What would you do if you were ME?

Posted by Fitz Villafuerte under Investing, Personal Finance on September 2, 2012

I am hoping online friends could give me some advice on Personal finance as I never had any training nor attended seminars on that subject.

I was promoted about a year ago, thereby increased my earning power. I am able to save around P60k per month with expenses and other liabilities already deducted.

Below are the liabilities:

1. Paying for a house under Pag Ibig at P15k/month. This is 30 years to pay (26 years to go). I got this for the long term as I took the loan 4 years ago and I was not earning as much as I am today.

2. Paying for a car at P25k/month. 2 years to go.

I am trying to save for a bigger house as my family is Growing. Goal is to get a vacant lot by mid next year and build a house on it 5-7 years from now. Since the first goal is due next year, I have set aside some amount for downpayment in low risk time deposit and maybe take the rest on loan for 1 or 2 years to pay.

Aside from the time deposits, I have also started saving for the house, and since it will be around 7 years from now, I invested it in UITF.

What would you do If you were me? 




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20 Responses to “What would you do if you were ME?”

  1. ForsakenOne says:

    Well, If you haven’t had any training on personal finance and you’re saving 60K per month, I’d say you probably don’t need to learn too much more.

    My only advice (and you’re probably doing this anyway) is to maybe use high-yield but riskier investment vehicles like mutual funds for stocks and bonds for long term savings (~5+ years).

    For short term savings continue using money market UITFs or mutual funds (basically those invested in Special deposit accounts or time deposits. Or you can shop around and create your own time deposit savings account with your chosen bank.

    I’d recommend shopping around for loans (for the lot) already, just to get you familiar. Terms are mostly the same across the different banks, but ask around as some might be offering “promos” or more favorable rates.

    Also, for the pag ibig loan, I think it’s a good move. Although the loan lasts 30 years, the purchasing power of what you pay goes down steadily. So what you’re paying now will seem like a small amount towards the end of the loan. The only real risk is if you won’t be working still in 30 years.

    If you’re feeling industrious, you may want to use some of the savings to start a small business (and hence, a second income stream).

  2. Frank says:

    Many thanks for the reply.

    Personally, I would want to do business but I am on out of the country every 2 months for work (2 months work / 2 months vacation), and above all, my wife is not what we call “business minded”. Any small business you can recommend that would fit my schedule?

    If ever I fulfill my goal of getting a bigger house, I plan to have my present house (under pag ibig loan) rented out and pay the monthly amortization with its rent.

  3. ForsakenOne says:

    Good plan on renting the house.

    It is rather difficult to start up a business and leave it right away after two months. Monitoring and/or maintenance might not be as tough, provided you can setup some form of communication and have a “proxy” you can trust.

    Unfortunately I can’t recommend a good business for you. The best bets in your case are either passive investments (so that time away is not a factor) or a business where in you are partnering with someone you can trust.

    Depending on the financial requirements, it might be possible to buy a franchise. Everything is setup, you have suppliers, and the process is in place. Initially you can do the research/analysis while on vacation. And then do the grand opening as you are starting another vacation. You can have two months to oversee things. But then you still have to leave, and someone you trust needs to get on top of this.

    You could try buying a franchise for a tricycle, jeepney, or taxi. Monitoring is straight forward enough. they return the vehicle at the end of the day and hand over the daily boundary. Of course, its not really that easy. You need to find a good driver, and make sure someone is maintaining the vehicle properly. And it might be a headache to resolve any issues that might arise while your are out of the country.

    An e-load or autoload business might be easier to manage. However, I’m not very familiar with how it works. I’m just assuming you buy a set amount from a source, and have someone sell it. When they run out of load to sell, they come back to you with the payment for the last load. It might not be that easy though, as i’m not sure that’s the exact way it works. Also, another challenge might be family and friends trying to get free load.

  4. Frank says:

    To ForsakenOne:

    Thanks for the reply. I never expected a reply as detailed as above.

    Some points on your advice…
    Franchising is achievable with the likes of chicboy etc. Jollibee would be unreachable (for my financial status). Probably set this up in the mall? As I live in the Metro, any mall would be a nice place to start up with.

    Tricycle, Jeepney or taxi – I would go for the taxi or GT express? but will need a spacious garage where in it can accommodate at least 3 units. I still need to do a research about taxi franchising as I honestly do not know where to start…

    E-load business…is this like “LoadXtreme”? This can start on a very low capital. You are right about family and friends trying to get free load. I don’t think I can tell my mom to pay for a load…

  5. ForsakenOne says:

    For Taxi’s they (Gvt/LTFG or whomever) might not be granting new franchises. You may have to buy an existing unit – probably an old one. And then transfer the rights to a newer vehicle – to lessens maintenance costs. And fuel expense too; I’ve heard that on a bad day you might not even get your boundary because the driver didn’t make enough to even get that amount.

    The lack of new franchise can be a blessing. At least for me, I would not know how to start this from scratch. But if I’m buying one, the seller would probably not mind giving me the info I need.

    For GT Express… It’s the terminal that’s the problem. You would have to join a terminal, as it’s not like other PUVs. They load up passengers at specific terminal and ply a set route. For example, the terminal to and form Makati might already be full and the drivers and operators might not need additional vehicles. Also, I’m not sure how to join one, but i guess at the very least you approach one of the drivers/operators.

    3 vehicles seems too big too fast, but if your finances can take it – why not? I personally suggest starting with just 1 until you get the hang of it. Plus, as you said, parking space is a problem.

    For Load… Yeah, i guess it is like that. I’m not familiar with that myself. I imagined a small kiosk or simply some signs or word of mouth advertising you have such a service and where you are.

    For Franchise… You might be surprised, but being in a mall might not always be a good thing. Malls have advantages like large foot traffic, having security guards, and other things. But it can also be offset by high rent (reasoning they can charge high because they attract the crowds). Also your store’s location inside the mall is something you should analyze (although some franchises help with this, I think). Also, each store has a demographic, be sure to note what type of crowds frequent the mall, not just the size. For example, if you’re opening a high-end or otherwise expensive store, opening it in an SM might not be a sure step to success.

    There are of course other concerns when opening up a franchise. But I’m not an expert. And I should conclude by saying that I have not opened a business myself.

    I have shared a lot of my opinions because I’ve thought about these things for some time. I have not done any serious planning, although I’ve read up quite a bit on certain aspects of it. So really, my thoughts were shared mostly because of a similar interest in the topic, but it was not meant as serious advice to follow.

    But of course, I do hope you start your business – and then tell me all about it. =D

  6. Frank says:

    ForsakenOne:

    I am sure a lot of people have learned from your answers. Sure your answers are not serious advice from your side but all points can be considered, thought of and studied carefully. There may be online friends like me, that does not know where to start and have the so called “passive income”.

    I have posted my liabilities and amount that I am able to save per month. What would you do if you were me then? =D

  7. ForsakenOne says:

    At 60K per month savings?

    1) Emergency Fund (6 months at least, maybe1 year if I’m feeling good about it)
    2) Retirement fund (a nice lump sum invested in stocks – or any other high-return investment vehicle) – I’m supposed to do this monthly, but given the situation I’d want a nice head start. I’d seriously inquire about how trust funds work too.

    3) business time, about which my thoughts are:

    While thinking of my options I will be investing in blue-chip stocks that pay high dividend yields. Of course, high in this case is 3-5% – which is to say higher than time deposits but not really big money. When I find the business / sideline for me, I will simply stop investing in the stocks. I may or may not pull out the “capital” yet. if I’m not losing on the stock, It’s a sure thing that I will pull out. If I’m losing, well… I;m not that mature a trader, so I will probably evaluate if the loss is something I’m willing to take (given the fact I already made money through dividends) or if i will hold the stock a bit more (usually until the xmas/right after xmas season – as I believe in the “santa clause rally”)

    I know a store that sells cheap load. (as reference a P300 card is sold for 279 or so). If i find someone who sells load, I’d offer to supply him/her with load. Or I’ll find someone (I trust, of course) who wants to sell load on the side and supply him/her. I’m not a sales guy myself so I’m ruling out selling it myself.

