What is the Objective of Financial Statement Analysis?

The role of financial statement analysis is to use financial reports prepared by companies, combined with other information, to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.

Financial statement analysis starts when the role of financial reporting is done. Accountants who record the transactions of the companies are financial accountants. Once their job is done, the financial statement analyst can come into picture and start analyzing the financial statements reports. Financial analysis within the organization though does not necessarily rely on financial statements but rather on financial information available within the company.

In financial statement analysis, we use financial reports and other information. So what are these financial reports? Let’s take a look at these reports that are being used by financial analyst to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.

1.      Balance Sheet - (also called the statement of financial position or statement of financial condition) presents a company’s current financial position by disclosing the resources the company controls (assets) and its obligations to lenders and other creditors (liabilities) at a specific point in time. Owners’ equity represents the excess of assets over liabilities.

2.      Income Statement - presents information on the financial results of a company’s business activities over a period of time.

3.      Statement of Changes in Equity - variously called the “statement of changes in owners’ equity” or “statement of changes in shareholders’ equity,” primarily serves to report changes in the owners’ investment in the business over time.

4.      Cash Flow Statement- disclosing the sources and uses of cash helps creditors, investors, and other statement users evaluate the company’s liquidity, solvency, and financial flexibility.

5.      Financial Notes and Supplementary Schedules - The notes provide information that is essential to understanding the information provided in the primary statements. The notes disclose the basis of preparation for the financial statements.

6.      Management Commentary or Management’s Discussion and Analysis - The management commentary or MD&A is a good starting place for understanding information in the financial statements.

In the Philippines, aside from the above listed reports that publicly listed companies must provide every year, they also need to disclose other information to the investing public. Below are some of the reports required to be submitted to Philippine Stock Exchange (PSE):

Annual Report

Quarterly Report

Public Ownership

Corporate Governance Report

List of Top 100 Stockholders

Record And Payment Dates For Dividend Declarations

Documentary Requirements For Mining Companies

Progress Reports For Fund Raising Activities

Supplemental Listing And Disclosure Requirements For Petroleum And Renewable Companies

Buyback Transactions

Result of Annual Stockholders Meeting

Clarification of News Article

Changes in shareholdings of officers/directors

Press Releases

Aside from the information inside the organization, the economy, industry and sector, and comparable peer companies must be evaluated as well in order to come up with a decision or recommendation. These include economic statistics, industry reports, trade publications, and databases containing information on competitors.

A financial analyst evaluates the past, current, and potential performance and financial position of a company to recommend or make an investment decision.

Examples of these decisions include the following:

■          Evaluating an equity investment for inclusion in a portfolio.

■          Evaluating a merger or acquisition candidate.

■          Evaluating a subsidiary or operating division of a parent company.

■          Deciding whether to make a venture capital or other private equity investment.

■          Determining the creditworthiness of a company in order to decide whether to extend a loan to the company and if so, what terms to offer.

■          Extending credit to a customer.

■          Examining compliance with debt covenants or other contractual arrangements.

■          Assigning a debt rating to a company or bond issue.

■          Valuing a security for making an investment recommendation to others.

■          Forecasting future net income and cash flow.

Managers within a company perform financial analysis to make operating, investing, and financing decisions but do not necessarily rely on analysis of related financial statements. They have access to additional financial information that can be reported in whatever format is most useful to their decision.

Source: CFA, PSE

Another Pre-Need Company Bites The Dust. Who's Next?

Perhaps most of you have read about the collapse of Prudential Life Plans Inc. (PPI). Another pre-need company went down the gutter. The confidence on pre-need plans is in tattered....way back when CAP collapsed. 

It was not so long ago, when the pre-need industry's growth was skyrocketing. One company after the other sprouts like mushroom to take advantage of the popularity of the pre-need plans in the Philippines. Today, it is no longer the case as even pioneers of the industry went bust.

Pioneers Folded
The Pacific Plans, Inc. (formerly known as Pacific Memorial Plan, Inc.) is the first pre-need company that started in 1966. It offered memorial or life plans to the public. The business prospered until 2002 when it experienced difficulty meeting its maturing obligations. In 2005, Pacific Plans filed for rehabilitation with the Makati RTC. In 2009, Noel Onate, an investment banker bought the company for Php 250 million.

Professional Pension Plan (which became Professional Financial Plans) started the pension plan in 1976. It's plan holders are entitled to received benefits upon retirement or maturity of the plan. It is currently under rehabilitation.

College Assurance Plan pioneered the educational plan in 1980. It enjoyed unparalleled success in the educational plan sector until it's collapse in 2004 when it's issued checks were dishonored. In 2005, it filed for rehabilitation with the Makati RTC. 

Only 20 remain out of 92 pre-need companies
To date, there are only 20 pre-need companies which are legally and licensed to sell educational, life and pension plans based on Insurance Commission website.  At its peak, there were 92 pre-need firms operating in the Philippines.

In order to avoid getting scammed by closed or revoked pre-need companies, below is the list of 20 pre-need companies that are still licensed to sell pre-need plans. When I say pre-need plans, it means that the company can sell life plan, educational plan and/or memorial plan depending on their license.

Pre-Need Plans are contracts which provide for the performance of future service/s or payment of future monetary consideration at the time of actual need, payable either in cash or installment by Planholders at prices stated in the Contract with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve. 

If the insurance company offering you a pre-need plan is not included in the list, then you can report it to the proper authority.

Source: Insurance Commission

 Causes of Collapse

1. The Education Act of 1992

The Education Act of 1992 is often referred to as the main reason of the collapse of the pre-need industry. The Act deregulated the education industry and the 15% capped tuition fee increase was removed. As a result, educational institutions increased their tuition fees tremendously. 

