Saturday, September 24, 2011

The Reason Why we Get Into Unwanted Debt

The Good Book says: "Do not wear yourself out to get rich; have the wisdom to show restraint." Proverbs 23:4.

Well, this is King Solomon, the wisest and wealthiest king that ever lived, telling about his experience when it comes to getting rich.

I realized, in my own life, that I have been trying to get rich. I've focused on trying to get rich. That's not bad isn't it. Everyone wants to get rich. So why am I telling you this?

I got into big debt trying to get rich.

The Plan
One day, a friend visited us in our office. She came with the sales representative of a big real estate company selling condo units. I was called by my partner to that meeting. The sales pitch was this: buy a unit which cost about P1.9M, pay the reservation fee of P20K, then pay the 10% downpayment in 18 months just in time for the building to be finished, thereafter, pay the balance.

The plan was to have the unit rented and use the money to pay the monthly amortization. So it's self liquidating. A passive income in the making. Any investor can see that.

The Dotted line
So I signed on the dotted line. The only problem was, the money I was expecting, an increase in my salary didn't come. So, I had to borrow to pay for my monthly downpayment. I got over that in 18 months on borrowed money.

Here comes the balance. I applied for a loan, I was only given 70% of the amount I need to pay the balance. My world crumbled. I had to give up the unit and forfeit any money I paid. I had no choice.

Fortunately, my sister got interested in the unit and paid it cash. But I had to pay interest charges and the penalties that came due to delays in the payment of the balance. It was in the contract, only I didn't read it. They are in small letters.

Today, I am still paying for the penalties.

Two lessons I learned:
1. Don't be presumptuous. Study the offer and know your financial capability. I wasn't ready. I was day dreaming and wishing my increase will come to take care of the downpayment. It didn't. My income can't sustain the monthly payments of the condo unit.

2. Learn from lesson number 1.

To your debt-free life,

Tuesday, September 20, 2011

4 Things You Should Never Do With Your Credit Cards

4 Things You Should Never Do with Your Credit Cards

I can identify with Susan McCarthy in all four areas when it comes to using my credit cards. I have experienced the worst that can happen to me like overblown balance due defaults on payments and sometimes paying only the "minimum payments", letters from the credit card company's lawyers demanding immediate payments in lieu of a court case, worries and nightmares. I am thankful for Susan for this article and I know it will help a lot when you do what she suggest. I did, and I am almost out of my credit card debt.

Susan McCarthy, a financial adviser in Oklahoma City and author of The Value of Money, lists her top four credit card don'ts:

1. Don't make only the minimum payments. This stretches out your payment and, thanks to the interest, significantly increases your overall cost.

2. Don't carry too many cards. Multiple cards make it easier to rack up debt because it's harder to keep track of your spending. Having lots of cards isn't necessarily bad for your credit, but misusing them is. So limit your plastic to two national cards (store cards often carry higher interest rates) that you manage carefully.

3. Don't miss payment due dates. Not only will you be hit with a late fee-as high as $39 on some cards-but your interest rate could also jump. Sign up for online banking or pay over the phone if you're up against the deadline. (You may pay a processing fee, but it will probably be less than the late fee and the possible interest-rate hike.)

4. Don't take cash advances. These advances generally come with sky-high interest rates and service fees, making them a far too expensive way to get cash. Avoid at all costs.

To your debt-free life,


Saturday, September 17, 2011

3 Things Needed to be Financially Independent

Yesterday, I had a chance to meet 19 prospective Filipino overseas workers. I presented the session on "Financial Management", part of their Pre-Departure Orientation Seminar (PDOS). PDOS is a requirement every OFW have to go through to prepare them for their life overseas.

Three things were suggested in order to be financially independent.
1. Plan. We need to plan. Plan that is not just stored in our minds but a written plan, which covers education, house and investment or business. A written plan is better than one that is imagined. A written plan stimulates your thinking resulting in a better and doable goals. You can also refer to it every now and then and make adjustments when needed.

2. Save. Save at least 20% of your income. Treat this savings as an expense, which means you deduct it first. The formula goes this way: Income - Savings = Expense. The common formula, Income - Expense = Savings, doesn't work.

3. Invest. Invest your savings in order for your money to make more money. Savings must be converted to assets to increase income. Unfortunately, many OFW still need help in this area. There is a need to be financially literate.

The road to success is set for these batch of OFW going to Japan. They are excited with the prospect of making more money but more importantly, in the idea that they must be financially literate to efficiently manage their resources. Like them, we must make a decision to be financially literate in order to be financially independent.

To your debt-free life,

Tuesday, September 13, 2011

Why Don't you Just Work At McDonald's?

