5 Essential Steps in Effective Money Management

Majority of people would be earning incomes during their productive years (ages 22-60) and it is rather ironic as it is lamentable that when they reach their retirement time, only a handful (3 out of 20 people, according to some statistics) of people would have money to support a decent retirement. Professional planners would have known the reason or reasons for this unfortunate situation: it is not a matter of the presence of money but of how that money is spent.

Sieving through the core ideas from various literature on financial planning, here are five essential steps to help people manage their finances effectively.

1. Spend only what you earn (SOWYE). Professional financial managers consider this step as the most important challenge to your money management effort. It means you must limit your spending to the amount of your earnings. You must use your credit cards sparingly wisely. It means you must not buy on impulse. It means that your spending is based on a well-thought out budgeting process. It means that your spending must result clearly in a benefit. Spending what you earn is living within your means. This must be the framework of your financial planning.

2. Save at least 10% of your gross income. According to financial experts, saving early and saving at least 10% of your gross income as if it were a bill you are paying can make wonders on your accumulation program. A $200-a-month savings at age 30 may not mean much by itself but overtime, the total amount can most likely lend some decency to old age living.

3. Begin with an emergency savings account. Now, this is IMPORTANT: Label this account as such – Emergency Savings Account – so that you do not touch it unless you have an emergency. When you have accumulated enough to cover three months salary, open another account and label it My Wealth Accumulation (MWA) program. This account shall be your mother account that should fund all your life insurance, savings, investments and other accumulation strategies in the future.

4. Develop an investment portfolio. As you grow in your career or business, your knowledge and skills in financial management should follow to a point where your strategies form into a well-organized portfolio of investments. This means that you are not only looking at life insurance and banks but also at other alternative instruments that are safe yet potentially growing. You may for example have, aside from your life insurance and emergency account, a portfolio composed of equities, bonds, real estate or mutual funds, selected according to your situation and temperament.

5. Have a distribution plan. Money management is not all accumulation, for in the end, what you accumulate will not go with you. You must have a well-thought out distribution plan so that your loved ones get the chunks of your legacy according to their individual suitability.

Your financial plan must not burden you so much as to remove your enjoyment of life. You must enjoy your work and your earnings, by yourself and with your family. Just remember that you only live once but got all the chances in your lifetime to make it grand.

-----

Orlando G. Javier LUTCF is a past president of the Life Underwriters Association of the Philippines and a Fellow of the American College. He is a strong advocate of financial wellness and has conducted trainings on the advocacy for the last ten years. As a consultant, he conducts financial wellness analyses for free as a public service.

You may want to check out:

Finding Life's Meaning: What Priceth Dignity?

How Do You Know It’s Not Aneurysm?

Six Steps to Managing Change Successfully

Where Do We Put our Money Now?

Recession is not a desirable word but it has become a byword in every conversation. Because of its far-reaching effect on our ability to earn, it has scared us to the point of tightening our hold on our money. Where we use to spend every cent in our pocket, we now put our decision on hold as we try to search the right reasons for our spending.

But tightening our grip assumes a different tack when we talk about money placed in investments and other accumulation forms. As stock markets plunge and more businesses and investments collapse, we cannot simply watch as our money melts before our eyes. And even before we make an impulsive decision to liquidate that investment certificate, we must, first of all, know where to put our money if we do.

Cash at home. Logic dictates that we should only keep so much at home, even if our home is a virtual fortress with no windows. We should keep only an amount enough for a few days' needs and for minor emergencies.

Deposit accounts. The banks are the next natural destinations for anything in excess. We can put some amounts in savings accounts and the rest in time deposits to maximize our interest earnings. Let us also be careful in choosing our banks.

Insurance policies. The recession has actually pushed us to a serious review of our "face value." Experts in financial planning suggest to focus seriously on our topmost foundational needs, known as the PEP needs - protection for the family, education for the cildren and pension for us in our old age. Let us be sure that these needs are fully addressed before any other need or want is considered.

Mutual funds, variable contracts and UITFs. These three investment forms have a flexibility that will suit any kind of investor. These funds are pooled funds from small and medium investors whose combined contributions allow their fund managers to engage in umbrella investments in stocks, bonds and real estate. The flexibility comes in the choices among low risk, medium risk and high risk packages.

Real estate. Real estate remains a favorite accumulation form because of its physical nature and its ability to appreciate naturally over a period of time.

There are other destinations for our money, such as bonds, stocks, business ventures, commodities, art, hedge and other high-yielding forms, but we temper their inclusion here because these destinations go against our present financial cautiousness. If financial options are wide, opportunities abound for the astute investor, even in a down economy.
The key is to so spread our investments wisely such that our allocation serves us well whichever way the economy goes. If the economy is good, we accumulate enough; if the economy turns sour, we preserve enough.

YSK: The Wealth We Need

"We all deserve the best." - ANON.

YSK stands for the Filipino words “Yamang Sapat sa Kailangan” or “wealth according to our needs” in English. Our advocacy calls not for amassing wealth for its sake, but for aiming for a little more than what we need. The “little more” is a strategy for stretch to cover unforeseen events or unprogrammed needs.

The Amount Desired and When Needed

After having identified our top priority or priorities (all of them become priorities when they are due!), it’s now time to establish the absolute amount we need for that priority and when we need the fund. As the amount is relative, in the same way our financial capacities vary individually, we shall try to establish the minimum level required to cover the need or needs.

