PLAN YOUR FINANCES EBOOK - MJ

Plan Your Finances APPLY! My major realization in this chapter is ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 35 This is your personal copy. Illegal distribution is punishable by law.

Set Financial Goals If you haven’t done yet, list all the goals you want to achieve in a 20-year frame. Write them as WISE goals. Put your emotional why. Rank them according to your priority with 1 as the highest. You can do this table on your computer using Word or Excel if you have a longer list. Some examples were given on the first three rows. WISE Goal Emotional Priority Target Why Rank Money Needed I am a loving To give my 2 at least mother as I set son the best 100,000 aside at least 2 college pesos million pesos education yearly for college 10 years educational fund for my son on or before August 1, 2030 36 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances WISE Goal Emotional Priority Target Why Rank Money Needed I am responsible To secure my 1 60,000 as I set aside an income even pesos income if critical yearly for protection fund of illness or 10 years at least 2 million disability pesos on or strikes before November 6, 2020 I aim for To retire 3 at least happiness as I comfortably 15,000 create a without pesos retirement fund depending monthly of at least 10 from my for 20 million pesos on children for years or before age 60 my needs 37 This is your personal copy. Illegal distribution is punishable by law.

Set Financial Goals WISE Goal Emotional Priority Target Why Rank Money Needed 38 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances WISE Goal Emotional Priority Target Why Rank Money Needed 39 This is your personal copy. Illegal distribution is punishable by law.

Set Financial Goals WISE Goal Emotional Priority Target Why Rank Money Needed 40 This is your personal copy. Illegal distribution is punishable by law.

Chapter 3 Evaluate Your Present Budget Eight years ago, my husband and I didn’t allot time budgeting our money. One day, we wondered where our money went and why we were in debt. When I started learning the proper ways on handling money, one of the basic practices I acquired is to have a monthly budget and not to spend on items not included in the budget. What is a budget? A budget is a financial plan on how you manage your money. It has two parts namely your Earnings and Expenses. You are doing well financially if your earnings exceed your expenses. Otherwise, you are in debt and figuring out how to make ends meet. When my husband and I were struggling with money, we sought the help of two of our friends, Shaun and Pam. The first time we met Shaun and Pam, they were also struggling with money like us but after only about two years, their business started to flourish while we were still in debt. 41 This is your personal copy. Illegal distribution is punishable by law.

Evaluate Your Present Budget We met in a coffee shop. After our introductory chit-chat, they looked at us in a friendly yet serious way. Shaun started, \"If you want to know why you are in debt, list down your yearly/monthly earnings and expenses.\" Pam continued, \"It sounds basic but have you done it?\" We smiled shyly as we slowly got our pens and started listing. After several minutes, we looked at each other. We could not utter a thing. But at that moment, we knew why we were in debt! That is one of the benefits of a budget. It tells you how much comes in and how much goes out. You will determine how much you are earning and where every peso is going. This way, it helps you to identify what needs to change in your spending habits. What about you? Do you have a budget? If none, start listing your expenses daily for a month and look at where your money is going. How much goes to your needs like food, clothing, rent or house mortgage, utilities, toiletries, etc. Include your insurance premiums, if any. 42 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances How much goes to your wants like new clothes/shoes/bags, recreation, car mortgage, travel, dining out, coffee dates, gadgets, etc. If you don’t have the exact amounts, estimates are okay. Add all your monthly expenses and subtract the total from your total monthly earnings. Which of the two financial status below is true for you? Status A: Total earnings minus total expenses is a positive value. Status B: Total earnings minus total expense is zero or a negative value. If Status A is true for you, congratulations you are on your first step to financial freedom. If not, here are some tips on how you can reach Status A. Evaluate Your Expenses To be able to reach your financial goals, you should aim to achieve Status A. The higher excess of earnings over expenses, the closer you are to achieving your goals. There are two ways to achieve Status A: decrease your expenses and increase your earnings. 43 This is your personal copy. Illegal distribution is punishable by law.