This is a guest post on the benefit of saving your money in your 20s from The Financial Blogger. The author, MD, is talking to most of us, who have no savings and  always broke, complains about not having enough money and live from paycheck to paycheck. Do you believe our young generation can benefit from saving early?  Tell us in the comment below.
“Why don’t you just work at McDonald’s?”– This is what my friend suggested to a mutual friend of ours. The mutual friend was complaining about how he had no money left for one week until he got his next paycheck. Let’s call the broke friend Mark. Mark has been in the same viscous cycle for the last five years with his finances. He makes over 40 grand a year and lives at home with his parents. Yet he has no savings and is always broke. He’s always complaining about not having money. Mark has to often swallow his pride and ask people to pay for his lunch. On the flip side, he purchased a new car (financed) and just came back from a 10-day trip (credit card).
What’s the point of this article? While last week I stressed the importance of finding ways to earn more money. Today I wanted to write about the inherent significance of saving your money in your 20s.
Why is it so important to even bother with saving money when you can spend it?

Build for your future.

What will you do when you need money in the future? You’re going to need to have some savings for when real life starts to kick in and the expenses start adding up. Let’s go over a few examples:
If you live at home now, you’re going to want to move out eventually.
As an ambitious 23 year old, you’re going to want to invest money in yourself by taking some courses.
You’re going to want to go on group trips with your friends.
You might want to quit your job and finance a side business that you’ve been working on.
These are just a few of the examples that saving money right now can help you build for your future.

Make working worth it.

What’s the point of working and trading away so much of your time if you have nothing to show for it? Working becomes redundant and painful for your soul when you’re always on the go and it feels like your not going anywhere. The only way to feel like work is worth it is to save some of your money so that you have something to show for all of those hours that you put into your job.

Create flexibility.

Let’s be realistic here– It really sucks to work because you have to due to debt. Saving money gives you a strong sense of flexibility. With a decent emergency fund you can easily quit your job when your health is totally at stake. You can also take career risks (start your own business or move to another city). Saving money provides you with a unique sense of flexibility.
Those are the main reasons for why I think all 20-somethings need to get into the habit of saving money. If you’re not saving money or if you’re stuck spending money on useless crap, why bother even working hard? Why don’t you find a minimum wage gig?
If saving is so important and being constantly broke totally sucks, what can you do? You need to get proactive with your finances so that you can gain control of your money once and for all. 
What are the best ways you can avoid being constantly broke in your 20s?

Stop adding to your current level of debt.

If you can’t manage to properly budget your expenses and save money in your 20s, the last thing you need is to increase your current level of debt. This means that financing a car or obtaining a mortgage are both horrible options. You need to first figure out how to save some money. Then you can worry about upgrading your car or moving out into a home where your expenses will be much higher. For now you need to stop adding to your current level of debt.

Increase your income over time.

If you’re always broke then you could simply just not be making enough money to justify your current lifestyle. This means that you’re going to have to start making more money. Since this is a whole new topic in itself, allow me to share a few quick points on making more money:
  • Ask for a raise.
  • Switch careers.
  • Start a side business.
These are just the most common options for increasing your income. You also need to watch out for lifestyle inflation. It’s really easy to start spending more money once your income increase.

Pay yourself first.

This is the absolute best strategy for saving money. You can’t think that you’ll wait until the end of your paycheck cycle to save some money. This never works. You need to set aside a specific amount of your paycheck as soon as you get it in your bank account. I often recommend automated savings plans. These plans force you to save money before you even see it. This guarantees that you won’t spend the money on drinks.
Do you have a friend that’s stuck in a horrible cycle with always being broke? How would you help someone gain control of their finances for once and for all?
[Note: I'm not trying to mock anyone that works at McDonald's. It was just the best example that I could think of for a minimum wage paying job.]

Monday, September 12, 2011

Top 10 Ways How to Save on Credit Cards

In the Philippines, whenever the "ber" months arrive (starts with September) our instinct for spending kicks in. It's like an addiction that never go. We begin to think of ways how we can increase our spending budget and where we can spend it. The worse thing that can happen to anyone is when we can't raise enough money to spnd, we usually resort to using our credit card with a view to paying it after the holiday season.

I have been encouraged by this article by CredAbility, which they posted on Crown Financial Ministries. They offer ten tips on how consumer can save on credit. I hope you will like it too.

How to be a careful consumer

“A careful consumer looks closely at the cost of carrying a credit card,” says Suzanne Boas, president of CredAbility.
Buy! Spend! Lease! Charge! Refinance! Consolidate! Consumers are bombarded with financial messages, in newspapers and magazines, blaring from broadcasts, popping up on computers. And, the most important messages may be in very small type. “But,” Boas says, “it is a very good idea to read that small type, especially in credit card agreements, to save yourself unnecessary costs.”