    I used to think of a PC repair shop – specializing in diagnostics, and some minor repairs like simply cleaning out the dust inside, replacing/re-applying thermal paste, virus detection and removal, etc. Maybe even provide a service where the technician goes to your house instead. Parts for upgrading or replacing may even be provided. Sadly, i see this as going out style. A lot of kids are tech savvy now, and gadgets of the future are tablets and smart phones. PCs and laptops will be around for decades more though, so this business will still have some life.

    I’d open up a bake shop. Mostly because my wife likes baking and already free lances on the side. With that much money per month, I can save up for a while (so no stocks, but TDs instead) and bankroll the freelancing of my wife. I’ll help setup a website, facebook and twitter accounts, and start a blog as well to promote the website (which is mostly for ordering and product description). I will not divulge business strategy at this point, as we really are dreaming of putting this up someday 😀 But suffice it to say, we will not be banging our heads against goldilocks nor red ribbbon.

    We plan to eventually move to a real house (from the rented condo we occupy now). The community we plan to move to is relatively new. I will start a sari sari store, if it does not exist yet. A sari sari store that accepts payment through ATM and credit cards? I dunno if that’s possible but hey maybe…

    I have a friend who likes cars and even does buys and sells second hand cars. Once in the past he asked me if i wanted to go into business with him. I declined, mostly because I really had no funds back then, but also partly because it was more of a 5-6 business and i don;t know how i feel about that. But given the money, I would be willing to risk an investment with him on maybe a car parts/repair shop or buying and selling second hand cars.

    I have friends I’ve known for years. most us are in the IT industry in some way. But I would consider starting some sort of business with them. We may start an informal investment group, though we would be small timers I think. We could go into that pc repair shop thing together, or we could pitch in and buy a franchise and share the task of running it (either dividing the ares among us or taking turns depending on who has time). It can be any business really, just as long as we can see it making money -I’m not even talking about hitting the bigtime, just making money after a few years without me doing much other than review sales reports, looking at trends and “being an owner”. (This is the scenario I most like, but it’s too far away yet. But writing about it made me feel good. So I’ll seriously research on franchises and when I learned something will broach it with them.)

    I would also try to write. As in fiction, not blogs. Maybe short stories, maybe novels if i have the chops for it. It doesn’t need 60K per month, but it does need a lot of time. Unfortunately i have neither right now, so….

  8. ForsakenOne says:

    I guess, i did not directly address your liabilities… but in cases like that, I would feel secure only with a large emergency fund and a plan (perhaps revisited yearly at the very least) on how to get re-employed and earn money again.

    So yeah, maybe a year’s worth of expenses (including all loan payments), half saved in the highest earning TD (i have one with china bank, thanks to Fitz’s research on bank rates) and another half in a money market based UITF or mutual fund that I like.

    …Still feeling really good about the franchising idea. Frank, I don’t suppose you have read up on franchises already or know any good sources to research up on this? Hi Fitz, would you know how/where I could research more on that?

  9. Frank says:

    WoW. That’s a detailed one.

    As for the emergency fund, I have set aside for 6 months but may stretch it to 1 year as added security.

    Retirement fund – I have not started on this yet though I am paying for a Variable Life Insurance at present. Premium payment already out of the 60k monthly savings.

    Businesssss – I think only the stocks (which I still have to read about) and E-loading would be achievable for me with the present situation. Unfortunately, due to the nature of my work, I have lost track of friends that could be approached for business talks.

    With regards to liabilities, would you pay the house under pag ibig loan in full? say within 5 or 10 years or you will just let it pay for its rent (assuming that I have it rented out 5 years from now) until it gets paid in 30 years?

  10. Frank says:

    I wonder what would Fitz do given the above details?:D

  11. ForsakenOne says:

    For the house….

    It really depends on your work, and what you have planned for your life.