Evaluate Your Present Budget I will focus on how to decrease your expenses in this chapter. In the next chapter, I will discuss how to increase your earnings. Essential vs Non-essential Needs Go back to your list of expenses. Classify them as needs or wants. At this point, you might justify that everything is a need. You might say that you need that new bag because your old bag is already torn. You need a new set of wardrobe because it is required in your work. If that is the case, classify your needs as essential and non-essential. Essential needs are those which when you don’t have, you will eventually die, will not be able to earn money or will not accomplish your financial goals. Two obvious examples are food and drinking water. Included in this list are your electricity, utility water, cooking gas, maintenance medicines, rent or house mortgage, transportation and toiletries. You may include in this list the needs which would lead to your goals. If you have kids, this will include their education expenses. You may include here insurance premiums which would address the four financial needs mentioned in the previous chapter. You may also include your internet subscription and cell phone load 44 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances if you need them for work. If not, then they are considered non-essential expenses. Non-essential needs are those not included under essential needs. These are your wants. This would vary among every individual depending on the lifestyle they chose. We spend on these things because we want to feel good about ourselves, we find some enjoyment in them or we wanted to be “in” with the latest trend. There is nothing wrong in spending on these non- essentials as long as you have enough funds for your essential needs. While we were on community quarantine during the recent Covid-19 pandemic, I was able to look at our attic and saw many non-essential things I bought more than ten years back which I plan to throw or giveaway. If I were financially literate earlier, I could have invested the money I used in buying them. The money could have multiplied to finance my present goals. Now that I am financially literate, before I buy something, whether cheap or expensive, I ask myself several times, “Do I really need it? Does buying it help me achieve my financial goals? Do I own something similar which I can use as of the moment?” I hope the recent pandemic has helped you identify what are your essential needs and which are not. 45 This is your personal copy. Illegal distribution is punishable by law.

Evaluate Your Present Budget Decrease your non-essential expenses so you have funds for your more important financial goals. If you have lessened them and your financial status is still negative, you might look into more “tipid” tips on your essential needs. Consider cheaper but healthier food, spend on internet data or cell phone load only when needed, walk or bike to work instead of taking the taxi, turn off the lights in your room when not in use, repair a leaking faucet, etc. Sample Monthly Budget of Expense Below is a sample monthly budget containing a list of expenses. From the table, 85 percent of the expense [(38,400/45,400) x 100%] are essential and 15 percent are non-essential. The person having this budget should be earning a net income of more than 45,400 pesos for this budget to work. Otherwise, he needs to give up his non-essential needs or practice “tipid” tips to lower some of his essential needs. Amount Spent Expense Item (monthly in PhP) Food Essential Non- Electricity essential 14000 1500 46 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances Utility water 1400 2000 Drinking water 1200 Cooking gas 1000 4000 Transportation 3000 1000 Toiletries 3000 Insurance premium 5000 7000 Cell phone load 500 Internet load 800 Clothes Sons’ education 7000 Dining out/Recreation Miscellaneous 38400 Total Essential Expenses Total Non-Essential Expenses Total Expenses 45400 +++++ 47 This is your personal copy. Illegal distribution is punishable by law.

Evaluate Your Present Budget APPLY! List your expenses and classify them into essential or non-essential needs. Put the corresponding amount you spend for each expense. Total the amount of money you spend for your non-essential needs. Compare the total expenses to your earnings. Are you in Status A or B? If you are in Status B, take the time to figure out how to decrease your expenses so you can reach Status A. Amount Spent Expense Item (monthly in PhP) Essential Non-essential 48 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances 49 This is your personal copy. Illegal distribution is punishable by law.

Evaluate Your Present Budget Total Essential Expenses Total Non-Essential Expenses Total Expenses Monthly Earnings 50 This is your personal copy. Illegal distribution is punishable by law.

Chapter 4 Have a Positive Cash Flow I first heard from Bo Sanchez the concept of multiple income streams through his talks in the Truly Rich Club and through his books on personal finance. He said a millionaire has an average of seven income streams. When I learned of this, I thought of finding other means of augmenting our income aside from teaching in the university. I did some statistical work and Math tutorials. I became open to invitation from friends to sell health products, cosmetics, books and insurance. I found ways on how to earn passively in stock investing through capital appreciation and stock dividends, using affiliate income, and others. Through these side-hustles and expense reduction measures mentioned in the previous chapter, our cash flow shifted from negative to positive. In personal finance, cash flow refers to the money coming in and going out of your household. Your earnings comprise the money coming in while our expenses generally comprise the money going out. To have a positive cash flow, your earnings should exceed your expenses. You can do this by 51 This is your personal copy. Illegal distribution is punishable by law.

