Spend Below Your Means; Invest Within Your Means

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source: http://www.mint.com

You might be spending below your means but such is not enough to fully achieve debt-free and financially free status.

The other half that you should focus on once you have mastered your spending is knowing how much to invest. Investing is something that is not equated to having your own business or running your own online store. Investing is making your hard earn money work for you. Investments should be the source of your passive income.

If that is the case the solution then is to have lots of money and invest it? This is so easy to those big honchos and born with a silver or golden spoon but such is not impossible to us salaried and savers.

A lot of people have this mistake of investing all their cash to stock, loan, or some investment company but eventually lost a lot because the stock market is bearish for the longest time and was forced to sell at  a loss, the borrower became bankrupt and can't pay a single penny or worst run away with your money, and the worst is investing in a scam.

  

That is why you should only be investing within your means. Always remember the rule of only investing free cash.

Here is what you should do with the limited cash in order to put up a considerable fund as an investment.

1. Set aside a regular free cash every payday

2. Check investment vehicles, learn the ins and outs first, 

    and list down the best

3. Time is your ally

4. Invest when  such investment is down, sell at profit

5. Set aside a big portion of your profits for re-investing.

 

SET ASIDE REGULAR FREE CASH EVERY PAYDAY

I have been telling and advising this for the longest time. In order for small funds to accumulate you have to do two things: set aside a fixed amount and at a regular interval. Always set this aside first before spending your paycheck. Its like dividing your cash and this gets its share first.

Others term this paying yourself first. This concept means setting aside to your personal investment fund first before paying your debts and spending for your wants. This also not only applies to your paycheck but also to any free cash that passes your hands.

CHECK INVESTMENT VEHICLES, LEARN THE INS AND OUTS FIRST, AND LIST DOWN THE BEST

After sometime you might have set aside a considerable sum of money and you finally decided to invest. You heard of this investment saying it guaranties a 12% per month return and you immediately put your money in. At first they pay what they promise until the time comes that they are delayed until one day you learn in the news that the company foiled up and its owners run away with your money. 

Checking and learning about the investment is a wiser idea than just jumping into a popularized investment scam. Also there is lots of good investment out there thus you got to make your list. Having this list will help you a lot in your investment picking. Sort them out based on how safe, how much return, and how much outlay is needed.

TIME IS YOUR ALLY

Time works both ways. At times opportunity comes and you got to seize it; other times patience is really needed.

There are investment out there that comes once in a while. This is the very reason why you should always have a ready set aside free cash to buy such investments. On the other side there are investments that will take longer to materialize. Real property like land don't go up in  a day or a week at most it will take years before its price appreciates. Stocks of new and promising company will take time before their prices rise, they got to prove to the public their capability to generate returns.

INVEST WHEN SUCH INVESTMENT IS DOWN, SELL AT PROFIT

As always follow the simple rule of "buy low, sell high." But lets look at this just like what Robert Kiyosaki of Rich Dad, Poor Dad said: Buy to earn.

That is why time is your ally. Be always on the look out when prices go down. There are signs when such is already happening. Also always set your target. Investing without might lead you to endless expectations that disappoint. Once your investment its target make profits don't wait and don't regret selling it you might not know when will such profit level can be achieve again.

SET ASIDE A BIG PORTION OF YOUR PROFITS FOR RE-INVESTING

This is where many falters. After making a big profit they are happy and party and end up spending what they have earned. One should re-invest on top of the original  investment profits that you make.

But it does not necessarily mean all the profits, of course you need to celebrate your victory. Of the profits re-invest about 50-70% and the 30% for your personal wants. But  would it be greater if you share your profits? Why not share a part of that 30% to those who are less fortunate? I bet you will find more joy in that rather than spending it all in your unlimited wants.

Philippines Maintains Rating

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source: www.fitchratings.com

Caught this news report in Inquirer.net about the Fitch's rating grade for Philippines at BB+ which a notch below investment grade. A little more and Philippines will be at the investment grade level so why not invest in our own country?

Fitch maintains PH credit rating

By: Michelle V. Remo
Philippine Daily Inquirer 2:50 am | Wednesday, June 20th, 2012 

Fitch Ratings, an international agency that evaluates the creditworthiness of countries and corporate entities, has maintained its main credit rating for the Philippines at one notch below investment grade, citing both favorable and unfavorable economic developments.

