29. Swabeng Dilemma: Things to consider before getting a Personal Loan

Sorry for not posting these past few days as I was suppose to do.

My mind got a bit clouded with stuff that includes the Stock Market.

For now, let's get back to Personal Finance shall we?

When I was still dependent from my parents, getting a loan from them was easy. They love me and they would forget about it. However, as a grown adult, that won't be the same since my parents have their own needs and they might be the ones who would need my assistance in the future.

In the corporate world, there may be times that we may need to borrow money to take care of our personal needs. These may include (but not limited to) the following.

a. Leverage for an Investment
b. Medical Expenses
c. Educational Expenses
d. Housing Repair/Improvement

I'm sure you have more that what is listed above but that's for now.

Anyway, My own criteria to consider before getting a personal loan would be the following.


1. Do you really need it Right Now? 

Say you need this amount for you to cover your kid's education for the coming school year and that would be six months from now. When you try to loan that amount, what would you do for the next six months aside from paying the loan (plus interest)?

For me, I'd rather delay it and work my budget for the next six months to be able to come-up with the money needed. In case if it isn't enough, that's the time I'd get a loan, but a lower amount compared to what would be the initial loan amount.


2. Can I pay it within the shortest time possible?

Give that you were granted a loan amount you needed, can you pay it within the shortest amount of time possible? Say you need to pay it within a year, but there are unavoidable instances that you need to use that money that should have been for loan payment for something else. Would you extend your loan payment to make-up for the loss? Would you borrow money just to pay for that payment (which leads to additional debt)?


That's my take. Do you have any other ideas? Feel free to share yours in the comment section.

23. Swabeng Dilemma: UITF of MF

Now that I've share a little on both Unit Investment Trust Fund (UITF) and Mutual Funds (MF), which of these two would be better to invest in?


Mutual Funds?

OR

Unit Investment Trust Fund?


While the two may have some similarities, they do have their own differences.

Let us count the ways.


1. Types of funds and investments. 

Practically, both offer the same types of funds to their clients. Ranging from Money Market Fund, Bond Fund, Balanced Fund and Equity Fund. There would be some difference in the types of funds that one or the other offer like Dividend Funds, Dollar Funds, Index Funds and the like. Regardless of the list, there is once fund that I'm sure that is tailor-made for you.

For the list of mutual funds, you may check their official website here, while for the list of unit investment trust funds, you may check their official website here.


2. People who handles the funds. 

Seasoned professional fund managers are the ones who handles the funds. Speaking of which, they usually handle not just millions of pesos but billions of pesos. Which means they have to trade very meticulously to avoid possible losses.

Imagine the fund manager has 100 Million pesos and Risk of 2 to 3 percent, this means that the fund manager can only lose 2 to 3 million pesos. That's a huge amount for a retail investor like you and me.

The difference is that Mutual Funds are regulated by The Securities and Exchange Commission (SEC) while UITFs are regulated by The Bangko Sentral ng Pilipinas (BSP).


3. Procedures in opening an Account

Each Bank or Mutual Funds have their own specifics when it comes to how to open an account for them and how to top-up your account on a time basis. Just the same their respective sets of procedures will actually help you understand better regarding their type of fund you have chosen.

Definitely, their forms will be different but what needs to be filled-up like your name, address, contact number, email etc are the same across all forms.


4. Funding and Maintaining your account

All funds require a minimum amount to open (from as small as 5000 pesos) and a certain period of time for holding them (from as short as 30 days). Once you were able to fund your account initially, you may add-up accordingly (from as low as 1000 on most accounts) on a timely manner. When you feel that you were able to reach your targets, you may sell it at a profit.

The price of the fund are either expressed in Net Asset Value Per Share or NAVPS for Mutual Funds while for UITF, it is expressed in Net Asset Value per Unit.


5. Fees and Charges. 

Also remember that there are corresponding fees on this investment. But there are times that the longer you hold on to your investment, exit fees are usually waived. Annual fees usually is within the 1 to 2 percent of your portfolio as well as there are also sales fee.

While Mutual Funds are Tax-Exempt, UITF's comes with a 20% withholding tax on capital gains. At the same time, management fees are higher for Mutual Funds compared with UITFs.


For now, these are the comparison between a Mutual Fund and a Unit Investment Trust Fund. Let me know in the comment section if there are other similarities or differences between the two.

17. Swabeng Dilemma: The Power of Your Money (An Introduction to Inflation)

Have you noticed that when you were young, the cost of a certain product or service would only be this amount only to find out years later, the price will increase through the years?


I remember a couple of years back (circa mid-90's), a Burger McDo Meal back then costs only 39 pesos (which includes regular fries and drinks). Fast forward to today, now it costs double at 79 pesos (with the same inclusions).