Have a Positive Cashflow decreasing your expenses and/or increasing your earnings. In the preceding chapter, I mentioned some ways on how to decrease your expenses. In this chapter, I will focus on some ways to increase earnings. Bo Sanchez encourages every Filipino to have at least three income streams. A typical Filipino has only one income stream. Based on personal observation, some Filipino couples have only one income stream as only one is working and the other is taking care of the kids or manages the house. Having more than one income stream increases not only our cash flow but also our financial security. During the recent crisis, a lot of people in the world have lost their main source of income. As of April 24, 2020, it was reported by the Department of Labor and Employment (DOLE) that more than two million Filipino workers have been displaced because some businesses have to close during the lockdown. If the displaced workers have only one income stream, their families are in deep financial trouble. I felt sad when I saw on television some mothers crying while being interviewed because they were not given amelioration packages by the government. Their source of income stopped because of the lockdown and they need to rely on the amelioration package for their 52 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances food. It is a good thing that there were some foundations and organizations who extended help. However, the help extended is only for a limited time. There is a need to aggressively educate Filipinos to not rely on one income stream and to prepare for emergencies. Start a Side-Hustle So, how do you increase your income? You can start thinking of a side-hustle. A side- hustle is another source of income aside from your main source of income. To identify a side-hustle that suits you, ask what are your talents and skills that you can monetize? If you have skills in writing, you can consider freelance writing or to write for someone else and get paid per copy. My friend Lianne, who is a licensed pharmacist, wrote health and medical related articles for her clients while she was a full-time professor in a university. She told me what she earned here eventually exceeded her salary as a professor. If you have skills in speaking/hosting, you can host events/parties and get paid per hour/occasion. There are also Catholic universities which normally hire speakers for the annual recollection of their faculty and employees. There was a time that my husband was 53 This is your personal copy. Illegal distribution is punishable by law.

Have a Positive Cashflow invited to speak in a Pentecost rally. He was given an honorarium for his talk. If you have a skill in organizing events, you can also be hired as an event’s organizer. My client Bench is doing it as a side-hustle while maintaining his job as an IT professor in a university. If you have skills in baking or cooking, you can cook your signature dishes and bake bread or cake and get paid per serving sold. I have some friends who have done this during the pandemic. I have bought from them sushi bake, lava cake, banana cake, cookies, cream puff, graham cake, pastillas, tacos, burritos and baby back ribs. If you have skills in graphics design or video editing, you can use these skills and get paid per project. My sister MJ enrolled for a short-term social media marketing course during the community quarantine period and now uses what she learned to get projects. I pay her to manage my social media accounts. She is the one who designed my book cover. Bo Sanchez also encourages everyone to learn how to sell. You may know of suppliers of goodies that your friends might be interested to buy. Mary has a contact in Palawan and is reselling danggit (Filipino term for salted, sun-dried rabbitfish), cashew nuts and other dried products from there. 54 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances Kerry, on the other hand, knows of a meat supplier and resell meat products to his friends. Liz gets her bangus (Filipino term for milkfish) products from a friend and resell those to her friends. Emma buys choco chips, nachos, peanut butter and imported products at a lower price from her supplier and resell them to her friends. If, as of the moment, you think you don’t have a talent or skill which you can monetize, look for earning opportunities which have free trainings. You can join a direct selling or networking company to develop your selling skills. Eight years ago, I underwent certifications and trainings to be a financial advisor. I only paid for the exams and licensing fees to start since the trainings are free. Little did I know, my side-hustle would become my main source of income and it is something that I want to do until I retire. Aside from being a financial advisor, I also took an exam to be a certified investment solicitor (CIS) of Philam Asset Management Inc (PAMI) which also provides me another source of income. I am building my team as a unit manager and I get additional income from overrides from my recruits. I also earn an affiliate income through joining Bo Sanchez’ Truly Rich Club. 55 This is your personal copy. Illegal distribution is punishable by law.

Have a Positive Cashflow I used to sell other products through joining different direct selling and networking companies. I also became a distributor of Shepherd’s Voice Publications books. I started all of these while I was still a full-time college professor. There are several ways to earn these days. Having several income streams is doable. You can do it too. You just need to decide what you can do and just do it! Investing in Assets Robert Kiyosaki, in his book Rich Dad/Poor Dad, said that one of the ways to increase our cash flow is to invest in assets than liabilities. He defined assets as things that put money into our pocket while liabilities are those that take away money from our pocket. He went on saying that a house is a liability on your part if you pay mortgage to the bank or institution for owning it, if you pay interest for it and if it doesn’t give you rental income. The house, however, is an asset of the bank since it is putting money into their portfolio. For those who can afford investing in real estate property, this can be a means of increasing cash flow in the future through rental income. If you choose to invest in properties or in any other investment, make sure you take the time to study 56 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances it. Understand before going into it because investing in such requires a significant amount of money. One of the cheapest means of investing is in paper assets. This includes bonds and stocks. Through joining the Truly Rich Club, I was able to buy stocks of blue chip companies like Ayala, SM, BDO, BPI, PLDT, Globe etc. through the online stock broker COL Financial Inc. Since I am a CIS, I am able to invest and endorse mutual funds. I will discuss further paper assets in later chapters. Your Greatest Investment It is important to start learning to invest in all these but never neglect your greatest investment – investing in yourself. You are your greatest asset and you should find ways on how to acquire new skills and develop innate talents. I invested in OCCI leadership seminars which helped me change my perspectives in life. I did volunteer coaching for OCCI seminars in Baguio which now helped me coach my recruits. I joined Toastmasters International more than 10 years ago which helped me in my speaking and presentation skills as a professor and now as a financial advisor. 57 This is your personal copy. Illegal distribution is punishable by law.