In a statement, Fitch said it was keeping the “foreign-currency issuer default rating (IDR)”—which is used as guide by foreign creditors and investors in evaluating a country’s creditworthiness—at BB+. This score is one notch below investment grade.

It also kept the “local currency issuer default rating”—which applies to local creditors and investors—at “BBB-”—which is an investment grade. Fitch said the outlook for both ratings was “stable,” which meant the ratings were likely to remain the same for about a year.

The decision of Fitch to keep its previous ratings for the Philippines and assign a “stable” outlook on said ratings has reduced the country’s chances of getting an investment grade for its foreign-currency IDR within this year.

The Philippines, which is losing to its neighbors in terms of foreign direct investments, has been pitching for an investment grade for its foreign-currency IDR. Economic managers believe that an investment grade will help the Philippines attract more job-generating foreign investments.

Growth rate next to China

“The ratings and outlook are supported by strong external finances, a track record of macroeconomic stability, favorable economic prospects, and falling public debt ratios,” Philip McNicholas, director in Fitch’s Asia-Pacific Sovereign Ratings group, said in a statement. The Philippine economy grew by 6.4 percent in the first quarter of this year, the second-fastest rate in Asia for the period, next to China’s 8.1 percent.

Moreover, the Philippine government’s outstanding debt has fallen to just about 50 percent of the country’s gross domestic product (GDP) from over 80 percent in 2004.

The decline in the government’s debt burden indicates its improved ability to service its liabilities, Philippine economic managers said. Nonetheless, Fitch said there were also factors that drag the country’s creditworthiness and thus offset the impact of the favorable indicators.

click here to read full article at www.inquirer.net

Some Good News From Rappler.Com

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Was able to catch a news headline on Rappler.com and this one is really a good news.

source: http://www.rappler.com

Philippines, from IMF borrower to lender

by Rappler.com

Posted on 02/22/2012 4:26 AM  | Updated 02/22/2012 12:58 PM 

MANILA, Philippines - The Philippines lent over $125 million to the ailing economies in Europe through the International Monetary Fund (IMF) in 2011.

This marks a dramatic reversal in the Philippines' relationship with the multilateral lender. For almost 45 years, the Philippines was an IMF borrower.

It started in 2006, when the Bangko Sentral ng Pilipinas prepaid all outstanding debts of the government with the IMF. Then in 2010, the Philippines joined a pooled funds where countries with strong external position lend to borrowing members.

Under this mechanism, called Financial Transactions Plan (FTP), the Philippines was classified as a "creditor," meaning its foreign exchange contributions to the fund may be used to provide financial assistance to members.

These transactions earn interest and the funds can still be technically counted as part of the Philippines' international reserves. 

The BSP reported on Tuesday, February 22, that the Philippines has infused $251.1 million in the FTP.

As of end-2011, the BSP said that IMF has disbursed over half of these funds to European countries such as Ireland, Portugal and Greece in an effort to address the financial crisis impacting the European economic zone. (Click here to go to Rappler.com to read the whole article)

I hope we stay that way. If only more and more Pinoys invest in our own country and if our products reach all the ends of the earth we can truly be out of poverty. Let's continue to educate our countrymen about how to use the money well. 

Let us not squander money to things that are unnecessary but make well use of it by investing it in stocks, in a small business, or if able lend it to our countrymen who can make it grow within and outside the country.

WORLDBEX 2012: A Look At The Building And Construction Industry In The Philippines

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source: http://www.worldbex.com

World Building and Construction Exposition (WORLDBEX) 2012 will be held in World Trade Center Metro Manila on March 14 - 18, 2012.

Such event gathers exhibitors, professionals, traders, importers, exporters, associations, buyers and enthusiasts of the building and construction industry. It is a great place to know more about the leading corporations and constructions companies we have been following in the stock market.

source: PR Asia Worldwide

How can an OFW return home and not work abroad anymore

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source: http://job-applicant.blogspot.com

The Philippines is one of the countries who rely on overseas worker remittances to fuel its economy. I am an OFW myself and it is true that working abroad gives one a better chance at having a better life due to the bigger pay. In addition, with that, most people look at an OFW as rich but in reality, the foreign exchange rate makes the difference.

