that we only need to look back to the history of our payslip and we can easily see that our lifestyle is changing upwards faster than our salary could catch up with it.  the problem is not about not having enough money to set aside for emergency funds; the problem is that we are spending at a faster rate than we are earning the money to fund for it.

the key to battling with these misconceptions is to get one’s self into a force savings routine.  in an investment program i have introduced in the company i worked for, employees have the option to enroll in an auto-debit investment program where every payroll, a pre-defined amount is deducted from their payroll and the company remitted the same to the investment vehicle of their choice.  a number of my rank and file employees put in between 5-10% of their pay into the program.  strangely for them, they found absolutely no degradation on their current lifestyle.  they could barely feel the reduction; quite automatically, their spending habits accommodated the lesser money.  

a number of companies offer an employee savings program (the luckier employees get to enjoy an employer match).  if you work for a company that has this, take advantage of that.  it will simplify the need to develop discipline to save for emergency funds.  if you do not have this option, activate an auto-transfer from your payroll account to another savings account you have no ATM access of. 

be smart where you maintain your emergency fund

having three months to twelve months worth of emergency fund is a lot of money.  and because you set it aside for something that may or may not happen, it pays to know where to park it.

after a couple of years of trial and error, i have found out a way that maximized the value of my emergency fund and at the same time provides me confidence of its capital preservation.

1. leave one month’s of your emergency fund in a regular savings account.  leaving it in a regular savings accounts allow you to withdraw it without fees or penalties when you need it. on the bad side, a savings account does not protect you from inflation loss.

2. put about three months’ worth of emergency fund into a money market fund.   money market funds are not guaranteed by PDIC but is a very highly liquid investment vehicle.  it also has a very short lock in period- about three days for most financial institutions offering it. there is no guarantee of capital preservation for this product but due to the nature of the fund, it is highly possible to keep the value of your investment and enjoy a bit higher return on your money than keeping it in a regular savings account or a time deposit account.

if you have more than four month’s worth of emergency fund, it would be worth considering putting the money in excess of four months into financial vehicles that provides an opportunity for higher returns in exchange of a bit of investment risks.  in my case, i invested the balance in retail treasury bonds.  retail treasury bonds are issued by the Philippine government and pays the holder quarterly interest.  i got access to the earlier issued bonds and currently enjoying 5-8% interest on those, materially higher than the more recently issued bonds.  partly because of that, the bonds i currently have are trading between 120% to 150% of their face amount (i got them at 99% to 101%).  

retail treasury bonds require higher minimum amounts to invest though (minimum investment is Php200,000 per treasury bond). alternatively, a bond fund could provide you the same (or even higher) rate of return without investing a huge amount everytime.  bond fund allows investor to participate on certain bonds the asset carries that is otherwise inaccessible to buy directly.  the value of your investment fluctuates daily though as it is also exposed to the daily fluctuations of the bond’s market value.  i will be discussing retail treasury bonds and bond fund in more detail in my future posts.

going back to my acquaintances’ inquiry on the timing of putting in equity investments, i asked each of them about the current state of their financial affairs. true enough to my hunch, most of them do not have an emergency fund set up.   they were more excited about the prospect of starting to fund their retirement years it did not occur to them that having an emergency fund actually could complement that.

it is understandable that people get are more inclined to spend money in the present than building an egg nest for retirement.  it is even more understandable that people get more excited building a retirement fund than saving for rainy days.  but as certain as you will reach your golden age is the possibility of a financial windfall. someone gets sick. cars break down. we lose our jobs.

it pays to pay attention to that.   

at that time, i already paid all my debts and have been debt free for close to a year. i had no credit cards so i was making all my purchases in cash.  i have also increased my market value to twice as much as the salary my second employer offered to me.  this enabled me to do a lot of things that was difficult before. i was able to fund the college education of two of my siblings.  i was able to afford a holiday for the entire family. i could finance without blinking an eye our noche buenas and new years eve celebration. i was able to afford a hobby: scuba diving (and boy, did i scuba dive a lot!). i started to travel and explore and i liked it.  i got very comfortable with the  idea of not ever have to worry whether i have enough money for my sibling’s tuition or for that holiday i want or for the rent and utilities.