For our purpose, the amount we will establish shall be expressed in Philippine pesos with equivalent conversion in US dollars based on a rounded exchange level of 1:50. (Exchange rate as of December 2006 is 1:49.03)


We will assume that an emergency fund (at least three months of income to cover against sudden illness, accident, or loss of job) is a given, considering that it is the first level of savings. We will attempt to establish our YSK to cover three universal financial needs which we identify here as the foremost, most driving, most motivating foundational needs of a productive human being.

1. Money for you,
2. Money for your children’s education,
3. Money for your family, whatever happens.

Which of these is your top priority right now?


Money For You

Let’s talk about you and your money. You are probably presently earning, and therefore, you have money. The “money for you” we refer to here is the money you will need to keep you intact when you stop working, or earning, for whatever reason. For most of the situations, this is retirement money. How much would you need when you retire?

We used an assumption earlier based on an arbitrary choice of P20,000 monthly for one person. Let’s validate that amount with details of possible minimum monthly expenses: food at P10,000; transportation at P3,000; utilities at P2,000; medicines and supplements at P4,000; clothing at P1,000. All bare essentials. No frills, no extras. Just enough to survive, based on costs at the present time.

If we input inflation, this P20,000 may well become P40,000 after 18 years at an average 4% inflation rate.

Let’s forget inflation for a while, since we all individually represent different ages. At P20,000 a month, how much would we need in lump sum to allow us that continuous stream of monthly income? At 10% interest rate, we need a principal of P2,400,000!

Question: Do you have this amount already?

If you have, you are one among the three (3) persons out of 1000, as per Central Bank statistics, who are already in an enviable “second enough” situation. But remember that, at 4% inflation, what you have is only one-half of what you will need.

If you don’t have this amount yet, how much have you got for this purpose? The closest preparation we can find for this future financial need would be a company retirement benefit for employed individuals, or a pension pre-need plan or endowment insurance plan purchased by professionals and businessmen. The difference between P2.4M and what you have is the object of your quest, and depending on your present earning capacity, you may set up your retirement program right away, or set it up gradually, little by little, according to your resources, until you are able to grow your fund into the size big enough to give you your desired income stream.


Money For The Children’s Education

Education is a universal need. We don’t have to belabor the importance of education to life, to individuals, to families, to nations. In fact, education may even occupy a more pre-eminent position in the needs hierarchy than retirement. But because education is relevant only to persons with children, which is a lesser universe, we have put retirement as the first item of choice for future preparation.

There is no disputing that education pre-determines the future, to a great extent. Between a person who has a degree and one without, certainly in more than just majority of the situations, the one with the degree is more successful.

In the Philippines, education is a top priority. Next to need for subsistence, education will battle for priority with clothing and shelter and win! With a great majority of the population at the CDE economic level, parents will sacrifice other needs just to give their children the best education they can find.

Under normal conditions, it will take, more or less, eighteen (18) regular study years to finish a five-year college course. But since there are at least three economic levels of education - namely public, private and exclusive – the amount needed to complete a full study will vary according to the choices made. Besides, since preparation requires time, the pre-college schooling (pre-school, gradeschool, highschool) are usually overtaken by the present time that it will be almost futile if not extremely difficult to prepare for them. Hence, our preparation may be limited to college study, for practical reasons.

Roughly, the amounts needed for the three levels, based on 2006 costs, are:

Public – P25t/year; Private Nonexclusive – P70t/year; Exclusive – P150t/year

How well are you doing in this regard?


Money For The Family, Whatever Happens

Our premise in wealth accumulation is that we want to make the most and the best of our lives while we are alive. Hence, our earlier preparations for our present comfort, then for our children’s education, then for our own retirement, all run along this spirit. And that is to say, the most and the best of our lives do not mean a life lived alone but one lived with our loved ones, our family. Our family is as much a part of our enjoyment as life itself. And certainly, our concern for their welfare goes beyond our lifetime.

We care for them and we care enough about what will happen to them should anything happen to us. Certainly, we want them to continue the kind of life they live even after we are gone. Which literally means we need to provide a contingency fund that will take over our income-generating capacity when we go.

And the only way we can conveniently provide for this eventuality, which is a certainty as to occurrence but not as to time, is to have a life insurance cover enough to keep them as they are or as we want them to be.

How Much Are You Worth To Your Family?

The rule of thumb that most insurance professionals use is human life value: your total valuation based on your income-generating capacity during your productive period. (This value flows from the reasoning that your family is entitled to the income you generate in your lifetime.) For most people, this is present annual income multiplied by the productive time to retirement. If you are 30 years old, with two children aged 4 and 6, and are earning P600,000 a year, your human life value is P21M.

This means that if you have this cover right now and you passed away yesterday, your family would have been assured of continuous income as if you have not left at all!

But because of the cost of putting up that cover, it is not unusual to use another fingertip formula based on ten times your annual income, flowing from the logic that that amount will allow your family to survive for the next ten years and be able to establish an alternative income source before the insurance amount dissipates. On that basis, the amount needed is 600,000 x 10 or P6M.

The 3 Moneys for YSK

Based on our model age, let’s summarize the 3 money needs to establish our YSK:

Money for you ---------P 2.4 M, cash accumulation upon retirement
Money for your children’s education ----------- P 1.0 M, cash and cover, beginning at age 16 of each child
Money for your family, whatever happens ----- P6.0 M, insurance coverage

Question: How do we set up an accumulation program that will give us all the above benefits at the least outlay?

Assuming that the seed money is not a problem, we can have several options made available by putting together two or more wealth forms. For example, we can have one educational plan for each of the kids, one pension plan from a pre-need company for our retirement and one insurance plan for the contingency of death. Or we can have just one plan covering all three needs.

