The Philippine Online Chronicles

Teresa is in her early fifties and a couple of more years later, she will be forced to retire. While some others are already looking forward to enjoying that period, even drawing plans on where they would travel, Teresa dreads it. Understandably so, she has barely enough stacked away in her savings let alone her retirement fund. Although she expects to receive a retirement pay from the company she served loyally for the past twenty years, she fears it may not be enough. After paying off her debts and loans, she figures there will be just enough left for a few more years—five at most. What happens after that, she dares not think about.

Teresa’s case is not unique. Study shows that out of 100 Filipinos, only three are capable of retiring. The statistics does not get any better: 54 are still dependent on family, government or charity; five are still working, and the rest of the 38 are dead. If the gruesome figures are not enough to scare the wits out of you and compel you to take action, I do not know what will.

Bound by consumerism

More than 100 years after the celebration of our country’s independence, we actually have only attained sovereign freedom. Financially, most Filipinos are still bound and trapped in corporate slavery, debts and rat-race. As such, most Filipinos cannot afford to retire. Still, the biggest culprit enslaving us is too much consumerism.

Philippine consumerism is a lot like the Americans’. It is not a wonder why our financial condition is very similar to theirs: little savings and ballooning debts. In fact, it is more common to find somebody with credit card debts than someone who hasn’t. American households carry an average of USD 15,000 (P690,000) of credit card debts. And although there is no data on how much average balance a Filipino credit card holder carries, the P130 Billion the central bank reported through its media release does give us an idea that we are not faring any better.

If the Americans have to keep up with the Joneses, Filipinos are also the same; although we probably are keeping up with the next-door Juan. A friend once shared with me that his wife wanted a brand new LCD TV. Her reason: her friend just bought a new one. Nothing wrong with wanting that but they have just settled down and still adjusting to their new life. Worse, his wife had no work during that time. Thankfully, my friend did not give in.

There is nothing wrong with wanting new gadgets as long as you have the means to pay them. But if you can’t, even though a new cell phone would be nice, even though a new I-touch would look cool, purchasing them won’t do your finances any good. Besides how often do you need to upgrade these things? They are built to last for years. Nokia and Apple are market leaders and certainly, those things you just bought are not going to break down after several months of usage. Then there is no reason to constantly buy a new one. Unless you just want to impress your peers.

There is a lot to blame on the credit card companies and merchants also. Often, big-ticket items are being offered at zero percent 12-month installments just to make it convenient for us. We, at the sight of zero percent, grab out our credit cards and happily go home with a brand new laptop, Digital SLR or even a 32-inch high-definition Sony Bravia.

It is a typical enjoy-now pay-later scheme. Often, there is no buyer’s remorse. After all, several thousands a month additional is something tolerable and we got it at zero percent interest.

Really, did we?

Yes we did. Zero percent interest is not a lie. You are not charged additional fees if you pay on a monthly basis. Where’s the catch then? The interests have already been added to the selling price of the item. That is why most of the time it is cheaper to pay in cash. While the law prohibits merchants from adding a surcharge for the use of credit, there is no law prohibiting them from giving discounts. The marketing gimmick is not false. Neither is it the whole truth.

The monthly installment could have been used to purchase an endowment plan or invested in pooled funds. Either of the two can provide a substantial amount several years later. But no, the money went to buy something that depreciates in value and quite possibly, even burden us.

Achieving financial independence

The paradox of being financially independent is that every body wants to achieve this stage yet only a few dare work hard for it. It is the same as asking every one if they want to go to heaven but nobody wants to die.

Money should be our slave and not the other way around. But how do we get to that point? How do we get to the point of being financial free? How do we become rich?

If we are to ask the successful ones, most likely, two answers will come out more often than the others: live below your means and invest wisely.

No person became financial independent by spending more than what he can earn. The Book Millionaire Next Door revealed a surprising thesis about American Millionaires: they do not live like millionaires at all. Most don’t drive the fanciest of cars; don’t live in the grandest of homes; don’t wear the finest of clothes and don’t drink the sweetest of wine. And while no similar book has been written about Filipino millionaires, chances are, the facts would have proven the same.  Often, they dine in fast food outlets, take the public transport and shop for bargains, a trait that seemed to be the anti-thesis of the whole point of being a multi-millionaire.

Yes, a few do buy luxury products now and then but only because they can well afford it. Being rich does have its perks and privileges but they know how not to abuse these.

Then again, frugal living can only get you somewhere. To achieve financial independence, you need to invest wisely, either letting the assets appreciate to let you earn substantial gains or provide you regular passive income.

The stock market is an avenue to earn such gains. Domestically, we have Philippine Long Distance Telephone Company (TEL) which from 2002 to 2010 had gained 10 folds. If you have had invested one million pesos then, it is now worth P10 Million today! That does not even include the dividends paid out during those years.

Real estate is also another viable investment. Many profited from the property boom of the 90s. The previous generation can attest that Greenhills San Juan was just grassland then. Today, it is where one of the poshest villages in Metro Manila is situated.

Real estate investment is not only for capital appreciation. It is also a good source of passive income. Condominium investing has paved way for property investors to earn from renting the units out.  It is not uncommon for investors to own the whole floor. The more units there are the more cash that comes in.

Fixed income securities also provide regular interest income. Corporate bonds that came out during the past years have had very attractive interest rates. Some even offer eight percent net of tax. Definitely much higher than the paltry two to three percent interest banks offer.

If you are enterprising, investing in business is also a viable option. The government has supported small and medium enterprises (SMEs) through its various development programs. And there are various success stories through the support of the government that we can all learn from. Go Negosyo is another organization that supports the Filipinos venture into entrepreneurship. Over time, these businesses can generate enough income to let the business owner retire comfortably. Take it from the Chinese. Their businesses are far from glamorous: hardware, auto-supply, garments and trading. Yet, these businesses are the ones responsible for providing them with the wealth they now enjoy.

Truth be told, there are more than enough investments that can let us achieve the freedom we so desire. Other popular investments that are worth exploring are endowment plans, annuities, commodities, foreign currencies and Real Estate Investment Trusts (REITs). So there is no reason why we cannot be financially free. Some of us may take longer getting there, but ultimately, we all should rendezvous at the end.

The next time you’re thinking of making an excuse not to start your journey, remember these words: It’s Time. T. Harv Eker, author of the Secrets of the Millionaire Mind said, “For the rich, it’s not about getting more stuffs. It’s about having to make almost any decision you want.”

Now that is financial freedom.

---

Add this page to your favorite Social Bookmarking websites