The Philippine Economy Grew by 5.9% for Q2 2012

I was actually happy to learn that the economy grew by 5.9% for Q2 2012. I am just hoping that the stock market would take this news positively.

 

No interest in the theory of interest

I have a mathematical and IT background but I was already interested in Finance even when I was younger. I was already watching the Business Channels back when I was 9 years old (particularly Bloomberg and Asia Business News-now a part of CNBC). I just love watching the stock market indices and the currencies going up or down. I know that it is about people making money if they do the right trade but I never really knew anything more about it. I even read the business section first of online news portals. I wanted to major in Mathematical Finance back then but I lost interest after taking up a Theory of Interest class. I just decided to major in the abstract world of Pure Mathematics and functional analysis.

I actually lost interest in the financial world after college since I entered the academe. After obtaining my Master’s degree in Pure Mathematics, I decided to get a breather and join the Corporate world first to be sure if the academic life is for me. I was accepted in an IT Company and worked there from 2008-2011. I transferred to a Financial Institution’s IT company in 2011 and I was assigned at the Securities Group. I learned a lot about trading and understood a lot of things because of the less bookish and formal approach to concepts though I quit that job after 11 months since I really do not like the IT stuff that I am doing there. I transferred to another IT firm and enrolled at the PhD Mathematics program of my University. I still watch CNBC and Bloomberg everyday and I now have a better understanding of how the financial world works.

I now have the tools and knowledge on how to play the finance game for my money grow. I don’t think I would pursue Financial Math even if I were given the choice to go back in time. I would still prefer Pure Mathematics.  There are some things that you can learn even outside the classroom if you really are interested.

 

Credit Cards

I am not really a fan of credit cards. I had been offered different credit cards before but I always have them cancelled on the anniversary date so that I would not have to pay the annual fee. I had a BDO Gold for my first credit card but I had it downgraded to BDO ShopMore since I saw that the annual fee is too expensive for me during that time. I had it cancelled after I had my Citibank Classic Visa credit card since Citibank offered a higher credit limit, though I do not really need that much credit limit. I also had Citibank Mercury Drug and Premiere Miles card but I already cancelled the Mercury Drug card since I never used it. I kept the Classic Visa card since it is my first card and I am sometimes able to waive the annual fee. I also kept the Premiere Miles Card since I was foolish enough to buy an LED TV using the 12 month 0% interest even though I already had the cash to pay it during that time. I was thinking about the miles that I would earn but after computing it was just then that I realized that I would need to spend PhP600,000 using the Premiere Miles Card to get the 20,000 miles I would need to get the round trip ticket to Hongkong via Cathay Pacific.

I just have one rule regarding credit card use: Always pay in full.

The interest rate of 3.5% per month (most common interest rate on credit cards) on the unpaid part of the balance will accumulate as fast.
Example: If you have a PhP10,000 credit card debt and you only pay the 5% minimum payment then it will take you 851 months or 71 years to pay your debt paying a total of PhP29,850.73. If we factor the PhP500 minimum monthly payment if the 5% of the total debt is below PhP500 it will take you 33 months or almost 3 years with a total payment of PhP16,500.

PhP6,500 seems to be a small interest payment stretched over a period of three years but look at it this way, if you put your PhP6,500 in a regular peso savings account at 0.0375% per annum you will have PhP7259.01 after 3 years. If you invest it in a mutual fund, it could become as high as PhP13,000 based on the historical performance based on the past three years of Sunlife and Metrobank Equity funds (but this is not guaranteed and you might actually lose money on that three year period, I’ll write a future blog about mutual funds in the future).

I am not saying that credit cards are bad, it’s the decision of people using the card is the one that’s bad. I use my card to pay for airline tickets or to buy groceries when I do not have cash available at hand. I just make sure that I fully pay my bill at the end of the billing period. For one, there are a lot of cards that can be helpful for the consumers, like for those who uses their cards for gas purchases there is a 2%-5% rebate when you use your Citibank Shell, BPI Petron or HSBC Caltex cards, it’s a lot of savings specially with the high prices of gas. Though I would still recommend the shopping cards from different banks that has a lot of rewards if you use them for paying your utility bills or groceries like Citibank Cashback, Robinson’s card, BDO ShopMore.
Again Just use it wisely and pay it in full

 

Rules on Savings

I follow the following rules on Savings:

1. Your savings should be enough to last you six months worth of expenses.

Example: Your current monthly fixed expense is PhP10,000 then my savings should not be less than PhP60,000 at any given point.