But if you have to squeeze from a tight budget, we can either adjust our program amounts according to our affordability, or start with our topmost priority, then work up towards completion as our finances improve later.

Affordability

The key to a successful start is really our affordability. How much are we willing to set aside, in lumpsum or regularly, to get our accumulation program started?

Our affordability has a range, let’s admit it. It ranges from the “must” to the “want”. Where we decide to be in that range is a matter resolved by our economic situation and the importance and urgency of the object of our decision.

Where are you now?

(Author's Note: Inquiries and comments regarding this post and other posts may be sent to orlygjavier@yahoo.com.)

Enter The Trigon: Setting Up Your Wealth Program

“There is much more to life than just accumulating possessions.”
- Donald Curtis

The image that makes up our wealth accumulation program does not immediately involve the details of where we put our extra money or how much our money earns. Like in the house of our dreams, we see ourselves viewing from a distance and immensely appreciating the perfect finish of the mediterranean house of our choice that we feel fairly represents our taste, experiences, personality and needs.

In the same vein, the initial image we have of our wealth program is one where we see ourselves enjoying the fruits of our efforts at the exact time that we planned it, in the way that we want it. We are visualizing a wealth structure that is basically durable, lasting and self-sustaining, and therefore, we must be sure that the design, the construction and the finish of the structure can withstand the tests of nature, man and time.

Considering that time is the most crucial element of a wealth program, its construction may be likened to putting up that physical structure, where we start from the base and move up to the size and height that we want. Of course, we won’t proceed unless we have a design of the structure we want to build.

The Trigon Model

The trigon, a triangular pyramid with triangular base, is the strongest of all such structures. The pyramids of Egypt, though of the tetrahedron type (square base) to provide for a wider space for the tombs, exemplify the strength and durability of the pyramidal structure against the test of nature and time.

As a model for wealth accumulation, the layers of the trigon, from the base to the apex, represent our evolving financial needs from the most basic to the most psychic, from needs to wants (Trigon A).

The layers also represent (Trigon B) the arrangement of the wealth forms with which we fund our financial needs and how we deploy and marshal our resources for maximum return. We must note that wealth vehicles vary in yield, safety and liquidity, among other factors, and therefore, our deployment must consider the best mix of these variables according to our financial needs and our specific time frame.


Trigon A

HERITAGE
CHARITY
LEGACY/GIFTS
LEISURE/PERKS
TRAVEL
VACATION
HIGHER EDUCATION
ESTATE TAX FUND
DEBT LIQUIDATION
MOBILITY FUND
FAMILY HOME
DISABILITY INCOME FUND
MEDICAL FUND
PROPERTY COVER
RETIREMENT FUND
EDUCATION FUND
FAMILY INCOME
EMERGENCY FUND

Trigon B

NO TIME FRAME SPECULATIVE FUNDS
GROWTH HIGH RISK FUNDS
MEDIUMTERM BALANCED FUNDS
SHORTTERM SECURE FUNDS
FUNDS FOR CONTINGENCIES/PRIORITIES


Typically, as these financial needs occur chronologically, they will not differ much from person to person as to pattern or sequence, except in the level or in the degree they are pursued. What is important to consider at this point is that, in the realm of time, the needs and wants are in two dimensions: the present and the future. And these two dimensions, eventually, become one and the same. But when they become one, we are not the same! In the present, we are in charge, in the future, we are dependent. Unless we “will” not to be.

And we will not be! Following our trigon model of wealth accumulation, we will start from the base, according to our means, as early as we can, and slowly but surely, step by step, build up the financial structure that, when completed according to our time horizon, will ensure our future financial independence.

6 Steps to Wealth: P A S S I T

Successful wealth accumulation involves six (6) important steps:

1. Identifying the purpose or purposes
2. Determining the amount desired and when needed
3. Identifying the “seed” and the seed source or sources
4. Formulating the strategy or program for accumulation
5. Implementing the program
6. Tracking the program to completion

A great many accumulation programs fail even before they start because they were never intended for anything in the first place! How do most of us start saving? We work to earn, then spend what we earn. If something is left of it, it becomes our saving. In 997 out of 1000 cases, nothing’s left to save! But even if there is, the amount saved becomes of no consequence because it disappears as fast as the urge to spend comes.

The Purpose: What Am I Accumulating For?

The key is to identify a reason for saving, a purpose, a “why," an identity tag, a label, so that we do not surrender to the spending urge when it comes. You will certainly not withdraw and spend money you save for your retirement or for the education of your kids just to buy vacation tickets to Boracay!

The “purpose” then establishes the importance of our accumulation. Certainly, if the purpose is compromisable, or is not worth keeping, the accumulation stands to fail because it is spending-prone. The Trigon model enables us to establish our priorities based on needs, beginning from the most basic for our existence to the most trivial or peripheral or psychic.

In the order of their importance, the following are the needs/wants as we go through life:

1. Survival 10. Second Home
2. Emergency 11. Vacation House
3. Family income 12. Higher Education
4. Education of children 13. Leisure/Old Age Perks
5. Retirement 14. Travel
6. Health Maintenance 15. Hobby
7. Mobility 16. Charity
8. Home 17. Gifts
9. Other Contingencies 18. Legacy/Heritage

Note that as we go through the items in their descending order, the characteristics shift from need to want. These needs and wants are arranged in our Trigon model from the base to the apex, signifying that the more important ones occupy the base and must therefore be given the first priority in accumulation. This should also remind us of motivational psychologist Abraham Maslow suggesting the universality and pyramidal, hierarchical arrangement of human needs in his theory of human motivation.