CredAbility offers these ten tips to save on credit: 
  1. Pay your bills on time. Not only will you avoid late fees and high interest rates, but paying on time is the most important factor in determining your credit scores, which determine the availability and cost of future credit. 
  2. Always pay more than the minimum due. Optimally, pay off all charges every month. If you can't do that, try to pay off your bills as quickly as possible. The longer you take to pay down the balance, the more money you pay in interest. Paying the minimum could mean taking 10 years or more to pay off your balance.
  3. Pay off high interest cards first. This doesn't mean ignoring the other bills. If you have many cards to pay off, pay the minimum on all except the one with the highest interest rate. Pay as much as you possibly can on that one. This “laddering” technique reduces the overall interest you pay. 
  4. Transfer balances to lower interest cards. But, beware of low introductory transfer rates—they may skyrocket if not paid off over a short term. 
  5. Negotiate with your creditors. If you receive a late fee and have a good payment history, ask the credit issuer to waive the fee. If your interest rate seems high, ask them to match or beat the rate. If they won't work with you, it may be time to look for a better credit card deal.
  6. Shop around for the best deal. Don't just accept whatever pre-approved cards arrive in your mailbox. If you have excellent credit, look for the lowest rate as well as for cash-back rebates, frequent-flier miles, free gasoline, or donations to college savings plans. If you have spotty credit, find cards that have the lowest costs. Watch out for monthly and annual fees, application fees, processing fees, and excessively high interest rates. Even secured cards have varying costs. Compare the many offers on websites such as and 
  7. Check the fine print. What are the late fees and over-the-limit fees? What is the grace period? Is the interest rate variable or fixed? Most importantly, read the slips that come with your bills. Issuers can usually change the terms with a 15-day notice. 
  8. Read your bills thoroughly each month. Watch out for overcharges, phony charges or billing mistakes. You have 60 days to dispute these items, but after that, you're out of luck. 
  9. Close zero balance accounts. If you have accounts you don't use, close them. This will improve your credit score. Most people don't need more than 2-3 cards, and extra cards can only help you dig deeper into debt. 
  10. Beware of the extras. Credit Insurance may be more expensive than life or disability insurance, and benefits the lender as well as the cardholder. Most people won't need it. Debt suspension and credit protection programs offer no value to consumers. 

To your debt-free life,

About CredAbility
CredAbility is a nonprofit, community service agency dedicated to empowering people to achieve a lifetime of economic freedom. CredAbility provides free, confidential budget counseling, community and personal money management education, debt management programs, and comprehensive housing counseling. Contact CredAbility by phone at 1-888-771-HOPE (4673), or visit the Web site.


Saturday, September 10, 2011

3 things I Would Do To Be Financially Free

I am excited to see young people think outside the box. What do I mean? Well, I have been teaching our children how to be financially literate. The schools they have gone did not teach them how to be financially free and think like a businessman. But it seems it is easier said than done. They are more focused on their jobs and building their careers. They are  fearful to step out of their comfort zone, their good employment. Understandable.

I have been there before. I know the feeling of the security my job gave me before. I've worked for two multi-national companies for 21 years. And you know what, I was successful. However, looking back, I had moments when I thought of starting my own business or investing because I knew my job can't and will not provide for me indefinitely. But I hesitated because I don't what to do and I was enjoying the fruit and benefits of my job,which was financially rewarding.

Looking back, and if I were to do it again, I would do three things to define and strengthen my financial stability:

1. Saved with a purpose. I was saving but not with a definite goal. Saving money with no plan or defined purpose is pointless because it will disappear every time the wind blows “unexpected expenses” your way.  It’s like running a race without knowing where the finish line is… you run but never get anywhere because you don’t know what direction you’re heading. 

2. Be financially literate. I was so focused on my job I forgot to equipped myself to be financially literate. I depended on others to teach me how to make my money make more money. I depended on my bank who could only suggest to put my money in a "time deposit", while I have no use for it. If only I knew what I know now, it could have been a different outcome. Today, I tell young people to read Robert Kiyosaki's "Rich Dad, Poor " to be financially literate. I started that way and I am still learning.

3. Invest, invest, invest. I wasn't thinking like an investor. I had the mindset of an employee. I could have placed my money in  ventures that would have given me more returns. Today, there are many opportunities to do that.
I know you can identify with my experience. If you are thinking to be financially free it is about time to start thinking about being financially literate. Buy books, get into seminars whatever it takes, equip yourself. If you have no savings, now is the time to start.If you have been saving but have not goals or plan for the money, now is the time to start saving with purpose. Lastly, try investing. 

To your debt-free life,

P.S. I have benefited a lot from Bo Sanchez' Truly Rich Club. He teaches us to invest in stocks. He even had his maids invest in stocks to prove that if they can do it, we to can.

Photo source: