Financial Focus: Good financial habits for young people

Q: What are some good financial practices people just entering the work force should do to ensure financial stability?

1. Needs and wants

I would think that most people entering the work force would have little or no experience with money management. Generally, this type of person would be in their late teens or early 20s and probably not used to a steady paycheck. The first practice would be to determine the difference between "need" and "want."

The availability of new income can be a temptation to buy items an individual wants but may not actually need. People should enjoy the fruits of their labor, but should also understand that it is important to set some money aside for a "rainy day" to pay for car repairs, common bills or unexpected financial emergencies. The general rule is to set aside about 10 percent of your pay check into a savings account for these potential expenditures.

New workers should also avoid charging too much on credit cards. A new job may provide financial stability that can create a false sense of financial security and could lead to overextending a person's debt - assuming that the debt can be paid for with future earnings.

Understanding the company's pension/retirement plan (if available) would also be important. Many of these programs will allow individuals to participate with as little as $50 per paycheck. These plans often provide employer matching contributions. Retirement may be the last thing on a young person's mind. Starting early can provide a good foundation for future retirement, home purchase or education.


2. Pay down debt

For most young adults, paying down debt is the first step to begin achieving financial stability.

Look to replace credit card debt to lower interest rate credit cards or a bank loan to consolidate to one payment and lower interest rate. Do not spend more than you make (this is part of the reason for the current economic state of our country).


Next step is getting health insurance then look at life insurance if you have dependents. If these insurances are not offered by an employer, you should contact a local agent or adviser.

Next, everyone should build a cash reserve for unforeseen job loss or disability to cover monthly living needs until paychecks start again. Savings account and money market accounts are usually a good place for short-term liquid assets. Find an institution that accept money as a direct deposit from your paycheck to avoid spending it. Out of sight out of mind - this is an easy habit to get used to. Build to a minimum of three to six months of living expenses in this type of savings.

Last but not least enroll in your company's retirement plan. If your employer does not offer one, set up your own. Either of these options can be done with direct deposit from your paycheck before you get your hands on it. If you want to enjoy retirement, you are going to have to invest on your own because if you get any support at all from the government, it will not be much. It looks as if there will be more people receiving Social Security than paying into it in the coming years.

Overall, this would be an outline to begin the road to financial stability.


3. Live below means

First, live below your means. Just because you can afford a bigger house and two grand vacations a year doesn't mean you should spend your new, larger income on these items.

Start the saving habit immediately. Put away money into a savings account and don't stop until you have six months of emergency savings in place.

Take advantage of any matching funds your employer will put into a 401(k) or similar type program.

Drive your vehicles until they are 6-10 years old, depending on mileage and reliability of the vehicle. Don't fall into the trap of buying new vehicles every 3-4 years; otherwise, you are taking the depreciation hit too often. Maintain you vehicles well. "The ounce of prevention is worth a pound of cure" adage is right on the mark here.

Take advantage of well-priced employee benefits, and then look at supplementing them in the private market while you are young and healthy. For example, permanent life insurance is much more affordable at a younger age and can be a great buy. Ask about guaranteed insurability options at time of purchase to protect against changes in your health.

It can be a challenge to plan for the long term at a younger age. But if it is done, and you stick with the budget you've laid out, you'll be better able to weather the tough economic times that come along, enjoy the better economic times that follow, and truly live a wonderful retired life.



4. Use time wisely

You must develop good financial habits. At first, this may be hard to do, as it might be the first time you have "real" money in your pocket. Try to live within your means and be realistic of your lifestyle. Don't abuse your credit cards or go crazy buying "stuff" you don't need. If you have student loans, set up a repayment schedule and make sure you stick to it. Try to live your life as debt free as you can.

As you work to reach your financial goals, you've got one of the greatest assets on your side: time. Many young workers believe time allows them to hold off from investing until they're older; however, this is a huge mistake many people may never recover from.

Get in the habit of saving instead of spending. Try to put aside some money each month in an investment account, even if it's only a modest amount. With time, even a modest amount invested wisely can grow into something significant.