Comparing one's salary in the Philippines against the one overseas may look like that the overseas pay is bigger than your pay here. However, most do not factor in cost of living overseas. Also, the lifestyle one has overseas affects one's saving power. An OFW might have bigger pay and thus has a better capacity to save but when one's lifestyle overseas is that of a spender there is no difference from an employee here in the Philippines worst yet when that OFW who spends while working abroad overspends he or she might go home penniless. A lot of OFW go home without even having their own home and end up bum in their sibling's house because they are accustomed to that lifestyle that they have overseas.

source: http://www.aiesec.org

On my way to the NAIA Terminal 1, the taxi driver is an OFW waiting for his Visa for Australia. We are able to share stories about the hardship of being an OFW and all his regrets why he didn't save while he is able. He has two kids to send to school so while waiting he drives taxi for a living. He now has a plan and that is to save up once he gets the work in Australia and start with one taxi. Probably by the time he gets enough money, he can send it to his wife who will buy and start their taxi business, thus two sources of income that is his employment and his one taxi operation at home.

source: http://www.easternmotors.info

The week before I was claiming my money that was in a closed bank in Pangasinan. Unfortunately, I was not able to get it on time and the bank directed me to go to the main PDIC and request a re-issue. While waiting for the certification the bank manager ask me if I knew of the OWWA loan. She said that I could loan a certain amount and have my wife start a business here in the Philippines. I am still in the process of planning my marriage with my beloved who works here in the Philippines. And with that we have decided to save up for our dream businesses and we will be able to get married soon and I will be able to go back here in the Philippines and either start business, get employed, or practice as a CPA.

OFW's can actually make a big difference in the Philippine economy if only they can wisely use their money. The problem of being an OFW is that a lot of family members will have expectation if one is an OFW. A good example is that when a mother or a father becomes an OFW they send money, toys, and other things to their children to compensate their absence. If the husband is the OFW the wife request money for house remodeling, money to buy her personal beauty stuff, and others. This are normal and OK but most of the time instead of saving and using money wisely family members begin to want a higher lifestyle like your daughter wanting the latest phone so that she would be in her schools elite group, your son wanting a 42" flat screen TV and the latest gaming hardware to play games every day and so many more.

But what if just l like the taxi driver I met would save up and established a business? Probably a small sari-sari store, a small rice retailing shop, a unit of taxi, a small food kiosk in the corner of the barangay where tricycle line up, or even yet an investment in the stock market, UITF, or real estate. As Bob Procter's teaching money should not be kept under one's bed... it should be circulated in a way that gives a return. Yes at first of course it’s hard to see your hard earned money be put into an investment and you can’t even enjoy it but the time you get returns from such investment it will be a very sweet reward or even you would rather re-invest such returns to grow your money and eventually go back home permanently and spend more time with your family.

So how can an OFW like me and the taxi driver start so that we won’t be working away from our love ones?

The answer to this question is to ALLOCATE, SAVE, and INVEST.

It is a fact that we need to eat to live. So an OFW should first establish an allocation for his or her salary. At first, this would be very hard but as you get use to it, you can manage to live with it and be able to go to the next step. As always, one has to list down what he or she is spending on right now. List all the things you are currently paying off like loans, debt, mortgage etc. Then also list down you daily living expenses like food, housing/rent in your overseas work, and the money you send back to the Philippines for your love one's daily living expenses as well. From there you should categories whether such expenses or cash outlay is a need or a want (yup the classic categorization). Try to scrap the wants little by little. This way you won’t be traumatized from the sudden absence of such need.

Whatever is left you can now allocate your earnings to it. At first, you will end up short but as time goes, you will be able to discern what are really are important and from there you can start contribute to your savings.

Make it a point that from now on you will contribute to your savings fund. This is the very first priority. This savings fund is different from the savings fund (click here)I put money in since that one is an allocation for something I want but would rather save up first before buying it. The savings fund here I am talking about is a catch basin for whatever is left after you have allocated some funds for your needs.  I know some of our local banks have branches all over the world and you can deposit your money in there. Your goal is to increase your savings fund so that you can eventually invest it.

After saving a considerable amount, you can now start looking into possible investment vehicle where you can grow this savings fund while you are working. Always ask; that is the key to success. Ask those who have actually gone from nothing to richness. These people have found the answer to how to make money work for them instead of them working for money. From time to time, engage these people to a simple chat and learn from their experience. Also, you can always search the Internet how to start business or how to open some accounts for investments back in the Philippines. A reminder as well that you should do your due diligence to protect your savings from fraud or frauds.

I guess with these knowledge an OFW like me will soon  be able to go back home and spend more time with love ones and make money work for them. Lets dream and lets achieve our dreams.

