Bigger Salary First Before You Can Budget and Save?

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What is budgeting? Budgeting is the act of preparing a budget. Sorry guys it’s that simple.

Do you guys make a budget from your salaries? Perhaps some of you will say no and the majority will say yes. I for one am doing a budget from my salary. I allocate my salary to my savings, bills, remittances and household expenses. Having a budget helps me organize my finances and gives me a sense of security on where my money is being spent. Basically I have financial goals and in order to achieve that, I’ve got to have a plan. Planning involves the creation of budget. For example, if I want to have 1 million Peso of savings, then I need to budget my salary and follow the allocation of funds therein. Obviously it requires a lot of discipline to stick with my budget but it’s the only way to do it if you want to achieve your goals.

Bigger Salary First Before I Can Save

I knew some of you would say that if only you have a larger salary, then saving won’t be a quandary. You’ve got kids who need diapers, milk, and clothes. Their well being is more important you might say. Aside from that, you need to pay rent, provide food, remit money for your love ones back in the Philippines, and pay the bills. At the end of the day, there is no more left to save for your future.

I have a friend whose salary is twice as I have. He is already a manager of his department and reports directly to the president. However, every now and then he will call me if I have some extra money to lend. Anything extra, he would say. It has become a habit that I’m already expecting his call once the 3^rd week of the month approaches. He’ll borrow money and pay it once the salary comes in. I can easily charge him with an interest but since he is a friend, I’m just lending him interest free.

My friend has bigger income than me and yet he doesn’t have any savings at all. I don’t know where the money is going, but one thing I’m sure though is that he needs a fix on his finances. One day I asked him, “Why you are always short on money?” His succinct reply was “I have a lot of expenses here in Dubai and in the Philippines”.

I never asked him again about his finances because I do not want to be viewed as busybody. The only way for him to talk about it is through example and perhaps through my blog.

Saving is not about money. It’s about attitude and discipline. You’ve got to find a way to make your budget work.

Differentiate Needs from Wants

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Maybe, you are spending beyond your means. Buying branded clothes is not a necessity but a wants. There is big difference between wants and needs. You can live without wants but needs are necessary.

Having an Iphone is cool but if it will destroy your budget, it will ‘burn’ you. Perhaps after you’ve got a sizable savings then you can reward yourself and Iphone might be the perfect gift. 

However while you are still building your fortune, it will be desirable if you stay away from it. My mobile phone is worth 100AED. That is around 1,100 Php. It’s the cheapest phone available here. My purpose in having a mobile phone is to call and text my loved ones. I don’t have the need to worry about what others will say about me when I hold my useful mobile phone. It’s none of their business. If I have lots of money, or have achieved my financial goals then I can turn to that Iphone anytime.

Limit your wants as much as possible and focus more on your needs (savings is a need for your future).

Entertainment Fund

Obviously, you don’t need to be harsh on yourself. You can include an entertainment fund in your budget. If you love to watch movies, go and watch your favorite movies. A little play here and there to shake out the stress of the week will go a long way in improving your well-being.

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I love going to park with my family. It refreshes me. The time spent with them is holy. Chasing my daughter along the green grasses or guiding her through the walkways of the playground is a great feeling. Chatting with my wife and discuss about anything under the sun, showbiz gossips included, her favorites. These are the moments I treasure and will keep forever in my heart.  

The fee for this relaxing moment is 5 AED per person. Can you imagine that? 5 AED for a quality time with your loved ones under the shade of a lovely tree, or over a barbecue stick. It doesn’t get any better than that! Having an amazing and meaningful life doesn’t have to be expensive.

You just have to be grateful.

Please read this previous article I wrote way back in year 2011. 

It's Christmas Time in Stock Market!

Ber months are not yet officially here but I can feel the spirit of Christmas already. 

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The Philippine Stock Exchange Index (PSEi) plummeted by 6% today. After two days of non trading due to massive flooding around Metro Manila and a public holiday, the PSEi resumes trading in a bloodbath.

The fall of the PSEi is expected considering the region’s slide for the past few days. Philippine wasn’t spared from the onslaught.

Indonesia stock market (JCI) plunged by more than 8% last Monday and Tuesday. It technically hit the bear market as the fall from its highest peak is more than 20%. Thailand’s stock market (SET) dived by more than 6% for the past three days. Indian stocks (SENSEX) is down by 8% in four days.

The biggest drop we’ve seen in the PSEi recently was last Jun 13, 2013 when the market went down by 6.75%. Today’s drop has the same magnitude as it was back then. Basically, due to the three days of suspended trading, PSEi catch up with red numbers of the region’s stock market. We’re now at par with most of them.

Who in his right mind will jump in joy after seeing his net worth massively reduced through stock market? Nobody. However, if you are willing to ride out this slump and continue to invest every month of your salary while the prices are still down, then you’re likely earn a better return in the long-term.