Our Life Story

Let us encapsulize our story: We work to earn to live. In short, we work to eat. Then, we set aside something for emergencies, such as sickness or accident or loss of job. Then, we set aside something for the education of the kids and for our retirement. We insure against death, fire, accidents. We set up home. We buy a car. We go to higher school. We travel. We go on vacation. We seek leisure. We expand our possessions. We allocate some inheritance for the children when we go. We reserve something for our favorite charity. We aspire to be known as some responsible father, husband, businessman, philanthropist, citizen, creation of God…

Each one of these can be an accumulation purpose and can be addressed by our choice of one or more wealth forms. It is unusual for one person to set them up all at once, not only because they involve a tremendously large outlay, but more so because they happen within our lifetimes one after the other. For practical reasons, there only has to be an order of priority in setting them up (how about first come first served?) and arranged and pursued through a time-tested program of accumulation.

Wanted: A Wealth Accumulation Program That Really Works!

"We have no more right to consume happiness without creating it than to consume wealth without producing it." - Bernard Shaw


Every productive person dreams to accumulate wealth for the future. Many aim for it but only a small number actually achieve it. For the many, it remains an aim and a dream.

The success of a wealth program rests on two major variables: the person creating it and the accumulation method he employs to achieve his financial goals.

For a wealth program to succeed, the wealth creator must recognize the following:

1. Everybody wants to go to heaven but nobody wants to go first. Sure, death must come, but
can we talk about heaven later?
2. All of us want to make the best of our lives while alive. The "best" may mean a lot differently
to many people, but "I shall pass this way only once...," may I make the most of it?
3. As life has evolved to be economic, "making the most and the best" will mean being able to
produce enough materially to support a consumptive life: earning sufficiently to cover needs
and wants, both for the present and for the future.
4. Present production will take care of the present. Future production will not be able to take care of the future because life is characteristically processional and recessional: "From dust thou shalt cometh, to dust thou shalt goeth."
5. There are only two ways we can prepare and have enough for the future: by chance, as in a lotto win or a windfall of inheritance, or by choice, as in a deliberate conscious accumulation effort.
6. Wealth accumulation is possible only as and after wealth is created for the present. The
remainder of the present is the seed of the future.
7. As a remainder is generated, accumulation may be served.
8. There are many forms or vehicles of accumulation that will suit the temperament, level,
lifestyle and needs of any person.
9. Wealth accumulation has time as a most critical element: the longer the time for
accumulation, the greater the success.
10. Most wealth programs fail because of:
- Creator's poor wealth attitude
- Creator's procrastination
- Creator's lack of discipline
- Failure of provider
- Failure of program
- Creator's early death, disabilty or sickness
11. The accumulation method employed must be able to address these obstacles.

But we must also understand that wealth accumulation is just the second stage in a four-stage wealth planning process. First, we must create the material for wealth; we must earn. This is the stage when we work for the "first enough" for our present needs.

Then, the moment we are able to muster an "excess", we can accumulate. This excess, the difference between the value of our earnings and the value of our needs, will be the seed of our future fund. And as many as there are excesses we generate, the same shall be the seeds that can grow to fill up our future wealth orchard.

Of course, whatever wealth we accumulate, we must be able to conserve, at least at its original value, or enhance, that it may gather substantial return to offset its diminution and gain an added value, to allow us to achieve our accumulation goals faster.

Our life curve settles at a definite natural time, or may be shortened by fate. The wealth we accumulate, irrespective of the time of our passage, cannot be part of our luggage. Hence, we must make sure that this wealth shall pass on to our heirs without creating transfer problems to those who will continue the stewardship. This facility for distribution is well within our capacity to conceive and put in place even before we go.

What we are looking for is a wealth accumulation program that will work for many of us. And since many fail, such a program must address the causes of the failure of the many. Characteristically, this program must:

1. Create a present tense of the future, to even out the sedating effects of present enjoyment.
2. Create a positive sense of wealth: feeling deserving, thinking deserving.
3. Inspire urgency, rather than procrastination.
4. Create a feeling of "investment" rather than "sacrifice" for the future.
5. Work against time running out.
6. Cushion against "system failure".
7. Prevent "program failure".
8. Factor the macro-influences of inflation, interest rates, taxation.
9. Promote personal stewardship.
10. Maximize the growth of the vehicles chosen.

Because a wealth accumulation program's most crucial element is time, its construction may be likened to putting up a physical structure where we start from the base and move up to the size and height we want. Of course, we won't proceed unless we have the design and model of the structure we want to build: a model that can withstand the tests of nature, man and time.

The trigon, a triangular structure with triangular base, is the strongest of all such models. Every wealth accumulation program must model the design and construction of the trigon.

In the next post, enter the trigon.

The Psychology of Failure (Or why we must not fail!)

Are you succeeding or failing?

The truth about wealth accumulation is that one never knows he has succeeded or failed until he has reached the irreversible stage when he has succeeded or failed! And this stage is usually the time when there is no more time to make up: too old to be productive, disabled, sick, dead.

And yet this stage does not come as a surprise to everyone. It is known. It is predictable. It is even describable! Which means we can set up an accumulation machinery while there is still time to do so, stay at it with patience and diligence and discipline to make it work, and enjoy the fruits come harvesttime.

Sounds easy!? As a prose, as a song, it does, but it does not happen that way.

How are we doing? Let's location-shoot. Let's locate ourselves in the accumulation journey.

A presentation material of a financial consulting outfit offers this stimulus:

Only 3 out of 20 people reaching the age of 60 have enough money to retire comfortably!