Weakening the weak

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source: www.money.cnn.com

If you are reading The Millionaire Next Door by Thomas Stanley and William Danko(I am in the last few pages) this phrase might be familiar to you.

http://www.fotosearch.com

The chapter that brought out this phrase is about outpatient care of adult children of the affluent. Back in the Philippines if one is born rich or with a silver spoon we say they are lucky. The fact is there are a few lucky born rich kids who are able to stand on their own. Most would likely be under the roof of their parents even after they finish graduate school. 

Weakening the weak means instead of strengthening somebody by helping out by way of shouldering their first rental by the time they live on their own or continually giving money even if they already have their own family they instead grow dependent on that support which they expect to come. It is like your mother giving you money even if you are already working thus it creates that thinking of yours that it is okay to not save up because financial help is always accessible.

Something I just wanna share :)

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source: http://www.dailytut.com

Just this morning I got this email and guess what it made me smile. For the longest time for nearly 6 years I am now a certified Paid Content Blogger or so hahahaha I really don't know what is the term but I got my very first payment from Google AdSense. Check it out:

sorry guys can only show these details for security reasons

I thank all my readers and subscribers who continue to support my blog. It is so inspiring to hear or when I get to have chats with former classmates, former co-seminarian(yes I am former seminarian), friends, and even people I don't know leaving comments or messages through the chat box that I have a nice blog and they learned a lot in my blog. Also thanks to all the Google AdSense advertisers and other affiliates that allowed me to promote their product or service through my blog.

Hmmm tomorrow probably I will go straight to the nearest Western Union to cash it in. Will save and donate most of it but I can spend a small portion of it to celebrate it....probably a movie...and I am thinking Captain America.

I hope you won't get tired of my humble ramblings and storytelling in this blog. Will continue to write helpful tips in stocks, personal finance, updates, and other investment vehicles in the Philippines and beyond(like the Internet). 

The New Philippine Bills

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I really haven't seen these new bills yet I hope when I go on vacation in the Philippines I will have the chance to get a hold of each new Philippine Piso bill.

What are stocks anyways?

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source: http://www.zdiaz.com/

Hey wait a minute what are stocks anyways?

I know I have been babbling things about investing in stocks and yet I haven't explained yet what are stocks. So I am writing these to share you something about stocks..... I'll make the story as short as possible :)

There are 3 basic forms of business organization. These business models or layout are primarily based on the ownership of a person or persons involved has on the business. These are Sole Proprietorship, Partnership, and Corporation.

Since our area of concern is about stocks I will just make a short explanation about Sole Proprietorship and Partnership for comparison purposes.

Sole proprietorship, the name says it all. It is a business owned or under the name of one person. It is like a "tindahan" with the name "Tindahan ni ALlng Nena". The business may be owned or maybe run by the family of Aling Nena but as regards to recognition the business is under Aling Nena's name thus she is the Sole owner.

source: http://video.tellytube.in/tindahan/

Partnership in Philippine law is formed when 2 or more persons enter into an agreement to join and form a business and share earnings and losses.Also under Philippine law when partners agree to join and form such to operate a business a juridical person is created thus the partnership stands as one juridical person in the eyes of the law under the Partnership Code of the Philippines and the partners represent the partnership.When one or some of the partners die, withdraw, or sell his interest in the partnership, the partnership is dissolve and the remaining partners has the option to continue the partnership by agreeing to new agreement or to totally dissolve the partnership.(If this one seems nosebleed to you better ask your lawyer or CPA friend to further expound about this topic I hope they don't charge you consultation fee).

And now about the topic I should have discuss in the beginning.

Here is the definition of a corporation from the Philippines Corporation Code or Batas Pambansa Blg. 68:

Sec. 2. Corporation defined. - A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.(taken from http://www.chanrobles.com/legal5title1.htm#TITLE%20I)

Corporation is business model where at least 5 but not more than 14 incorporators, which must be natural persons, form the corporation requiring at least that 25% of the authorized shares is subscribed and that 25% of the subscribed shares are paid. From there on ownership of the company can be transferred from one person to another through sale, inheritance, or donation and the remaining unsubscribed shares can be issued to interested investors or through a stock market by way of an Initial Pubic Offering(IPO).

Stocks or Shares of stocks represent one's ownership in the stock-corporation in particular because there are corporations which are non-stock corporation(again ask your lawyer or CPA friend to explain these further). As stated in the definition corporations has the "right of succession" meaning stock ownership can be transferred from one person to another. In law person can be natural person or juridical person(again ask your lawyer or CPA friend about this).

A corporation's stock could either be a common stock(share capital) or a preferred stock(preference share). To defined common stock let us first define preferred stock which is defined as stocks that carry no voting rights(with some special cases where such stocks can vote), but may carry priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend  that is paid out prior to any dividends being paid to common stock holders. Preferred stock may have a convertibility feature into common stock.  

Common stock is the opposite of Preferred stock. Preferred stock may have a stated rate of dividend that must be paid out first before paying out Common stock holders and will be given priority on the return of capital in case of liquidation. In a way it has the qualities of a loan or bond because of the attached rate that the company must pay out first to each Preferred stock holder before paying some to common stock holders.

The good thing with this is that a Preferred stock share in the company's earnings is limited to the rate stated, so when the company has performed well the remaining distributable earnings all goes to the common stock holders after satisfying the amount due to preferred shares holder.

The proceeds of the initial sale of the stock from the company goes to the equity section of the company where we based the Book value per share. A stock may have a par value but could be bought at above par thus when you read a company's Balance sheet a portion of the Stockholder's Equity has the section Paid in Capital. This represent the amount paid by the investor on top of the par value. In the company's book it is not recorded as income because such transaction is related to financing activity rather than its operating activity.

When the initial investor sales his or her stocks to another person the proceeds now goes to the investor since it is mere sale of his or her property to another which may be at a profit or at a loss. Thus stock market are there for such transactions. Stock markets has rules to follow to make sure the transfer of stocks from one person to another is properly recorded and that the investing public interest's is safeguarded against fraud. 

Since the stocks that are traded are now properties of their respective owners, the price of each stock now is dictated by market forces just like in any ordinary market place.We sell our property to gain and not to lose thus prices change and the price now is called market price.

Though the stock's market price is not dictated by the company that issued it, investors still look into the operation of the company to gauge its value and demand a higher price in times that the company performs well. Thus a company that reported a good performance will have its traded shares having a higher market price because investors sees that as a value added to the stock which one can get when such is a holder of it. These is what we call dividend. But since such could still be sold in a stock market one would normally sell to gain profit from there investment. 

Why rich people grow richer and poor people become more poorer?

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Okay such topic is a long discussion but my aim here is to connect that topic to investing in the Philippines.

One key thing that makes such happen is the word we all know especially when you are an employee. Yes you got it right the word is TAX.

If you notice it especially if you are an employee, before your paycheck lands to your wife's hand(so that she can start paying bills and buying the household needs) or before even you see it yourself your paycheck will surely have a line called tax withheld or tax withholding. You will also notice that this amount is different from your co-worker who is either single, married, or with dependents. If you are single the government will tax you more thus your jaw always drop especially if you are on commission based. If you made a big sale and in your check you will see that line with a whopping amount deducted to that sale you made.

Remember that as an employee you are taxed based on your earned income which we usually called active income. Active income is the earnings you get by doing something like working, doing business and the like. The opposite of active income is passive income. To simple define it, it is the income you earn by doing nothing; which in reality is passage of time.

Passive income are taxed differently. They are taxed with the same rate without regards to the amount. 

Now connecting this to stock investing, in the Philippines capital gains through stock trading is taxed at 1/2 of 1% which is 0.5% which when converted to decimal is 0.005. Remember this figure 0.005. Why because this is the figure you will multiply to get tax that will be deducted to your gain when you completed a trade. Imagine that, if you earn Php1,000.00 in a single day you will pay the government Php5.00 and what you keep is Php995.00 less other small charges and broker's commission. What if you gain Php20,000.00(let say this is your monthly salary), you will just pay tax of Php100.00. 

Now capital gain in stock are passive income because you never do any work. You just waited for the value of your stock to rise up to the level that you will be able to exceed your breakeven. One can compute its earnings thus all we we have to do is wait. That is why rich people seem to grow richer without them really exerting effort because they have well invested there hard earned money before. They have learned the investing game and they have learned the tax rules thus they chose where the tax is lesser.

I am not implying that rich people don't work to earn money, most of them do work. One thing more why they grow rich is that while working they keep on re-investing whatever they earned thus making lesser tax payment because there tax on there earnings from work are compensated by passive earnings in investments. And also earnings from stock trading are not taxed in your income tax because such was already subjected to final tax which means that is the total tax to be paid for that income source.

So now you know why rich are growing richer. Lets all learn, lets be wise in how we handle our money and taxes.