Wednesday, September 28, 2011

Why our (Asian) neighbors are richer than us

Philippine Daily Inquirer, June 7, 2011
By Randell Tiongson, RFP

I just read an article stating that Singapore has the highest concentration of millionaires in the world with 16 percent of its households having at least $1 million in assets, as determined by a study released by the Boston Consulting Group.
We don’t need to limit our sights to Singapore; we can also look at Thailand, Hong Kong, Malaysia and Indonesia and use them as a benchmark.
The answer to the question of why our neighbors are drastically richer than us partly lies with issues on economics.
One report we can look at is the national savings rate of said countries. Singapore leads the pack with an average savings rate of 50 percent.
This means that on the average, Singaporeans spend half of their income and save and invest the other half; which is probably a huge reason why there are so many millionaires there.
Facts will show that the savings rate in Hong Kong, Indonesia, Malaysia and Thailand hovers between 30 and 40 percent, really encouraging statistics.
NEDA reports place the savings rate in the Philippines at between 12 and 16 percent. Following the 70-30 rule on spending and savings, there’s not much promise for our nation. It is unfortunate that many Filipinos have embraced a First World consumerism lifestyle but have a Third World income. We simply do not save enough.

Read more:
Philippine Daily Inquirer, Why our neighbors are richer than us
Step 5. Create an Emergency Fund:

Save and build up a cash reserve equal to around 3X~6X of your total monthly household expenses. The purpose of this cash reserve is to cover for unforeseen emergency needs that may come your way. This emergency fund is like a safety-net or a spare tire to protect you and your household from any fall or flat tire in your financial journey thru life. Just like the spare tire, this fund has to be liquid and easily accessible so that you can easily respond to the emergency financial need. Another important purpose of an emergency fund in personal finance management is to prevent you from resorting to debts/loans during a financial emergency. So this will prevent you from acquiring new monthly expenses thru the required interest payments on the debt (See Step 3: Eliminate Bad Debt).

Some examples of financial emergencies:
-> Unforeseen household/car repairs
-> Job interruption
-> Medical emergency

Having an emergency fund is a requirement to be able to develop a well-rounded financial plan.
Create an Emergency Fund.

What is an Emergency Fund? (From

Friday, September 23, 2011

Step 4. Eliminate Bad Debts:

Bad debt is money that is borrowed to buy items (usually wants and not needs) which loses value over time and which will not provide a commensurate 
financial return to pay for the interest on the debt.

Good debt is money that is borrowed to buy items which increases in value and/or which provides financial return to pay for the interests on the debt.

Examples of Good Debt VS Bad Debt:

Good Debt :
Money is borrowed at 10% annual interest to pay off a previous debt for which you are paying 20% annual interest.
Bad Debt :
Money is borrowed at 20% annual interest to pay off a previous debt which is charging you 10% annual interest.

Good Debt :
Money is borrowed at 30% annual interest to buy an apartment that will give you a rental income that is equal to 50% annual interest.
Good Debt :
Money is borrowed at 20% annual interest to pay for education/seminars that will increase your human capital value in the corporate world.

Bad Debt : Money is borrowed to buy the "latest" gadgets just to be ahead of the crowd.

From the examples provided above, the essential difference between a Good Debt and a Bad Debt is whether the money borrowed is used to accomplish the following:

I.   Generate additional income for You.
II.  Reduce your expenses.
III. Increase your value as a professional or human capital.

If the borrowed money does not accomplish any of the 3 items above, then most likely the debt incurred is bad debt.

So pay off bad debts and stay off bad debts.

Monday, September 19, 2011

Ten Most Common Money Mistakes:

Mistake #1.     Living beyond your means 
Mistake #2.     Not saving enough
Mistake #3.     Being materialistic
Mistake #4.     Giving in to Greed
Mistake #5.     Not knowing what you want
Mistake #6.     Failing to pay off debts
Mistake #7.     Being killed by advertisements
Mistake #8.     Not having a plan
Mistake #9.     Not having financial education
Mistake #10.   Procrastinating


Tuesday, September 13, 2011

Step 3. Reduce Expenses and Increase Cash Flow:

-> Increase cash flow by reducing expenses on unnecessary wants.
Know your Wants from your Needs. (Understand that having income generating Savings/Investments should be considered among your "Needs" because these instruments will support you during the time when you will have no more active income.)

-> Pay Yourself First / Budget to Save.

Create a budget which will require you to allocate a portion (Ex. 10%~20%) of your monthly income to Savings/Investments before spending your income on your monthly necessities.

Expenses = Income - Savings (Correct), 
Savings = Income - Expenses (Incorrect).

-> Stick to the Budget.

-> Payoff Bad Debt (and Stay Off Bad Debt).
Pay off bad debt which requires you to pay interests to the lender. Eliminate these unnecessary expenses by paying off the debt as soon as possible.
Stay off bad debt by avoiding borrowing money to buy unnecessary items/wants which will burden you with additional expenses to maintain or support the items/wants.

-> Do not live beyond your means.  

-> Buy Assets instead of Liabilities.
Increase cash flow by "spending" on items that will add to your income. (Buy income generating assets instead of income depleting liabilities.)
Having passive income generating assets will allow you to have an alternative source of income that is not dependent on your effort and will later provide for your needs when you cannot work anymore.

-> Start NOW!