then one day as i was driving home from work along C-5 highway, i passed a car sandwiched between a truck and an SUV.  i did not see the blood but i did not need to; no one could have survived the impact of that crash.

i started thinking about what would have happened if i was the one in that car. as with most Filipinos, i did not like entertaining the thought about death and dying.   at that moment, though, i thought about what will happen to my family if i die early.  i am pretty sure they will grieve over my death.  i am pretty sure my parents could find a way to send all my siblings to school (i am the eldest in the family of six) but i am pretty sure it will be tough for them.  and with my increased earning power, i have also brought my lifestyle and that of my family at a huge improvement from two years before. they will lose that, too.  i was very uncomfortable and sad thinking about it that i started asking myself if there actually is an inheritance i can leave to my family if i die too soon.

the only life insurance i had at that point was a Php500,000 whole life insurance i got two years ago.  my reason for taking insurance has nothing to do with providing for my family in the event of my demise.  i took my first insurance policy so i would feel a part of my earned money is at least going somewhere. there is a much more serious and important reason to take out an insurance and that is not one of them.  during that time, however, that was how i ended up with the only whole life insurance in my bucket of insurance(s).  i paid Php10,000/year premium for that coverage, with a self-liquidating feature. i got it from an agent who somehow got hold of my number through referrals.

if i died then, that Php500k could disappear quickly and leave my family with nothing in less than a year.  i felt that my desire to help my parents provide a better life for all of us is wanting if i am only going to make that a possibility while i am still alive.  i felt the need to address that and so i did.

learn the basic types of insurance coverage

i called up the same agent and told her i can set aside another Php20,000/year in premium payments for an insurance.  at that moment, i already did a lot of research and found out that the first policy i got was called whole life insurance.  although it was marketed as having a self-liquidating feature, my responsibility for the annual payments can be revived if the earned dividends will not be enough to cover for the annual premium.  in whole life insurance policies, you pay the same premium every year for as long as you live, otherwise, your insurance coverage lapse. 

another alternative to whole life insurance is called term insurance.  term insurance comes in many form but the simplest way to describe them is that it is an insurance policy that covers you for a specific time period.  once that covered period is over, the insurance lapse. the more popular term insurance have guaranteed cash values at the end of the term and have pre-determined number of payments (five, seven, ten, fifteen).   for example, a term insurance plan would require you to pay Php20,000/year for the next ten years with a maturity period of twenty years, of which you will receive Php600,000.  this simply means that you pay the premium for the first ten years, you wait for another ten and you get the guaranteed cash value at the end of the twentieth year.  that is, if you are still alive by then. if at any point during that twenty-year period you die, your beneficiary will get the face amount of the plan (which is often the same as the guaranteed maturity value of the policy). accidental death benefit usually double the face amount so if i was that person in that wrecked SUV and i have had this plan at the time of my death, my beneficiary would receive Php1.2MM.  after the twenty-year period, the insurance ceases.

the succeeding six insurance policies i took out in the five years that followed were all term.  and they will all lapse before i turn 50. that means, before i turn 50, i would have gotten the guaranteed cash value of all these insurance policies but i will also become uninsured.

the second alternative to the whole life insurance called Variable Unit Life (VUL) insurance has gain popularity in recent years.  VUL is a yearly renewable insurance that has an active investment component attached to it.  how does it work?  you, as a policy holder, chooses either a five year or a ten year payment period (these are the popular ones) and a premium payment you can afford.  your insurance coverage is an x factor of your premium (it can be up to 20x of your annual premium). a part of your premium payment will be allocated to an investment of your choice (equity, bond, balanced).  by appointing the insurance company to invest your money for you, the insurance company will charge you a premium load and annual management fees.  Premium loads are very material in the first few years of your policy (40%, 30%, 20%, 10% of your premium payment are deducted during the first to fourth year, respectively).   this simply means that if your annual premium is Php60,000, forty percent of that will be withheld by your insurance company as the premium load. on the fourth year, ten percent of that is withheld.      on top of the premium load, the insurance company also charges you an insurance cost and other fees that you normally does not notice in whole life and term insurance because they have already been factored in the premium payments you pay every year.  considering these charges when picking the type of insurance you want helps in a sense that it will make you understand the cost of getting yourself insured.  but the more important feature of VUL that one must understand accurately is that the insurance cost of getting an insurance coverage you pre-determined when you sign up for the policy increases as you age.  unlike term and whole life, the amount you pay for getting covered Php1.2M  under a VUL increases as you age.