This subtle challenge to the market's consciousness anticipates a number of possible responses: If you are one of the three, congratulations! you are a model! If you are one of the 17, and you are young, and you want to experience a comfortable retirement, you can still be the 4th or the 5th or the 6th who can possibly make it. If you are getting close to an irreversible stage, you may need to doubletime. If you are there already, you are a perfect model of what must not happen, can you please inspire others to begin while there is still enough time?

Are we one of the three or one of the seventeen?

This can be our greatest secret other people may never know! But just to give us a working idea as to how the market is profiled, let's take a handle on one aspect of our financial preparation: our level of bank deposits. A report that was published recently in a national daily carried the following information on the deposit structure in the Philippines for the year 2003:

DEPOSIT ACCOUNTS 2003
(Philippine Population: 70 Million)

Bank Balance -----------Number of Accounts ------------% of Population

P 2 Million up ------------------ 206,000 --------------------------- 0.3 %
P 40,000-P2 M -------------- 4,559,000 --------------------------- 6.5 %
P 15,000-P40,000 ----------- 2,257,000 --------------------------- 3.2 %
Less than P 15,000 ----------21,537,000-------------------------- 30.0 %
No account ------------------ 41,440,000------------------------- 60.0 %

Total ----------------------- 70,000,000 ------------------------100.0%

(Note: Population count and percentages provided by this author.)

A careful analysis of this information will lead us to the following representative groupings:

1. Only 10 in 100 have deposits of at least P 15,000.
2. Only 7 in 100 have deposits of at least P 40,000.
3. Only 3 persons in 1000 have deposits of at least P 2M.

The data did not identify the age groupings of the accountholders, but even if we assume that all of the representative groupings are adults with income sources, it is plain to see that only the last group can stop working anytime and rely on their deposits for continuous sustenance.

ONLY 3 OUT OF 1000 CAN STOP WORKING ANYTIME AND LIVE COMFORTABLY!

Are we among the 3 or among the 997?

My 36 years of experience in the insurance and financial services industry, starting as an employee, then as an agent, then as a manager, then as a marketing executive, and later and currently as a professional financial and management consultant, have led me to this advocacy I call wealth trigonomics, a time-tested system of achieving future financial sufficiency. I will share this system in this website in future posts, but to provide the appropriate springboard for that presentation, let us examine first why we fail to accumulate.

Why do we fail to accumulate?

1. Because our sense of wealth is very poor!

Many of us were born to working families, where our heritage introduced us to the mentality of scarcity, of less and not more, of poverty. Very few were born with ready money to spend, which in itself is not even good. Because of that culture, we develop the personal conviction that it is not good to be wealthy, that we deserve only little, that enough is too much, that more than enough is immoral. Nobody introduced us to the importance and urgency of the "second enough."

And this culture puts us against all odds, so to speak. First, we need to work hard to earn "enough" for the present. Which means that, if say P20,000 a month is the "enough" treshold, we need to labor for it in order to survive. So we work harder to earn more, aiming to move to our "second enough" only to realize that our first treshold has moved up as we acquire additional responsibilities, get married, beget children, shift lifestyle, buy a car, buy a house, and so on.

If we are lucky, we get to earn more than we need, but instead of thinking about the future, we are taunted and tempted by the present enjoyment syndrome which seems to say: hey, why sacrifice for the future, you don't even know what's coming, you are strong, you can manage now, you can manage then!

So we enjoy now! And the more we enjoy the present, the more our sense of future slips away. And we say, "Wait till I have an excess!"

2. The excess never comes. Incomes increase, salaries increase but there is no remainder. Present obligations are completed, but new ones are contracted. Always, a new higher priority upstages the need to prepare for the future. And we say, "I'll try next time."

3. And next time. And next time. Until there is no more time. Until it is no longer possible to accumulate because we are 63 and we are retiring in two years. And because of the magnitude and formidability of the needed preparation and the near impossibility of making it, we accept the reality and leave everything to faith, or fate.

4. Or maybe we realized sooner or earlier. Except that, even before we can get a program in motion, early death or sickness or disability strikes. "System failure," I call. And everybody is caught by surprise, most especially the family. The spouse. The children. And everything falls out of place.

5. Or maybe we are within time. A financial advisor was able to convince us of the urgency of putting up a program right away. And indeed we got a headstart. But our conditioning was not deep enough to allow us to keep it through to completion. And present gratification takes over.

6. Or maybe we are disciplined. We kept our eyes glued to the future and even felt the future enjoyment in our veins. But our choice isn't good enough to prize us with our reward. Program closed. Program failed. Provider insolvent. And so goes the burning issue...

These are just six of the major obstacles to wealth accumulation. There may be more, and it is important to identify them and confront them head on right at the very start. These hurdles are within our capacity to manage. Even the contingencies, such as death, sickness and disability.

When we decide to begin our wealth accumulation program, we must be sure all these obstacles are properly addressed.

Let's summarize these six major obstacles:

1. Poor sense of wealth
2. Procrastination
3. Insufficient time
4. System failure
5. Lack of discipline
6. Program failure

If any one of these culprits has enjoyed your patronage in the past, it is time to deal with it, and for that matter all of them, with the stamp of discipline and conviction of a Spartan. After all,
we owe it to ourselves to savor "the good life" at harvest time, and there may not be another time for a set-up more suitable, and available, than now.


"Failure must be but a challenge to others." - Amelia Earheart

How Much Wealth is Enough?

"There are only two families in the world: the Haves and the Havenots."
- Miguel de Cervantes, in Don Quixote

Wealth is relative.

Consider three people. Larry lives in a village where most of the houses are 2-bedroom bungalows. He owns a 5-bedroom 2-storey house, with an attic, on a fenced 900-square meter lot, and parks three cars in his garage. He lives alone.