    If I was an ordinary office worker. And I have reasonable job security – a permanent employee; company is doing ok; not in an industry that is in flux and is usually not in flux, etc. My perspective is to just let the loan play out. Here’s why:
    1. I can reasonably expect a long-term, stable income which gives me the confidence that I will be able to pay the loan through out its duration.
    2. Loans typically have an early termination fee. Meaning I actually pay a higher amount when paying it in full. If that is the case, I am actually losing money by paying earlier.
    3. Even without such a (ridiculous) fee, and if the payment amount is fixed (i.e. 15K per month whether in year1 or year30, no matter what happens), inflation over time coupled with a reasonable increase in salary for cost of living expenses makes this a cheaper loan as it ages.
    4. Whatever extra money I can use to pay off the loan faster, I can instead use for a money growing investment. This means I will have the flexibility to place more in my emergency fund, save more for retirement – or saving for any other objective, really. And saving early, coupled with the principle of compound interest, is one of the surest paths to wealth-building. (in fact, you can do the math now. various “retirement calculators” exist. And Fitz has written an article on compound interest as well).

    However, this really depends on the situation. For example a contractual employee, free lancer, or self-employed person may choose to pay of the loan quickly even if there is a “penalty” for doing so. Mostly because the danger exists that their income will decrease over time. Or worse, might run out of work for an inordinate amount of time. In this case it is better to pay off the loan now, while the money is there, and focus on saving after debts are paid (although you can pay off debts and save at the same time, and Fitz has written about that too).

    So it really depends on your situation. If you see yourself retiring or switching jobs, or are in an industry that is cyclical, or in a job that has inherent risks – especially physical ones, you may be best served paying off the loan as quickly as possible.

    My perspective on the rent is… well, I don’t know if the rent will cover the mortgage and real estate taxes or whatever additional expenses it might incur. So I just don’t know and did not factor that into my answer. But I think, that it is sort of irrelevant in deciding when to pay off the loan.

  12. PJDC says:

    Hi Frank,
    Try investing a part of your savings to Mutual Funds. I know some mutual fund representatives that can help you plan achieve your desired amount. God bless!

  13. Frank says:

    ForsakenOne,

    Very informative indeed. Thanks! Will look into franchising and see if it will work for me with my present situation.

  14. Frank says:

    PJDC,

    Mutual funds is already in my list. Which company do you recommend?

  15. Chris Noel says:

    wow! you are blessed with too much!:) If I were you, of the 60K savings per month, that’s 720K for ONE YEAR.
    1. you can make a lumpsum payment of 600k for your housing loan and have the loan restructured – by doing so, you will be able to CUT YOUR INTEREST DUE and you’ll have a lesser monthly payment for the house by next year and you still have 120k emergency fund.
    -OR-
    2. you can pay the total outstanding balance of your car loan (1 yr remaining) so you will have an add’l 25K for your savings the succeeding month.

    On your plans of purcashing a new lot, you may browse the banks’ website to check for the foreclosed properties available to maximize your money potential- I know some banks that offer as low as 20% down and 8% interest. 🙂 and do the lumpsum method as well in paying the loan faster save from paying interests.

  16. Frank says:

    Chris Noel

    Thanks for the Input! Indeed Blessed, but I woud’nt say its too much:) 60k per month was conservative. I have actually exceeded the 720k with 2 more months to go for this year. My projection is around 850k. I am trying to save as much as I can due to my fast growing family:)

    Some points on your comment:

    1. I have thought of making a lumpsum payment for the pag ibig loan but then If I will have it rented out in 5 years (assuming my plan of having a bigger house pushes through), with the present rental fee in the area, the rent can pay for its amortization.

    2. Originally, I would still have 3.5 years to go for the car loan and since I have made advance payments, it is now down to 2 years.

    3. I have checked some foreclosed properties already but have not found the right one for us yet.

    Which banks are you referring to?

  17. Chris Noel says:

    Frank,

    In what area are you planning to put up your next home?
    I might help you look for one. Im not a broker bro. 🙂

  18. Frank says:

    Chris Noel,

    We prefer Southern part of the Metro, probably Las Pinas, Paranaque or Muntinlupa.

  19. ChrisTiPiD says:

    Frank,

    No foreclosed properties in the areas you mentioned upon checking in the list.
    mostly Rizal area 🙂

  20. PJDC says:

    Hi frank, if you are in the conservative side, Sunlife asset management company will best suit you. If you are aggressive, go for the top earners.

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