My goal in stock market has always been long term. You know, I’m kind of establish this barat price to the stocks I’m following and believe me, this barat price I computed and calculated are now within the striking distance of getting hit.

Generally, I don’t care about the ups and downs of the market. At the very least, the period of holding should be ten years. However, there are instances when fate will favor you and the stock market will give you a chance to buy at low prices. Today is one of those days.

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So, while majority of the investors are scared to death on their reducing net worth and fund managers scrambling to find answers to the clients, we the long-term investors are relaxing in our home watching our favorite TV program or playing with our kids. The stock prices are at fire sale discount and life’s just getting better.

Happy days are ahead.

Foreign Investments in the Philippines

During the last couple of months, we’ve seen an increased volatility in our stock market, the Philippine Stock Exchange (PSE). Our Philippine Stock Exchange (PSEi) went down from a high of 7,403.65 to a low of 5,678.73. That was a decrease of more than 20%!  Recently, the PSEi has recovered from its low and is now back to the 6.800 levels as of yesterday. Nevertheless, the correction had unnerved the investors and some have become doubtful on the recovery of the market.

 One of the major reasons of the sell-off in the stock market is the indiscriminate selling of the foreign investors. Day after day, week after week, the foreign investors are disposing their holdings from the Philippine stock market as if there is no tomorrow. The investors were spooked by the statement of the US FED chairman Ben Bernanke last May 22 who said “In the next few meetings, we could take a step down in our pace of purchases.” With just one sentence, investors immediately sold down their emerging markets portfolio which includes the Philippines.

Let’s take a look at chart below. Since May 22, the PSEi has fallen from 7,385 to 5,678 in a span of five weeks.

From May 20 to June 21, foreign investors have unloaded Php 11.8 billion worth of shares. As of July 26, foreign investors account for 51% of the market's traded value for the year to date. Since foreign investors make up the majority of the traded shares during this period, there is no wonder why the PSEi went down dramatically since May 22 when the foreigners exited from the market. 

Foreign investors' funds in the stock market are commonly referred to as Hot Money. They are called as such because of the short duration of their investments in the stock market. Stock market is just one of the financial instruments being targeted by the hot money. Bonds and other financial instruments whose favorable interest rates and exchange rates are subject to hot money inflow also.

The Philippines economic resurgence has been a widely circulated story. Investors are flocking to the country due to the improved fundamentals of the country. 

Take a look at the hot money table below. Except for 2008, foreign investors have been pumping money in our financial system.

Foreign Portfolio Investments (Hot Money)

Year	Amount
Y2013 1H	$1.55 Bn net inflow
Y2012	$3.90 Bn net inflow
Y2011	$4.10 Bn net inflow
Y2010	$4.6 Bn net inflow
Y2009	388 M net inflow
Y2008	$1.8 Bn net outflow
Y2007	$3.5 Bn net inflow

Source: BSP

The Quantitative Easing policy adopted by the central banks around the world have pushed interest rates lower. As such investors have looked at countries whose interest rates and exchange rates are better. Philippine's currency is strong and the investors are taking an advantage of it coupled with the rising economic growth of the country. 

The Philippines has been one of the best performing stock market in recent years. Foreign investors have been flocking in our stock market as seen in the table below.

Net Foreign Transactions in Stock Market

Year	Amount in Php	Exchange Rate	Amount in USD
Y2013 1H	Php 53.44 Bn net buying	41.24	$1.30 Bn
Y2012	Php 109.98 Bn net buying	42.23	$2.56 Bn
Y2011	Php 56.52 Bn net buying	43.31	$1.37 Bn
Y2010	Php 35.62 Bn net buying	45.11	$0.87 Bn
Y2009	Php 14.92 Bn net buying	47.637	$0.37 Bn
Y2008	Php 22.16 Bn net selling	44.475	$0.54 Bn
Y2007	Php 55.57 Bn net buying	46.148	$1.36 Bn

Source: PSE, NSCB

Much has been said about the hot money coming into our country. While these hot money provides liquidity in our financial system, they are short term in nature and volatile.Hot money can create an asset bubble by investing huge amount of money and then pulling it quickly.

Foreign Direct Investments on the other hand provides stability and has a more direct impact in the economic activity of the country. According to Investopedia, FDI is An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

Foreign Direct Investments (Real Investments)

Year	Amount
Y2013 4M	$1,505M
Y2012	$2,033M
Y2011	$1,852M
Y2010	$1,241M
Y2009	$1,948M
Y2008	$1,544M
Y2007	$2,916M

Source: BSP

FDI's provides capital, increased production level and employment opportunities. It is one of the major steps for developing economies like Philippines towards economic growth. It provides opportunities for increased trading of goods and services in the country.

Likewise, technological know-how and expertise is enhanced as companies with superior technology invest in the country.

I hope more FDI's will come into our country rather than hot money.