Have a Positive Cashflow I have attended Strengths Gallup Seminars, Kerygma Conferences, Light of Jesus Family (LOJF) School of Leadership and other seminars/workshops that helped me develop as a person. Fortunately, during the COVID-19 crisis, Philam Life has several free online trainings for advisors and agency leaders which helped me stay productive even if I stayed in the house for more than five months. Our LOJF community has several free online trainings for its servants. It is also during this quarantine period that I joined a book writing and coaching program. This book is the product of the program. I believe God has given you multiple untapped gifts. You have the capacity to earn more if you want to. +++++ 58 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances APPLY! To increase your cash flow, take time to list the skills or talents you have which you can monetize. Ask around or do some research on how you can start monetizing them. You can also try selling products or services. If you want to become a financial advisor and be part of my team, you can email your resume at [email protected]. Talent/Skill How to Monetize 59 This is your personal copy. Illegal distribution is punishable by law.

Talent/Skill Have a Positive Cashflow How to Monetize 60 This is your personal copy. Illegal distribution is punishable by law.

Chapter 5 Build an Emergency Fund In the recent COVID-19 crisis, Rye was laid off from his job together with at least 500 fellow employees since his company that manufactures aircraft parts has lost some businesses because of the lockdown. It is a good thing that he was able to set aside an emergency fund equivalent to his 6-month household expenses. He has six months to find another work before his fund gets depleted. One of the secrets of having a crisis-proof budget is to have enough emergency fund. As its name imply, emergency fund is a stand-by fund used when there is an urgent need not normally included in your monthly budget. This could be any crisis that you could experience in your lifetime – sudden hospitalization, inability to work for a time, job lay-off, a sudden car repair or any instance wherein you will be needing money immediately. If a majority of the Filipinos were taught to set aside enough emergency fund, experiencing hardship during the community quarantine period could have been lessened. 61 This is your personal copy. Illegal distribution is punishable by law.

Build an Emergency Fund So how much should you set aside as an emergency fund? As a rule, you should set aside three to six times of your monthly expenses but I would now recommend you keep six to twelve times of your monthly expenses. As of this writing, the whole country is still under quarantine for more than five months. It is projected that normal operations would go back next year so it would be safer to keep a higher emergency fund. So a family spending around 50,000 pesos per month should have 300,0000 pesos to 600,000 pesos emergency fund. Can you set aside more? Yes, you can. However, your emergency fund is normally kept in very conservative instruments like your savings account in a bank or money market funds which are easily withdrawable, offers lower rate of return than their riskier counterparts and whose aim is to maintain the present value of your cash. Beyond your emergency fund, it is better to invest your extra money in more aggressive instruments like stocks to beat inflation. Where to Store Your Emergency Fund You might be asking by this time where to keep your emergency fund. Store your emergency fund where you can get it easily. I would recommend a combination of four ways – in an envelope kept safely 62 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances in your house, in your savings account in a trusted bank, savings in a cooperative and in a money market fund. It is good to have some readily available cash kept safely in your house especially if the emergency happens at a time where you cannot go to the bank or cooperative to withdraw. I would recommend only a maximum of one month worth of expense since your cash in the house is not earning any interest. I would recommend to have two months’ worth of expense in your savings account in a trusted bank. Preferably, have an automated teller machine (ATM) card for it. Banks offer around 0.25 percent interest per annum so your money earns a little interest while you do not need it. I recommend that you have an ATM card instead of a passbook because you can only withdraw during banking hours using a passbook whereas ATMs are normally open 24 hours a day. An emergency fund is useless if you cannot withdraw it when you need it. If you are a member of a cooperative, it is also good to keep two months’ worth of expenses in your savings account with your cooperative. Cooperatives generally give higher interest on their savings accounts compared to a bank. The savings account of the 63 This is your personal copy. Illegal distribution is punishable by law.

Build an Emergency Fund cooperative of the company where my husband is working gives around 2 percent per annum interest. Aside from a 5-month worth of emergency fund kept in your house and savings accounts in your bank or cooperative, I would recommend you keep another 1 to 7-month worth of emergency fund in a money market fund or short term bond fund. This fund is a very conservative fund composed of government securities, corporate bonds and cash equivalents. In 2019, the top performing Philippine money market mutual fund is the Philam Managed Income Fund (PMIF) Inc which had a 6.3 percent return. It is composed of government securities, cash equivalents and corporate bonds. The historical performance is also shown as a basis for investors but past historical performance is not a guaranteed forecast for future returns. PMIF has no sales load, meaning all amount placed is invested. Holding period is only seven days which means after seven days you can withdraw your money without exit fee. An exit fee is a certain percentage deducted to the withdrawn value. Withdrawal within seven days would incur a one percent exit fee. I notice that my emergency fund kept in this fund earned around eight percent return even during the crisis. 64 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances You only need 1,000 pesos to start this fund and you can add a minimum of 500 pesos anytime for this fund. You can visit www.philamfunds.com or contact me at [email protected] for more details about PMIF. If you have an existing emergency fund kept in a bank or a cooperative, leave a maximum of 5-month worth of your expenses there. For amounts exceeding your 5-month worth of expense, I encourage you to transfer to a money market fund so the rest of your emergency funds will be passively growing while you do not have a need for it yet. If you have not started an emergency fund, what you can do now is to commit to consistently keep at least 10 percent of your earnings in your savings account monthly until you completed five months’ worth of your expense as an emergency fund. Afterwards, you can start putting 10 percent of your earnings into a money market fund until you completed your target emergency fund. You can also keep your bonus or any extra money you have received to meet immediately your target emergency fund. In building my emergency fund, I did both. It is important that you complete your target emergency fund as soon as possible since an emergency can strike anytime. It is always best to be prepared financially. 65 This is your personal copy. Illegal distribution is punishable by law.

Build an Emergency Fund APPLY! Be aware of your target emergency fund by computing the following: How much is your monthly expense? ________________________________________________________________ How much is 6x of your monthly expense? ________________________________________________________________ How much is 12x of your month expense? ________________________________________________________________ How much is the emergency fund you like to have? ________________________________________________________________ Now that you know how much emergency fund you like to have, decide where you are going to place your emergency fund. 66 This is your personal copy. Illegal distribution is punishable by law.

Chapter 6 Protect Yourself Alf is a self-employed architect earning around 1 million pesos a year. His wife, Ana, is a housewife and they have three young kids. Alf refused to buy a life insurance since he considered it as an expense. He prioritized filing a personal loan of about two million pesos to build a house. Unfortunately, he met a car accident and died. Ana has some savings of about 300,000 pesos but Alf’s burial caused her around 150,000 pesos leaving her with only 150,000 pesos which would be depleted in three months since their monthly household expense is around 50,000 pesos a year. Alf didn’t have an insurance for his personal loan so Ana asked financial assistance from her relatives and was forced to find work immediately to provide for her kids and to pay off the house mortgage. Jason, one of my clients, told me that he spent more than a million pesos when his dad had a stroke who eventually died two years ago. It is a good thing that Jason was earning much that he was able to provide for his dad’s medical treatment. 67 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself Because of what happened, he was moved to get a critical illness fund for himself so in the event that he will be diagnosed with a critical illness, his future dependents will not be bothered with his medical expenses. He was once in that position. While he did that with love for his father, he knew how difficult it was so he wanted that his children will not have to be in a similar situation in the future. Alf and Jason’s father are typical working Filipinos who didn’t plan well for untimely death or sudden sickness. By observation, majority of Filipinos are reactive than pro-active. We can see this whenever there are natural disasters or any crisis. Even our local government units would opt for band-aid solutions to disaster planning rather than sustainable and long- term planning. In most calamities we faced, it is typical that we ask for donations or help because of lack of foresight. Concept of Insurance If I offer to buy you lunch daily, would you accept it? You would probably answer yes, but you might ask, what will be the underlying condition? My only condition is when I die, you would buy my family lunch daily. Would you still answer yes? You might hesitate and would investigate my medical history to make sure I will not die very soon, 68 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances before you answer yes. If you accept my offer, you are a risk-taker and have enough networth to feed my family. You have actually taken the role of an insurance company for my family by saying yes to my offer. Insurance is a contract that transfers the risk of loss of income from you to an insurance company. To qualify as an insurance company, the company should have high networth to pay the amount promised to its clients. A government institution called the Insurance Commission (IC) regulates all insurance companies in the Philippines. IC strictly monitors the premium income, networth and other important proof of stability of an insurance company. When you insure yourself, it means that when a crisis like death or sickness happens to you, you or your family will not shoulder all the incurred costs that accompany such crisis. The insurance company can carry the bigger risk and you can carry the smaller cost. The small cost that you carry which is the premium, is the price of your security. To understand the contents of an insurance policy contract, on the next page are some of the basic terminologies and corresponding definition. 69 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself Term Definition Policy Insured A person covered by the insurance. Policy Owner A person who is paying the insurance, may or may not be the policy insured. Face Amount The amount to be paid by the insurance company when the insured dies. Beneficiary The person/s who will claim the face amount. Rider An additional benefit included in the policy. Paying Period The duration that premiums are paid. Effective Date The date that the policy contract starts to be in-forced. Let me give an illustration so that the terms are clearer. My client, Edward, got a life insurance and agreed to pay 26,000 pesos annually for 10 years for half a million pesos coverage. An additional benefit was included in the policy that premiums would be waived and an allowance would be given if total permanent disability would occur within the paying period. 70 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances He designated his wife, Nancy, to claim the half million pesos if he died. The policy was approved on Aug 1, 2013. In this case, Edward was both the policy owner and the insured. The annual premium was 26,000 pesos. The face amount was half a million pesos. Edward’s beneficiary was Nancy. The rider was the additional benefit. The paying period was 10 years. The effective date is Aug 1, 2013. I hope the example above clarifies some of the terms used in an insurance policy contract. I will be using some of them in the succeeding discussion. Income Replacement According to the IC, only about 39 million Filipinos have some sort of micro-insurance in 2018. Those who are insured have an average of only 400,000 pesos coverage which would only allow non- working dependents to survive for eight months for a family spending 50,000 pesos a month, after which they have to find a source of income to replace the income contribution of the insured. When my husband and I were not financially literate, insurance was not a part of our budget. Now that I have understood the benefits of insurance, I now find it illogical that a typical Filipino professional 71 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself would insure his car or his house but not his income or his life. I understand that the main reason why a person gets a car or house insurance is for the security that he will not pay much for the repair cost when an accident happens. But what if during the accident he died? Doesn’t it entail cost as well? A damaged car or house can be replaced as long as the person has income. Death of a breadwinner will mean loss of income. If there is loss of income, the dependents would need to find ways on how to cope for this loss. One of the benefits of insurance is income replacement. If Alf did have a corresponding two million pesos life insurance for his loan, Ana would not have a problem paying off the house mortgage with Alf’s sudden death because Ana, being the beneficiary, will receive two million pesos which she can use to pay their house mortgage and for their immediate expenses while she finds a source of income. If Alf had enough life insurance coverage, Ana and her kids would not need to adjust their family lifestyle immediately upon his death. Edward, the client who I described above, was diagnosed with leukaemia in 2016 rendering him unable to work for more than six months. 72 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances Because of a waiver of premium plus rider included in the policy, his succeeding premiums were waived and all payments were returned. After eight months of battling leukaemia, he died. The family was devastated. But they were thankful that Nancy claimed half a million pesos to help her start again with their kids. When I talked to her, Nancy told me that she was not a believer of insurance before and is grateful that I introduced insurance to her husband. When she saw the benefit of having an insurance, she also got her own insurance policy for her protection. Life Insurance Coverage At this time, you might ask, “How much life insurance do I need to secure the dreams of my family?” I will share with you two ways on how to compute your ideal life insurance coverage. Dr. Sanjay Tolani in his book Financial Planning, said that it is a rule of thumb that a breadwinner should have a life coverage of 10 times his annual income. In the case of Alf, he should have at least 10 million pesos life insurance coverage since he was earning one million pesos annually. This amount will 73 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself not fully replace Alf’s earning capacity but it will enable Ana and her kids ample time to adjust financially with Alf’s loss as the insurance company gives them an amount equivalent to Alf’s ten-year income. Another way to compute for a life insurance coverage is based on a breadwinner’s economic value or his possible earnings throughout his productive life. The economic value is computed as follows: Economic Value = annual income x no. of working years Let us say, Alf planned to work for 15 more years. Since he was earning 1 million pesos per year, he should have an insurance coverage of 15 million pesos. If Alf was insured for 15 million pesos, he might have gone soon but Ana and her kids would not have felt the loss financially since a provision equivalent to Alf’s working years would have been given to them by the insurance company. Again, this amount will not be enough to replace Alf’s earning capacity since he may have earned more than 15 million pesos if sudden death didn’t happen to him. But, the amount would definitely help Ana to pay their mortgage, send her young kids to school and provide for their needs. She would need though to 74 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances manage the face amount received and look for ways on how to grow it. You might be, at this, time overwhelmed by the amount of insurance coverage needed. This is how to compute an ideal life coverage so insurance would be considered as an income replacement. A breadwinner’s insurance coverage should be equivalent to his earning capacity so that his family would continue to live conveniently and would not think of abandoning their dreams if he unexpectedly leaves them behind. Do not worry, when you consult a registered financial advisor regarding your insurance coverage, she would consider your paying capacity. It is best to seek the advice of a trusted financial advisor. Philam Life’s CEO, Kelvin Ang, emphasized that getting a life insurance is about love and responsibility. It is only life insurance that gives a guaranteed form of security, that is, even if the breadwinner is gone, he will not be taking with him the dreams of his family. Would you like that for your family? Income Protection Aside from untimely death, another risk that every person can face is sickness or disability. Sickness can be critical or non-critical. When a sickness is critical, this means that it is life-threatening and this 75 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself normally incurs a significant cost. Critical illness includes cancer, heart attack, stroke and kidney failure. Currently, when a person undergoes kidney dialysis, he needs a minimum of 200,000 pesos per year for its cost. A person with lung cancer typically needs around two million pesos for his treatment. If ever you get diagnosed with a critical illness, do you have an existing fund that would finance your treatment and recovery? Unfortunately, majority of Filipinos are not ready to face the risk of having a critical illness. According to the latest AIA Health Living Index Survey, only about 19 percent of the Filipinos are covered by a health insurance plan. This means that out of 100 Filipinos, only 19 are assured of a cash back-up from their health insurance company in case of sickness. The rest would either rely on the government or charity for help or personally shoulder the medical cost of getting sick. Jan, a well-travelled college professor, was diagnosed by bacterial meningitis and eventually died after a few weeks of diagnosis. Her colleagues organized a concert for a cause for her family to augment payment for the hospital and burial expenses. Since she did not foresee that a critical illness would strike her, she wasn’t able to prepare for it. It is a good thing that she had several relatives and friends who 76 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances helped her family pay the costs of her medical treatment. There are also costs involved even if sickness is not critical. Some non-critical illnesses involve hospitalization and surgery. My uterus was removed in 2017 and the hospital bill was 150,000 pesos for a confinement of four days. After a few days, my youngest son complained of a severe stomach ache and when rushed to the emergency room, his appendix burst. He had appendectomy using laparoscopy and the hospital bill was 80,000 pesos. Only about 10 percent of the bill was covered by PhilHealth. After the PhilHealth benefits were deducted, our total bill amounted to around 207,000 pesos. Initially, we paid for it but we obtained a reimbursement of 144,000 pesos from my husband’s company health card. We spent a total of 63,000 pesos that time for our hospital bills. Aside from the cost of hospitalization, there was an income loss on my part because I had to stay in the house for two months to recover from my surgery. Fortunately, I qualified for a sickness benefit given by the Social Security System. I also qualified for a Magna 77 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself Carta special leave for women which gave me almost two months’ worth of salary while I was recuperating. The only set back is that the benefits and reimbursements were also given to us only after two and a half months from my hospital discharge. Good thing, my husband and I had an emergency fund. Imagine if we didn’t have! We would have definitely resorted to loan. Hospital expenses involving a non-critical illness may not be as high as a critical illness but they do disrupt one’s income. Aside from sickness, total permanent disability is another risk that a person can face. Total permanent disability is a person’s non-capacity to work for six months or more due to an accident or an illness. Edward had to stop working when he was diagnosed with leukaemia so he was entitled to a disability allowance. If Alf did not die after the accident but incurred injuries which made him totally and permanently disable, Ana would need to find a way to finance the medical cost associated with Alf’s recovery from disability and to find a source of income for the family while Alf was recovering. There should also be an income protection for this type of risk. 78 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances Health Insurance or Disability Coverage Dr. Sanjay Tolani said that the rule of thumb to ensure income protection is to have five times your annual income. Unfortunately, Edward wasn’t able to get an income protection. All of his medical expenses was paid by PhilHealth and the rest was paid from his savings. If he was earning a million pesos a year, he should have at least five million pesos critical illness or total permanent disability fund. This fund would have eased significantly the medical costs associated with his sickness. Jan was earning around a million per year as well. If she had five million pesos income protection fund, her colleagues would not have had to organize a concert for a cause to help her family move on financially. It would be better that one is covered by a health card. There are many health care providers which would give immediate payments once a person is hospitalized. Some companies like that of my husband give health care benefits to their employees. Depending on the type of sickness and on the health care company, 50 percent to 90 percent of the hospitalization expenses are shouldered by the health care companies. 79 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself Ynna had multiple gallstones so her gallstone bladder needed to be removed. Fortunately, she has a health card from the BPO company where she is working. Her bill was 150,000 for five days of hospitalization. A huge 67 percent of the medical cost was shouldered by the health care provider, 10 percent was paid by PhilHealth and the rest was shouldered by her mom. If you can afford, it will be a good thing to have your own health card aside from the one provided by your company because the benefit terminates once you are out of the company. Since my husband is retiring in a few years, as early as now, I got a health card which would cover a certain amount of my medical cost every year until age 65. Types of Life Insurance There are generally two types of insurance depending on whether coverage is temporary or permanent. The first type is called a term insurance while the second type is called a whole life insurance. I would be explaining some basic concepts about the different types. For a more detailed discussion about this, I would suggest you contact a registered financial advisor. 80 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances Term Insurance A term insurance is the cheapest insurance because it only provides a temporary coverage. The insured is only covered while he is paying. This has no cash value. If the insured dies while paying, his beneficiary would get the face amount. If he did not renew his term insurance and dies, his beneficiary would not get anything. A term insurance is suited for breadwinners who want a high amount of coverage to protect their young dependents in exchange for a significantly smaller premium cost. It is also suited for those who do not have enough funds to pay for a whole life insurance. Typically, the coverage for a term insurance is around 150 times the annual premium. As long as the client wants to maintain his insurance, he pays his premiums. If he does not pay his premium for the year, his insurance would stop. Whole Life Insurance A whole life insurance is more expensive than term but covers the insured for a lifetime. It can be purchased as traditional life or as variable unit-linked (VUL) insurance. If the insured gets a traditional whole life insurance and completes his premium payment, he is insured for a lifetime. In case, the insured stops paying 81 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself before the maturity date and surrenders his policy, he can get a cash value of his policy. The cash value depends on the amount of premium and the length of time he paid his premiums. An advantage of a traditional whole life from term is the insured is covered not only during his productive years but throughout his lifetime, thus, guaranteeing that he would leave a legacy for the beneficiary. VUL insurance is also a whole life insurance with an investment component. This type of insurance is popular and seemed to be a better buy than the traditional whole life because of the investment component. But, this has normally a higher premium if compared benefit to benefit from a traditional whole life insurance. People might be misled into thinking that majority of the premiums paid goes to the investment which is not the case. A big portion of the premium goes to the cost of insurance and other charges associated with the investment fund. Insurance costs are deducted in a regular basis and could increase as the insured is getting older. An attractive feature of this type is that some of the premiums are invested so if market conditions are favorable for the investment to grow, the investment part will sustain the insurance and the insurance 82 This is your personal copy. Illegal distribution is punishable by law.