As you move through your adult life, you'll have many financial goals, such as buying a home, saving for your children's college and working toward retirement. Having good financial habits in your early working years will help you achieve all your financial objectives and dreams.

Finally, as your career advances and you start earning more money, make sure you save more along the way.

How Much SAVING do you need for your RETIREMENT?

" Vision without action is a dream.
Action without vision is a nightmare."

When a person will decide of starting to save. He might ask, How much should I save monthly? How much should an enough savings for my retirement?


How much should an enough savings for my retirement?

Well, there is a formula for that:
Annual Income X 10 = Total Amount of Saving

Example: Let's sayyou have monthly income of Php. 15,000
15,000 x 12 (months) = 180,000 Annual Income
180,000 x 10 = Php. 1,800,000.00

Php.1,800,000 / 1.8 Million is the total amount you must have the moment you retire and you must also invest it that earns 10% rate of return annually.

Why is that so?

1. When you invest the 1.8M in the 10% rate of return investment it will give you 180,000 annually.

Php. 1,800,000 x 10% = 180,000

2. You divide the 180,000 into 12 (months)

Php. 180,000
/ 12
________
15,000

Isn't is the 15,000 is your monthly salary when you're still working? That is what you call LOI or Living in Interest, by the mere interest of your 1.8M that you invest you can support your day to day expenses without asking to your children or bothering relatives or other poeple.

REMEMBER: Be careful of your Php. 1.8M because your supposedly retirement fund will become your own nightmare too, once you put that retirement savings of yours in an illegal investmnet or fly by night business that guarantees you easy and specific high rate of return. There is no such thing as easy and specific high rate of return because every investment and business involves risk. but in the long run ( as in long term of 5years - 10 years) your money will surely grow. And you can't risk your retirement fund that far, maybe your present condition might not handle that risk or retrieve your money in case it's lost.

BE AWARE: too of other people who would like to borrow your money and will promise to pay you. Other people includes your close relatives, even your beloved children. Money loan to other people is very very risky and most of the time no money back guarantee. For Christ's sake it is your retirement fund! It includes your children because by that time you might have gave them their education and having their own job. You've done your responsibility to give them education, so it's their responsibility to save for their own. You can't completely expect your children for your retirement, by that time they also have expenses raising their own family.

How much should my monthly savings?

1. In case your 30 y.o. right now and let's say your retirement age is 60 y.o., so you have 30 years of saving.
60 y.o. = retirement age
- 30 y.o. = age right now
_________
30 = years of saving
( 30 years x 12 mths = 360)

2. From the above example, Php 1.8M
1,800,000
/ 360
__________
5,000 = amount you should save monthly..

So, you must set aside Php. 5,000 each month of your salary for 30 years. 30 years is quite long, yet through investment facility (like Kaiser International) your saving period is shortened ( 5 years ) then let the interest of your money compound until its maturity.

The most secure and safest investment for retirement is Treasury Bills/Notes or Bond Fund. Goverment Securities/Bond fund is a fixed income investment. If you'd save as your retirement fund you may choose to put it in Mutual fund invested in Goverment Securities which is the Bond Fund for as low as Php. 5,000 of initial investment and Php. 1,000 as additional for subsequent investment.

Six(6) Steps to FInancial Security

1. Increase Cash Flow
> Earn additional income
> Reduce expenses

2. Manage Debt
> Consolidate debt
> Eliminate debt

3. Create Emergency Fund
> Save 3 months income
> Prepare for Medical Emergencies

4. Ensure Proper Protection
> Protect againts loss of income
> Protect family assets

5. Build Long-Term Saving
> Outpace inflation
> Minimize taxation

6. Preserve your Estate
> Help limot probate costs
> Maintain privacy

Source: IMG

The Wealth Formula

Money
+ Time
+ Rate of Return
- Inflation
- Taxes
__________________
WEALTH

Source: IMG

Four(4) Keys to Financial Independence

1. The Discipline to Save Money

2. Higher Rate of Return

3. Save Taxes

4. Money Takes time to grow


Source: IMG

How does money works?

1. Money works for you by compounding its interest through passing of time.

2. Money works through constant saving and investing.

3. Money works by venturing into business calculating the risk it entails.

4. Money works greatly when you share it.

What is Wealth?