VULs are a thing of beauty and is the best type of insurance for certain type of people.  the insurance policy that i will be taking out starting this year will all be VULs.

determine the period you are most likely to need an insurance

no one knows when they are going to die, maybe except a (fortunate or unfortunate, depending on how you look at it) few.  for most of us, death does not call to make an appointment.  we do not know know when we are going to die but we always know if:

1. we have someone financially dependent on us

2. when this someone (or group of people) will continue to be dependent on us

the only reason you will take out an insurance is to provide financial assistance to people you love in the event of your untimely death.  there is no other reason.  if an insurance agent urges you to take a life insurance for investment purposes, do not entertain that agent. he either does not understand what he is selling or he is full of shit.

insurance is not an investment

people often confuse insurance as a lazy form of investing.  i know of people who take out insurance solely on the basis of the guaranteed cash value (i am not proud of this but this was the tactic i used in the early years of insurance shopping). i know of people who would frown at an insurance proposal and would claim they could get a higher return investing money in the stock market.

the only reason you will take out an insurance is to provide financial assistance to people you love in the event of your untimely death. there. i said it again.  you do not take an insurance because you want to invest for your retirement years. insurance and investment are entirely different things (but that does not mean they cannot be combined).  as a comparison, think about that vehicle insurance you are paying for your car.  at the moment, i am paying around Php25k/year insurance premium for my Sta. Fe. i am paying that to cover myself in the event someone decides to carnap my SUV. i did not take that insurance thinking i will make money out of it. i wanted peace of mind when bad things like that happen and for that peace of mind, it cost me Php25k/year.

you sign up for an insurance to protect your dependents for any financial windfall they may experience due to your untimely death.  if you have no dependents or if you have enough liquid assets to secure their future, you are a lesser candidate for getting an insurance policy. but if you are a breadwinner in your twenties or thirties and you have no liquid assets to your name,  envision the future of your loved ones after your untimely death and ask yourself if that is the kind of financial situation you would want to leave them with.

probably not.

i have asked the same thing a few years ago and every year thereon.  that was how i figured out how much insurance i should have and what kind of insurance product i should get.  all about that in my next post.

i have been working at my first job for about three years.  i was already earning thrice the salary they offered me when i joined the company, largely due to a series of promotions (which would have been nonexistent if i did not have effective mentors who guided me along the way).  i was at the last trimester of my graduate school years.  my father has been bragging non-stop about his eldest daughter working in this billion dollar multinational company and is about to finish her MBA degree  and my mother has been the envy of her contemporaries for having such a successful daughter (never mind the fact that most of them never got the name of my company right).

i also have about eight credit cards with a combined limit equal to my annual salary, all maxed out. i could barely keep up with the minimum payments.  i have rude collectors calling all day, hurling threats of landing to jail for non-payment (if i knew then what i know now, i could have sued them and won). i can barely feel the impact of my paycheck; i would buy canned goods and groceries from a Caltex shop for consumption, using my gas card.

obviously, i was living beyond my means.

looking back at it now, i am not quite sure when it started. i do know i just did not wake up one day and max out all my credit cards. i am pretty sure the overspending happened gradually.  but i was in denial of reality and was living under the assumption that i still got everything under control.  i am an accountant, for fuck sake, i would know when i would have a negative net worth (that was my arrogance talking).

it was a (post breakup) statement made by an intoxicated ex-boyfriend (who still happen to be a very good friend of mine up to this day; no unresolved issues there) about having to financially bail me out too often that snap me out straight to reality.  the statement was true and it was embarrassing and it hurt me.  i did (and do) not want to be that person.  i did a financial check up on myself the morning after and found out what i was worth financially.

i was not worth that much on financial paper. in fact, i had a negative net worth. and those credit card debts were raking interest charges every single second i am not paying the principal down.  i also did not know anybody who can loan me that much money to pay them all off. i had no asset to my name.  my future income could barely support my current lifestyle.  in short, i was financially screwed.