Plan Your Finances coverage will grow together with the investment value. If market conditions are not favorable, the insured will be asked to pay additional premiums to maintain the insurance. Normally, clients are advised to “top-up” or to pay more than their premiums so that the extra amount paid would be invested. Top-ups prevent depletion of the investment value. Homie is an orphan client (a client whose financial advisor is not already active) who thought that his VUL is an investment plan. He claimed that this was the information told to him by his former advisor so he bought the plan. After five years of paying, he checked his investment value and was complaining why his investment is much lesser than the premiums he paid. I had to explain to him that the plan is not purely investment and there were costs to maintain his insurance. For any type of insurance, additional benefits can be added such as critical illness benefit, total and permanent disability and hospitalization benefits for additional premiums. The younger the insured, the lesser is the premium, so it is advisable to get an insurance policy as young as possible. 83 This is your personal copy. Illegal distribution is punishable by law.

Protect Yourself I hope with the discussion above, you now have an idea of what kind of insurance would be suited for you. It is best to contact a registered financial advisor to help you assess your protection needs. Just make sure that you understood all the provisions of the plan you are getting before signing up. Any type of insurance will be better than none at all. Every person who has a capacity to earn should be insured. You are your number one asset because as long as you are healthy and alive, you can find ways on how to fulfill the goals and dreams of your family. If this capacity to earn is removed, insurance is a means by which the goals and dreams of your family would continue in spite of your absence. Michael J. Fox said, “Family is not an important thing. It’s everything.” Getting yourself insured means being loving and responsible for your family. Protect yourself because you care for your family’s future. +++++ 84 This is your personal copy. Illegal distribution is punishable by law.