" WEALTH is a person's ability to survive so many number of days forward... or if I stopped working today, how long could I survive? " by Buckminster Fuller

Example: If I chose to quit my job now having no asset and my total savings is amounting for 3 monthly expenses. I can only survive for 3 months without paycheck. It means I'm wealthy just for 3 months time.

Wealth is not tantamount to money alone. If you simply have more money it doesn't mean your rich already. As what I observe to a lot of people, they think they are rich enough by fat paycheck they received. So they act and talk of what they presume rich people do. The moment money touches their hands they spend it,
renovate their house, get car loans, take vacation and buy expensive things usually luxuries. As if employment income is permanent to support them until retirement.

Wealth is based through accumulated assets that will generate money for you without physical effort to last for a lifetime...

Rich Dad, Poor Dad by Robert Kiyosaki

Rich Dad Poor Dad

Publish at Scribd or explore others: Business eBooks wealth rich

21 Absolutely Unbreakable Laws of Money

" I never had a fanitest idea that there are such laws exist about money. When I heard these 21 Absolutely Unbreakable Laws of Money, it made me ponder whether these laws exist or not, we are the one creating our own financial affluence. It is how we think that creates ladder of opportunities leading to our own verge of success. Our external financial world is just an extension of our self-made internal financial world governs by our own money laws which we made up. "

21 Absolute Unbreakable Laws of Money - Brian Tracy

Publish at Scribd or explore others: Business Business-Management Laws of Money

Mutual Fund Investment Part 2

EVERYTHING YOU WANT TO KNOW ABOUT MUTUAL FUNDS
(but were afraid to ask)

1. IS MY PRINCIPAL SECURE IN MUTUAL FUNDS? CAN I LOSE MONEY?

Any investment involves risk. It means that you may lose some of your original capital. However, a mutual fund does several things to control, and contain that risk. (Professional Fund Managers & Diversification.

2. HOW MUCH IS THE INTEREST RATE? IS THIS GUARANTEED?

Mutual funds are not fixed- income investments and therefore do not pay out a fixed rate of return. The net asset value of a mutual fund fluctuates on a daily basis. Your individual rate of return depends on many factors. It is illegal to guarantee mutual fund returns.

3. WHY SHOULD I INVEST IN A MUTUAL FUND, IF EARNINGS FLUCTUATE ANYWAY?

There are many benefits from investing in mutual funds: Diversification, Affordability, Tax-Exempt, Professional Fund Management, Liquidity, Potentially Higher Returns etc...

4. THEY SAY MUTUAL FUNDS ARE NOT COVERED BY PDIC, DOES THIS MEAN IT IS SAFER TO INVEST IN A BANK.

Define: “safety”. Mutual Funds are investment companies registered with the SEC. They are not bank products and therefore are not covered by PDIC (P250K, DOSRI, NPLs issues)

5. WHAT HAPPENS IF THE FUND MANAGER/ RSA PERFORM POORLY OR GOES BANKRUPT?

The fund management company is separate from the mutual fund company (investments are diversified) the shareholders simply need to appoint a new fund manager.

6. WHAT PREVENTS THE FUND MANAGER/RSA FROM RUNNING AWAY WITH MY MONEY?

Mutual funds structure. The fund manager does not have any control over the physical assets except to make buying or selling decisions. Assets are held by a custodian bank and a transfer agent keeps records. RSA is just an intermediary.

7. WHAT HAPPENS TO MY INVESTMENT IF I DIE? WILL THERE BE TAXES?

Your shares in the mutual fund will form part of your estate and will be distributed to your heirs (immediate family members) accordingly. We encourage joint accounts.

8. HOW DO MUTUAL FUNDS EARN? DOES THIS AFFECT INVESTOR EARNINGS?

Management fees. Ranging from 1.5 – 3% of total assets. Amortized daily.

9. ARE MUTUAL FUND GAINS TAXABLE?

No. Mutual fund gains are exempted from taxes based on CTRP. This was done to promote long-term savings in the country. PERA Bill.