Beside his property is a 2-bedroom bungalow owned by Mario, a father of two grade school kids. Mario works as an automotive shop manager in a car dealer company. He acquired his house on terms and he has religiously paid his monthly instalments for the last eight years. In his small garage is parked a 10-year old but well-conditioned bantam which his company assigned to him as a service vehicle.

Across the street is a government property that has been taken over by migrants to the city. Right in front of Larry's house is a small sari-sari store, part of the makeshift house, of Rodelio, a 40-year old father of five children, and who works intermittently as a construction carpenter.

Easily, we can see that Larry has more than Mario and Rodelio, and may not want more of the conveniences of living that the other two may relatively aspire for. But Larry is aching. His wife and children left him and he has been living alone for the last three years.

Mario dreams of buying a new car and is patiently laboring and saving for its down payment. His wife works as a cashier at a downtown drugstore and their two children attend the village school. Once or twice a month, on Sundays, he takes the whole family to the mall. At his level, he definitely wants to have more.

Rodelio may not have a regular work in his construction company but he never really runs out of job. His mastery of his carpentry skills has allowed him to take on house repair work at the nearby villages, thus enabling him to buy the necessities of living relative to his surrounding and his lifestyle. His five children are all studying at the public school and his wife manages their sari-sari store. Every Sunday, the whole family looks forward to the "cool air" of the mall. Rodelio dreams of having his own house and lot someday.

When these three heads of families walk into the mall, we can see wealth at three different levels. Wealth means differently to different people. Even as Cervantes classifies families as having or not having wealth, the distance between these two categories spans a chasm as wide and as far as our imagination can take us. The three personages presented symbolize the presence or absence of wealth at three different levels, and the relativity does not stop there. It moves from individual to individual, depending on what economic level we find him in.

Wealth has come to mean the presence in sufficient quantity of items of economic value, including the power to control such items. Such items may include money, house, land, business, proprietary possessions and personal items such as cars, jewelries, artwork and other items of worth. It is also measured by one's reference to non-financial values such as education, health, successful children, power, authority and other evidences of convenience or social elevation.

Robert Kiyosaki, of Rich Dad Poor Dad, defines wealth as nothing more than a measurement of time: how long one can maintain his lifestyle when he stops working. In essence, he places a quality and time tag on the items of economic value.

Indeed, it is not our income level which defines our wealth but what remains of our income and what we do with that remainder. When the remainder is accumulated over a period of time and evaluated, it becomes our networth, which in financial terms, is the result of our asset-minus-liabilities operation.

This is the pathway of our advocacy. The wealth we mean is being in a minimum state of having "enough" of the things we need to live comfortably, even when we are no longer capable of active production.

I know that even that distinction will lead us to ask "What is enough?" or "How much is enough?" Hello relativity!

But let us not allow relativity to delay our quest for wealth. Let us define what we mean by "enough" by establishing certain tresholds. The important thing is we are into this journey, and we have the intense desire to better our present position and aim for more.

Which means we need to have a starting point.

How Wealth Accumulates Part 2

In an earlier post, we looked at how your P1000 a month, beginning at age 25, can snowball into more than P5 million when you retire at 65. Of course, this is made possible by this "magic" we call compound interest wherein your earnings become part of your principal as your P1000 a month rolls.

Simply stated, the compounding process works this way: If you put your P1000 in an interest-bearing instrument, say at 10%, after one year it becomes P1100. If you do not withdraw your money and its earnings and let it stay there for another year, it becomes P1210. If left for another year, it becomes P1331. After 10 years that your money is allowed to compound, it becomes P2593.74, a gain of 1593.74, as compared to a total simple interest gain of P1000.

Let's take another look at the way it works. Let's establish another treshold - this time, an accumulation goal of P1 million. How much monthly savings will you need to accumulate P1 million given a time frame? The following table will lead us to the amount corresponding to the interest we choose:

Monthly Deposits Required to Accumulate P1 million

Accumulation Period -----6%-----------------8%----------------10%--------------12%

15 years--------------------3439---------------2880--------------2422-------------2002
20 years--------------------2164---------------1689--------------1324--------------1011
25 years--------------------1443---------------1045--------------- 759--------------532
30 years---------------------996----------------666----------------446--------------286

So if you are 30, and you wish to know how much to save to make P1 million at 60, you will have to determine first your period of accumulation by subtracting your age from 60. So 60 minus 30 will give you 30. And if you select 10% as your interest earnings, your monthly outlay is P446. Amazing, isn't it? Question: How easy or difficult is it to set aside P446 a month?

Compounding is like rolling a small snowball down the slope. As it rolls, it gathers and accumulates snow and grows bigger and bigger until it reaches a point where it is lodged or wedged. The longer it rolls, the bigger the snowball. (Of course, the slope has a lot to say as to whether the snowball will roll to a smooth stop as a giant ball or will blow to smithereens. This will the the topic of a future post.)

That's the way with money, or instruments representing money, such as bank accounts, mutual funds, investment trusts, deposit certificates and investment-linked insurance contracts, which have the ability to earn given a certain period of time.

Other forms of wealth, such as real estate or jewelries or antiques or artworks, exhibit their accumulating quality over a period of time through value appreciation. Properties appreciate in value by virtue of progress or development, as in the case of real estate, or on account of increases in the market prices of the items due to demand or due to inflation, as in the case of portable possessions.

All of the forms take into consideration the critical element of time. There are no shortcuts. The longer the period we have for accumulation, the bigger the wealth we can accumulate.

When we consider this time element, and factor in the human physiology of evolving and receding, we begin to see the importance and urgency of getting started with our wealth program the sooner we can.

Truly, there is no time for waiting! The time to begin was yesterday.

How Wealth Accumulates

Because we are evolving beings, to accumulate wealth, we need first to create enough to sustain us. Passing this treshold of "enough," we move to "a little more than enough" to generate a remainder. This is where we create the seed of our accumulation.

Accumulation is like planting the seed of a fruitbearing tree and growing it. First, we choose our fruit variety, then we plant our seed or seedling on rich ground, initially in a small pot so we can care for it and protect it from the elements. Then, when it has adapted to its environment, we move it to bigger ground, and there, water it, nurture it, weed it, protect it, until it grows big and mature enough to bear its sweet fruits.

We can plant and grow as many seeds or seedlings as we can, or as we want, depending on our capacity for nurturing, making sure that every seedling planted receives the care and attention it needs to become a fully-grown fruitbearing tree.

Wealth accumulation is a process of saving for the future, carried out with a little more diligence, discipline and imagination. It is saving with a definite purpose, method and time.

Consider money, the most articulate representation of wealth.

I will assume that we are a typical wealth-searcher, not one in line to succeed a multi-millionaire patriarch. We've been through the early stages of infancy and adolescence, have finished a college course, and are ready to take on the world in our palms, so to speak. So, world, here we come!

So we begin to look for, and find, and earn the money, where it used to be given to us by our parents. "Nice, sweet scent of money! By my brow! My earnings!" As a token of our labor's fruits, we may frame the first P500 bill we receive (No, just the reproduction!).

So, we savor our first official expenditure. Isn't it good! And we find that spending is such an enjoyable activity. Is something left after? Of course, there is none! Paydays will come, and more paydays will come, and this pattern will be repeated, over and over again: earn, spend, earn, spend. Saving, or more so, accumulating, never becomes part of that pattern because we are concerned chiefly with creating and enjoying our earnings.

Will somebody give us a wealth shot?

Wealth begins in the mind, says Peter Daniels, a multi-millionaire who lived a life of earn-spend for so many years before he realized he was going nowhere.

Got a P1000 bill right now?

If you will examine the paper bill, you will find on one side a picture of the Banawe rice terraces, considered one of the wonders of the world. The terraces are a perfect model of the accumulation process: step by step, little by little, one at a time, until you reach the top. You can build your wealth terraces beginning today by seeding that P1000 bill you are holding right now! Seed another P1000 next month, and another next month, and another next month and so on. Do you know how much you will have after a while?

If you are diligent and resourceful in your choice as to where you plant your seeds, your money will grow to any one of these figures:

Growth of P1000 Monthly Deposits starting at age 25

Compound interest------------------------ At 60------------------------ At 65

3% ----------------------------------------------- 725,544 -------------------- 904,615
6% --------------------------------------------- 1,337,217 ------------------- 1,857,143
8% --------------------------------------------- 2,067,801 -------------------3,108,678
10% --------------------------------------------3,252,292 ------------------- 5,311,110

What your P1000 undergoes is compounding growth at selected interest rates. It's almost like magic! In fact, even Einstein described compound interest as the most wonderful discovery of the 20th century!

I will do another treat of compound interest in the next post. Meanwhile, if you have any comments or questions about this post, and the previous ones, please post them and I will diligently answer them the best I could.

The Need for Wealth Accumulation Part 2

We accumulate wealth because we must live. And we must live well.

Our mandate is to make the best of our lives. And the best life, says St. Augustine, is a life lived for others. What is the value of wealth if we cannot share it with others? What is life if it is lived alone?

No man is an island, so goes the poetry. Behind the majesty of those words, our reality is, at the time of our birth, we complete our triune creation. By virtue of this empowerment, our birth becomes a triune birth. We become a co-creator of life, and therefore we cannot escape our multi-personal character. Our gregariousness takes us to the level of procreation, which means we cannot be happy alone. This also explains why at the right time, we leave our fathers and mothers to become one with another. We must let others live. And well.

Hence, our wealth accumulation for the purpose of sustaining us into the future should consider these "others". In fact, for most of us, our family is the main reason we toil and strive so hard. For some others, it is more than family; it includes employees and workers, or even the underprivileged. Isn't it a beautiful coincidence that in our bell curve, our productive time and the time we begin a family are almost simultaneous events? Our taking responsibility for others goes with the rise in our productivity.

And so with our physical strength.

This is one reality we must face. As we evolve and recede, our sustenance becomes not only a matter of food availability but of our system's ability to be sustained. The bell curve indicates that our physical strength reaches a certain crest at the ascent, and then gradually recedes to a point of settlement at the descent. The system will stop predictably according to a predetermined time in the future but may equally stop without notice. We evolve, we recede, we go. And this "going" can be anytime.

What all these mean is that we know what life is all about, its extent, its nature, its follies, its joys, its lows, its peaks, its beginning, its ending. Though we were given this life with nothing in it, we nevertheless have the empowerment to fill it up with the meaning we want it to have. If we want to live it to the fullest, we must take care of our health, be continually productive for ourselves and for others, prepare for the future via a well-thought out wealth accumulation program, and enjoy life as it is!

How are you doing?

The Need for Wealth Accumulation

There are four reasons we need to accumulate wealth:

1. We must live.
2. We must live well.
3. We must let others live.
4. We must go.

All life is but a sustaining process, says Herbert Spencer. We must eat. We must live. We must eat to live.

Unfortunately or fortunately for us, sustenance has come to be directly associated with the presence or absence of wealth. The invention of money, as the most common form of wealth, has enabled us to "store food" far into the future. The more we are able to store, the more we are assured of continued sustenance.

But our ability to store food rests in our ability to "create food" in sufficient quantity. Imagine a bell sitting on its rim. Our life is somewhat like that bell.

From the moment of birth to the time of death, we undergo an evolution and regression process. Our physiology allows us to experience infancy, childhood, adolescence, adulthood and old age before we finally make our exit. Our ability to create wealth coincides with that physiology: playtime, schooltime, productive time, and retirement time. Note that the period during play and schooling at the ascent is matched by the retirement period at the descent. During our play and schooling times, we depend on our parents for sustenance, then we create our own food during our productive period, but at retirement time, we fall back on what we have stored for the future, if we have any.

Do you have any?

That's why, we need to store enough, or accumulate enough, if only to make sure that we live comfortably when we are already too old to create wealth. But to store enough, we need to create sufficient output in the present time so that we can have a remainder, and at the same time, are able to enjoy life as it is.

And this is where our problem lies. Most of us do not store enough because our output is not enough for the present, or so we think or feel. And even if the output is good, we are buried too deep in our enjoyment of the present that we put forth the need to prepare for the future. What we don't realize is that no matter what level of output we have for the present, short or full, we can always set aside some amount for the future, if we want, without substantially upsetting our present level of comfort.

Are you short or full?

Where Are You In The Wealth Range?

Some guys are really lucky. Even before they are conceived, wealth is already available for them to use the moment they are born. And the reason we who are unlucky cannot complain, even if all of us are heirs to the wealth of the world, is that we were not born all at the same time. We evolve, we get born progressively, one at a time or a number at a time. And because of our free will, and our progressive evolution, not everybody will make it in the same way.

Which explains why some are rich and some are poor. The wealth we own or possess is a consequence of our individual and kindred effort. We're in luck if our family heritage is endowed; then, we can begin with some wealth in our hands. Otherwise, we shall begin to build our own family heritage by the wealth we accumulate in our name during our lifetime.

So where are we in the wealth range? Knowing where we are right now in our journey towards financial sufficiency will let us determine exactly what to do and how to do to reach the level of "the good life."

Let's choose our lane in this starting line:

l______l_______l_______l_______l_______l_______l_______l_______l
negative / zero / little / some / enough / a little more / more than / too much


How do we read that? In absolute terms, the labels could mean our levels of wealth in all its forms. As money is the most common form, they could represent the net value of all our accumulations as of the present time:

in debt / 0 /$ 1 - $4k /$4k-$20k/ $20k-$40k/ $40k-$200k/ $200k-$lM/ $lM -$ 2M/ $2M up

The amounts you read are all my personal assessments! You may have your own, and I will not argue with your valuation. What is important is we have a range where we can plot the developments in our journey towards our financial sufficiency goal.

If you will closely examine the starting line, you will note that as much as it locates the starting point for different individuals, it also represents the range or the extent to which we wish to become self-sufficient. So from where we are, we can aim for some wealth, or enough wealth, or even too much wealth. I am not of course advocating wealth accumulation beyond what we will need to enjoy "the good life." I believe any wealth beyond what is necessary will become a problem during and beyond our lifetime.

In my next blog: The need for wealth accumulation, or why most of us fail.

Why a Wealth Blog?

I am writing this blog as a matter of advocacy. In my thirtysix years of exposure to financial services, including my own experiences in accumulating what I thought was enough for the future, I have confirmed and validated, by the sheer number of people I have talked to, that wealth does not come in a platter. While wealth to a few can come very quickly, as in winning the lottery or inheriting a windfall, that is not the way for many of us.

The advocacy is all about an effective, systematic, time-tested, slow-but-sure method of accumulating money for the future. It is not how to get rich quickly, or how to identify the winning ticket, or how to fall in line in a patriarch's multimillion heritage succession. It is about building a financial structure, beginning from the first opportunity one gets, no matter how small, according to his means, and little by little, slowly growing it up, nurturing it, watering it, fertilizing it, weeding it, as needs and responsibilities change with his ability to take on life, until it becomes big enough to sustain and protect him and his family when he can no longer do it by himself.

This blog is all about wealth, not only money, even if that's its closest description, but other values that come with, or because of, or inspite of, money: health, family, children, friends, relationships, education, name, honor, principles. It is also about bank accounts, interest earnings, savings, real estate, mutual funds, money market, stock market, gold, oil, commodities, business, franchises, but only in the context of achieving financial sufficiency.

It is all about life and making it productive, and having attained a reasonable percentage of that productivity, preserving the present, riding through the contingencies that prevent its full enjoyment, and duplicating it one more second, and another second, and another, and another, until a series of enjoyable present moments have been duplicated to build an enjoyable future. It is all about stewarding life to the fullest, while alive, by consciously building the future to be lived that way.

After all, when everything is said and done, when one has lived his life to the max, the wealth heritage he has built is just a pass-on legacy to the next, isn't it?

Wealth Trigonomics: Aiming for the Good Life!

I am not a millionaire, nor a slum dweller. But I have been through life enough to feel and understand what it is like to be one. My 60 years tell me that one needs to know how to live life fully at the first opportunity to be able to say I have lived life to the fullest at the end. The truth is we only begin to know how when it is past the halfterm, or when it is almost too late to rechart.

I will share with you what I have learned all along, including the mistakes committed, that more of you can begin to know how to while there is time enough to prepare. My long exposure and experience in financial consulting has led me to a deep advocacy of a system that I am sure will make the difference between just a life and "the good life". The advocacy is called Wealth Trigonomics. Will share more in next post.