Reason: In life, we do not what will happen tomorrow but if we have enough savings then we will feel more secured if in case we lose our jobs or get sick. At least we will feel a bit more secured when in between jobs or getting treatment. When I quit my job back in 2008, I was looking for a job for two months, thanks to my savings I was able to pull through.

2. Do not touch more than 10% of your savings to buy anything

Example: If you have PhP60,000 on saving then you should not spend more than PhP6,000 of your saving. It does not mean that you could not spend PhP7,000 to buy the phone that you want but you could take out PhP6,000 from your savings account and PhP1,000 from your salary.

Reason: Just think about the time and effort you did to get to the point that you were able to save PhP60,000. It might take you some time to save up again for that PhP6,000 that you will use, what more if you will spend more than 10%.
3. Put your savings in a savings account that offers the best interest rates and terms that you could follow

Example: Always look around for the bank that will offer you the best interest rate and better terms. Citibank will offer you a 3.5% per annum for your savings account but will also require you to have a PhP50,000 initial deposit and a monthly deposit of PhP5,000. BPI MaxiSaver will offer you around 2% per annum on the same initial deposit of PhP50,000 as long as you do not withdraw on a month and the interest will go down to 1% per annum once you withdraw. BDO Optimum Savings will offer you 1.1% per annum with an initial deposit of PhP30,000. Normal Peso Savings account of different local banks normally just offer 0.375% with initial deposits ranging from PhP1,000 up to PhP10,000.

Reason: You are actually losing the value of your savings due to inflation (the rise of prices) over time. As much as possible you would like to minimize the loss in value of your money. Savings is not an investment. You just need savings for a sense of security.

4. Put away at least 15% of your monthly net income on savings

Example: If you bring home Php10,000 a month, save PhP1,500 a month. If your actual fixed monthly expenses per month is PhP7,500 then it will take you 30 months with PhP1,500 monthly saving to have at least a six month worth of expenses in savings which is PhP45,000. If you could save the remaining PhP1,000 to have a monthly then you could save PhP45,000 in 18 months.
Reason: It is better to have yourself get used to saving.

 

Savings Account

I was actually surprised to learn that some of my friends do not have a savings account apart from the payroll account that they have. I had a savings account ever since I was 6 years old which my Mom opened on my behalf. My first savings account was with Banco De Oro back in 1990 and I remember having a savings of PhP6,000 during that time since I saved most of the money that was given to me (birthday money, allowance, Christmas money). PhP6,000 during that time is more than a month’s worth of salary and things were way cheaper back then. We had the account closed in 1994 and opened an account with Metrobank after. I had my passbook account converted to an ATM account in 1999 and that’s when I started withdrawing from my savings. It actually became an early lesson on money management for me because I had PhP15,000 when I had the ATM but after two years I completely withdrew all my savings.I opened and closed a couple of accounts with Banco De Oro and BPI afterwards.

When I started working back in 2005 as a Math Instructor, I do not have a savings account during that time. I opened a payroll account with Landbank and PNB but I chose to use Landbank. I was not actually saving anything but when I got my 13th month pay and Christmas bonus, I opened a savings account with BDO and every time I will get a bonus or receiver my overload pay, I put it in my savings account. When I left the University in 2008, I closed my Landbank account and opened my BPI Payroll account.

It is better to have a separate Savings account and a Payroll account since if your payroll account is the same as your savings account, you will probably not save anything since you will tend to spend everything on your account. It is better to look at savings as an expense.

A passbook will also be a better option compared to an ATM account  because an ATM account is accessible 24/7 while having a passbook tends to be a hassle because you need to go to the bank during banking hours and also line up. You will not tend to withdraw as often as possible.

To date, I currently have 3 bank accounts: BPI Payroll Account, BDO Optimum Savings Account and BDO Dollar account. I just like the fact that BDO has longer banking hours and some branches are open during weekends.