10. HOW COME MUTUAL FUNDS CHARGE ENTRY/EXIT FEES, UNLIKE IN THE BANKS?

Entry fees are fixed fees for commissions and some transaction fees. Exit fees are there to discourage “short-term” investors from joining the fund.

11. KNOWING THAT COMMISSIONS ARE LOW, WHY DO WE STILL NEED TO INCLUDE MUTUAL FUNDS IN OUR PORTFOLIO?

You earn not just with outright commissions but with trail commissions as well. The bigger the base, the bigger your trail. Door opener, expand your product line & market plus added credibility.

12. WHAT IS THE BEST MUTUAL FUND PRODUCT?

Always ask client’s objectives, risk appetite and time horizon.
RSA recommends:
FIRST METRO SAVE & LEARN FIXED-INCOME FUND (for peso bond), PHILAM DOLLAR BOND FUND (for dollar bond) & PHILEQUITY FUND (for equity fund)

13. IS THERE A STRATEGY FOR MUTUAL FUND INVESTING?

You can never exactly time the market. Peso Cost Averaging. Post dated checks.

14. KNOWING THE DEMISE OF AIG, IS IT STILL OK TO SELL PHILAM MUTUAL FUNDS?

Philamlife remains to be the largest insurance co. with the strongest balance sheet in the industry. Consolidated assets of P170B and Rev = P36.7B Total consolidated investments are concentrated in Phil GS, corp. bonds, and blue chips. We do not have CDS in the country.

15. IF MUTUAL FUND GAINS CANNOT BE GUARANTEED, WHAT IS THE ASSURANCE THAT INVESTMENTS IN MUTUAL FUNDS WILL EARN?

Track record. Assurance lies in the investment instruments inside the portfolio (government securities, blue chip companies) Market cycles. Long-term nature. NAVPS.

Mutual Fund Investment Part 1

Our IMG company gives free seminar which tackles mutual fund investment once or twice every month. Last February 25, its my first time to attend about mutual fund investment seminar. The mutual fund seminar was split into two parts. Feb, 25 mutual fund investment topic was all about basic informations about mutual fund.


I learned that Mutual Fund Investment is a long term investment, who are responsible and how it is being managed, the mutual fund structure and its three types, Bond fund, Balanced Fund and Stock/Equity fund.

The fund manager from RSA (Rampver Strategic Advisor) presented the three mutual fund investment products available in our company, Philequity, FAMI (First Metro Asset Management Inc.) and Phila Asset Management Inc.

After that, I got excited and willing to invest right away, I'd like to grab this oppurtunity to practice how to be a long term investor with an affordable amount to shell out. Minimum of Five thousand pesos (5,000) and additional One thousand pesos for subsequent month or as often as you want.

I feel glad about my small invesment, for now I can manage my own money I make, not squandering it for trivial expenses that won't give interest in the long run. I believe that from this constant saving, little by little, I shall achieve my early retirement eventually.

International Marketing Group (IMG)

International Marketing Group (IMG) is an independent marekting company offering a broad array of financial services and products through its affiliated companies.

Our IMG company has a mission of " No families left behind ". We teach free Financial Literacy Education to those people who are willing to learn Financial Intelligence thus achieve their Financial Freedom.

We have Wealth Academy offering free Financial Literacy Education. The Wealth Academy consists of series of information, about proper saving, estate preservation compound interest of money, investment like mutual fund, financial mentoring, financial planning, business and lot more financial education...

IMG is at a crusade of laying Financial Foundation to a lot of Filipinoes, because Filipino people are indeed hardworking, resourceful and intelligent people. Nevertheless, though how hard the Filipinoes work they are still financially struggling. What is that link that is missing which rich people know that's why they are getting richer over time with less effort they make. And we would like to bridge that missing link, that is FINANCIAL LITERACY EDUCATION to increase one's Financial I.Q.

IMG office is located at 3rd floor Kings Court Building 1, Chino Roces Ave., Makati city. The schedule of free seminars are every 7P.M. from Tuesday - Friday, and every 2P.M. and 7P.M. during Saturday. website is www.img-wealthacademy.com/