i knew the debts will not go away on its own. i had to make a plan. so, i drawn up one.

scale down your lifestyle

at first, it was a bit difficult to identify cost savings because it was not like i am shopping addict nor i spend a lot when i am at bar with friends.   i had to look hard to connect the dots and found out it was the little stuff that added up.  it was grabbing a taxi to and from work and school because i hated commuting (and that was about 10% of my pay).  it was eating out in restaurants once or twice a week and that easily took another 10% of my pay.  and contrary to what i initially thought, the money i spent on going to bars at least once a week was another 15% of my pay.

your monthly expenses now may also be higher than the net pay you bring home every month.  but you may be a family man and has long cease going to bars.  you commute to and from work. you do not eat out that often.  but the fact that you still find your ATM account zeroed out long before the next paycheck hit your bank, you are living beyond your means. add up the money you spent on those starbuck lattes or those boxes of cigarettes.  or that once a week trip to the mall with your wife and kids.  or your postpaid bill. or that amount you spent on rent (what? it is 30% of your net pay? seriously?) because you like a condominium address.  or those charges from crazy, bottom rock prices on group-buying deals (do you really use them?). or the zero-interest deals on a new Samsung TV or the latest gadgets.

there is no use spending on convenience if you cannot afford it on the first place.  i learned that the hard way.

own up to your debts and demand for a repayment schedule you can afford. 

i stopped evading collection calls and started talking to credit card collectors and owned up to the reality that i am broke and unless they are willing to meet me halfway, i will not be able to pay them anything at all.  all of them were willing to negotiate for a payment arrangement.  i agreed to the ones i believe i can afford and signed a restructuring agreement.  then, i made sure i never missed a single payment.

collection agencies are paid as a percentage of what they can collect.  if you demand for a payment arrangement you can commit, no collector will reject that and opt for a “full or no payment” from you.  it is important that you own up to your debts and you tell them exactly what you can afford (there is no use window dressing your financial capacity at this point).  they would rather get staggered payments from you than none at all.

it is also at this point that i will tell you that there is no good thing that will come out running away from your debt. contrary to popular belief, it will not be wiped out in five years. there will always be a trail; i know that for a fact. i still have my name in the bad credit card debt database (even though there is a note there that the debt has long been paid and settled); i know that because my banker tells me.  it will not disappear.  and every time a financial institution will do a credit check on you, it will show up.  it could cost you that future loan you desperately need approved.

continuously aim to increase your market value

at this point, i was determined to cut back on my spending habits but there were stuff that i thought were emotionally important in preserving my self worth and to keep me from being more miserable than i already am. i wanted to be able to enjoy a little bit of splurging every now and then.  (for family people out there, compare this to the feeling of being able to buy your kid a toy they really like or that romantic holiday your wife would really appreciate).  i was not looking forward to about two years of struggling to pay off my debts if i have a choice.

and i had a choice.  i could earn more.

at that point, my only cash cow was my own labor capacity.  i had no other income source beyond my own paycheck.   fortunately for me, i had seek career guidance with few effective mentors (and worked with difficult or indifferent bosses who taught me a thing or two about management) and they have helped me focus on areas i need to develop (unfortunately, personal finance was not identified).  in between training, mentoring and my drive to become a much better version of my corporate self, i was able to increase my market value in the labor workforce.

i started looking for my next employer. about the same time, a Finance Director who interviewed me a year before for a supervisory position (whom i turned down) came back to me for a managerial role.  i liked the job. i like her. and the role pays twice as my current salary.

i took it.

luck definitely had something to do with it. i was lucky the financial windfall happened when there was an option to earn more (others won’t be so lucky).  i was lucky that i switched from a job i like to another job that was even better, and got paid twice as much for it.

but luck would have been useless if i didn’t work on my market value, if i did not recognize the integral role a good training and exposure has in a career development.

it pays to be be ready when luck knocks on your door.  it helps to have an option when things get rough.  if you are employed right now, continue honing your skills.  take advantage of the opportunity to improve on your efficiency and productivity.  get a mentor.  consider further studies or finish that degree.  find a job you love doing so it will never have to be an effort to perform.

if you have no cash to pay for it, don’t use plastic

i never had to apply for a credit card.  they all came pre-approved (perks of being a regular employee of a huge multinational company).  i never turned them down, either. i felt it was handy when emergency strikes and i have no cash to spare.  it was not long after i started using cards for non emergency reasons.  it was not long until i started charging all sort of things to my card and not having the cash to pay for it.  and gradually, even the minimum due from all the credit cards were too high for me to pay off every month.

plastic, i have learned a few years later, provides a powerful purchasing power if you manage it well.  if you do not charge a purchase you cannot afford on it.  if you pay it in full when the statement is due.  it provides access to purchases otherwise not possible without it.  it provides temporary funding on purchases when you have no immediate access to your cash.  some plastic provides rebates, discounts and miles (you can convert to free flights for that much needed vacation).

but never use your credit card as a means for buying things you cannot afford.  your credit limit does not increase your capacity as a payor.

if you cannot afford it by paying cash, do not swipe the plastic.

i remember us sitting on our bed, softly crying. it is not like our parents have any extra money to send to us. it is not like either of us have the courage to call home for that. and even if we did, it is not like we have money to make a long distance call.

i remember us, Jesse and myself, sitting on our bed, softly crying.

i remember thinking how nice it would be to never have to worry about money ever again.

fast forward to the present, i still worry about money. but it is a different problem altogether now. i worry about my retirement years. i worry about my daughter’s future. i worry about dying too early and my insurance is not enough to cover for my family’s need in the next ten years.  i worry about getting ill and wiping out my financial nest trying to get healthy again. i worry about getting old and not being able to bring my family to discover the world.

i worry about these things because they can happen. and that shit about money not being the answer to everything is a poor excuse for people not wanting to address the elephant in the room. tell that to a family who just lost a father and an income source; dealing with death is hard enough on its own to add a financial burden on that. tell that to helpless aging parents who are fully dependent on their married children because they have not prepared for their retirement. tell that to a high school student who could not go to college because the savings fund has been wiped out and replaced with hospital debts due to a parent’s critical illness.

most often than not, i met people who have plans to save for the future and rainy days when they get their present sorted out. but they never got out of living from paycheck to paycheck. there are credit card debts. there is the housing loan. there’s the horrendous tuition fee from that montessori school. there’s the car that breaks down every year.

i worry about those things because life is wonderful and should be spent with people you love doing thing you enjoy. not on extended working hours trying to get that promotion for higher pay in expense of family time. not on little fights about money (specifically, the lack of it) that eventually will put a strain on the relationship.  not about daydreaming on how nice it would have been if you could just splurge on a holiday and not think about the cost.  not about dragging yourself out of your bed every morning to an office doing the kind of work you absolutely hate but could not leave because you have no other financial alternative.

my financial worries do not give me fear because i know how to address them.  how to attain financial freedom is not a closely guarded secret; it is a matter of commitment, humility, and time.  it is not sacrificing the comforts of your present but rather, it is delaying gratification (huge difference there).  it is not a choice between relationships and money; it is knowing your priorities.

this is a journal to my trek to financial freedom. learn with me.

if not for the notes i have scribbled as life flashed before me, i would have not remembered i almost had a breakdown at the start of the year.  of course, what mattered was that i never got there. and what matters now is that overall, it was a pretty cool year. i ventured actively into the stock market. i expanded my sugarcane farming. Father finally retired. Grape zoomed past her first year and communicate like she just decided she is four years old. i still traveled as much as i did the years before (for work, that is). i still sort of overspent.

i like 2012 particularly because it was a year of discoveries and acceptance.  lesser drama, more practicality. none of the lowest point of my life events or most unforgettable experience moment to boast of.  it was a full year of tolerable happenings and honest-to-goodness happiness. no hitting rock bottom and zooming to greater heights. perhaps, that could be why it felt so fast. and if there was something i would complain about the year, it was that: that it went by so swiftly.  2012 came. and then off it went.

Savouring the memory now, i feel a certain contentment and satisfaction about the year that was. i like it for what it was and i look forward to many years like that.