Within the span of almost two decades, the price of the Burger McDo Meal has doubled given that the product is still the same.


Also, what I remember was when we use to do grocery a couple of years back (circa mid-90's again), You would be able to buy a cart full of groceries for around 2000 pesos. Fast Forward to today again, the same 2000 pesos won't even fill half of the cart (unless your willing to spend more than 2000 pesos).

Given the same span of years, the value of money decreased overtime and you'd notice by then prices of good increase on a time-basis (annually).


I would also remember whenever my Dad takes me to school before he goes to work, Prices of fuel (particularly Diesel) costs around 7.xx pesos per liter. His budget of 500 pesos for diesel would give him around 71.5 Liters that usually lasts a couple of days (given his route would be home-school-work-home).


However, how far can today's 500 pesos worth of diesel can take you? How long it could last given the same route my dad takes? Definitely a few days less that what it can cover a couple years back.


And even way back, I remember my parents telling me that they only receive this amount of money as allowance. Lets say a couple of cents back during their time. They would told me that a bottle of softdrink costs between 5 to 10 centavos and a whole fried chicken at Max's back costs 5 pesos (compared to 449 pesos today).

Imagine the increase from 5 pesos to 449 pesos would be a staggering 8880%. Yes that's 8880% and I kid you not.


Anyway, why costs of goods back then costs much lower than it is today.

16. Swabeng Dilemma: Beyond your Savings Accounts

Let's say that you were able to pay your debts, completed your emergency fund and learned some basics on Savings Accounts. What's next for you?


Would you just spend the incoming money thinking that your already settled and financially secured for the years to come?


Or would you thirst for more and try to learn as much financial knowledge as possible?


I'm sure you have did your part more than I do as of this time and I know somehow your Financial IQ has increased from zero to something that you could pass on to future generations.

As for me, I'm still thinking what to write next. Care to comment so you could give me an idea on what to share?

14. Swabeng Dilemma: Your Money in Banks

Banks are establishments that keep safe your money while it earns interest (depending on what type of account you'll open with them). You can also lend money from them and pay them back at an interest. Sounds interesting right?

When I was young, my Parents taught me how to save money on banks. I think, I was 10 or 11 years old when I first open my first savings account. I was really excited that time my dad opened an account for me. The texture of the passbook makes me want to save money back then.


My wife is also an advocate of banks. Whenever she can, she usually puts her money in banks where she can easily withdraw anytime of the day.

Over the years, I noticed that the longer my money is in the bank, the less chance it earns for me. Did you notice it too? I'm sure you do!

Please, share your thoughts on the comment section on Banking and how it has affect your financial life.

12. Swabeng Dilemma: To be or NOT To be Insured

When I was young (around 20's), I have a different perception when it comes to Insurance. To me (back then), insurance is a bit complicated that my thinking was you need to have a lawyer to get insured (sounds weird right).

Also, my belief before that insurance was for the rich and wealthy people. Why pay premiums when you can use your money on the things that you may need right? Am I also alone on this?

I'm not alone!

There are also thousands (if not millions) who are also working yet uninsured. If my hunch is correct, most of the working class think that their SSS (or GSIS for Government Employees) would be enough for them. They would also think that Insurance issued by their respective companies (via tie-ups). This in fact would be one of the reasons why Filipinos don't have an insurance to protect themselves.

Here are some interesting reasons why most still doesn't have any insurance. Technical aspects not yet included.


1. The Habit of Ignorance.

Majority of the working class would rather not discuss about it as they would thing it is always been related to dying. They would just shrug it off and probably say they don't need it yet since they are still young and healthy.

Let's face it, they will most likely be contented on SSS (or GSIS for Government Employees) as far as they're thinking. Another factor is the list of definitions insurance term that seem to complicate them leading to simply ignoring it altogether.


2. Impressions of the Past.

Probably for some reason, they may have been misinformed by past insurance agents, and probably misleading them at some point. These are people who may have been scammed in the past with their former insurance agent.

Trauma from past experiences prevent some people from accepting the fact that they need insurance to protect their future as well as their loved ones.


3. The lack of funds.

Now this would be the most common reason (This was also my reason back in the past) why most people is not into having themselves insured. They would probably use the money on something they can be of use today than tomorrow. While there is nothing wrong with saving and investing, have you ever thought what happens when you are unable to save and invest?


As time passes by and I was getting a bit older (and more wiser), it is very important for us to get insured. I feel that this would be the best time (actually 2nd best time) to have ourselves insured.

But the next question would be, What kind of Insurance will work for me.

That would be on my next post.