Ten years after the Education Act of 1992 was enacted, the cost of a four year educational plan increased by 1200 percent. The yield on investments by the pre-need companies cannot cope up with the tuition fee increases. Consequently, pre-need companies incurred deficiency in their trust fund.

2. The 1997 Asian Financial Crisis
During the 1997 Asian Financial Crisis, the stock market went down dramatically together with real estate values. As such, the investment values of pre-need companies reduced considerably and impaired their capability meeting their maturing obligations. 

Take a look at the chart below. 

From record high of 3,447.60 in early 1997, it plunged down to 1,075, a decrease of almost 70%! Such is the heightened risks and volatility in stock market. It can kill an investor in a year.

3. Inappropriate Accounting Practices
Some pre-need companies sugarcoated their financials to cover their deficiencies. It was found out that they do not have sufficient assets to pay for their future obligations.

Below is an excerpt from Congressional Planning and Budget Department House of Representatives:

According to the SEC, the entire pre-need industry used aggressive accounting practices which understated liabilities and tended to present a rosier financial picture than warranted. As a corrective measure the SEC in 2002 imposed the use of the PreNeed Uniform Chart of Accounts (PNUCA) as a standard for reporting of finances and liabilities. With the PNUCA in place, pre-need educational and pension plans were no longer treated as investment contracts but as insurance contracts, subject to the Actuarial Reserve Liability (ARL) scheme. 

In addition the SEC imposed circulars instituting ARL as method of valuation for pre-need industry. Circular # 6 sets the standard for valuation of the ARL for pre-need plans, Circular # 7 requires pre-need companies to provide information relevant to actuarial valuation report and Circular # 8 sets the responsibilities of actuaries in the pre-need actuarial reserve valuation. These, according to the PFPPCI have caused major difficulties to their members.

These changes in accounting methods further weakened the financial statements of the pre-need companies, and effectively constrained their investment activities.

4. Weak Regulation
SEC was assailed for being remiss in its duties to closely monitor the pre‐need companies and act decisively on their problems. Its weakness as a regulator is considered to be an important factor why the pre‐need industry is now in distress.

Here is an excerpt from Senate Economic Planning Office's Policy Brief:

Section 16 of RA 8799 or the Securities Regulation Code vested the SEC with regulatory powers over the pre‐need companies. It authorized the SEC to prescribe rules and regulations governing the registration and sale of pre‐need plans. Some of these important rules are the following:

·         A minimum paid‐up capital of PhP100 million as a buffer for trust fund performance fluctuation;

·         A minimum trust fund equity requirement of not less than 45 percent of the amount collected for life plans and 51 percent for pension and education plans. For installment payments, the minimum limits of the deposit contribution to the trust fund shall be in accordance to a schedule (Table 4). Should the SEC discover a deficiency in the trust fund, it shall give notice to the pre‐need company, and require it to make additional deposits within 30 days. The SEC may also demand for a higher deposit as determined by the actuary;

·         An investment portfolio mix for trust funds. To ensure that risks to the trust fund are managed, the fund shall observe a certain investment mix (Table 5);

·         Liquidity reserve requirement of not less than 10 percent of the net value of the trust fund assets per type of plan. Loans, treasury notes or bills, Central Bank Certificates of Indebtedness, repurchase agreements, savings or time deposits with government‐owned banks or commercial banks, and investments in fixed income instruments shall qualify as investments for the Liquidity Reserve Fund;

·         A trustee who will exercise due diligence for the protection of plan holders, and who will have the exclusive management and control over the funds, including the required liquidity reserve fund. The trustee must be established independently with the trust department of a trust company, bank or investment house doing business in the Philippines;

·         Strict compliance with the Pre‐Need Uniform Chart of Accounts (PNUCA) for a more accurate accounting and reporting of financial condition of pre‐need companies;

·         A limit to the payment of commissions up to 10 percent of the contract price of the plans; and

·         Reportorial requirements such as the monthly, quarterly and annual publication of financial condition and trust fund statements, among others.

Should the SEC find that a pre‐need company has violated any of the said Pre‐Need Rules, has engaged in fraudulent transactions or does not conduct its business in accordance with the law, or is insolvent, the SEC has the power to cancel the pre‐need company’s registration and permit to sell new plans.

However, it appears that the SEC itself failed to follow its own rules. In the Senate hearings, it was revealed that Legacy was still able to secure permit to sell new plans from the Commission, ignoring SEC’s advisory to recapitalize as early as 2006. This was also the case for CAP who was still able to get a permit to sell in 2001 even after the SEC found a PhP2.6‐billion trust fund deficiency the year before. Moreover, even with the regular financial reports submitted to the Commission, the SEC is apparently still unable to keep track of companies that are already having financial difficulties.

SEC officials explained that lack of technical and financial capabilities, and not negligence, have been hindering them from carrying out their mandate effectively. At present, the SEC only has about 400 personnel and has no resident actuaries to do the counterchecking of the figures and financial projections pre‐need companies submit to them. It was further argued that the non‐passage of a Pre‐Need Code has restrained the regulatory powers of the SEC.

5. Independent Trustee
Some of the pre-need companies' trustee were affiliates. Pacific Plans' trustee is RCBC, both are under the Yuchengco Group of Companies. CAP's trustee is Bank of Commerce, both have Sobrepeña affiliation. Ayala Plans trustee is BPI, both under Ayala Corporation, Philam Plans trsustee is Philam Savings. Cocolife trustee is UCPB; and First Union's trustee is Union Bank. There is a possibility that a collusion between these two related companies may occur. 

Excerpts from Congressional Planning and Budget Department House of Representatives:

Collusion between pre-need companies and their affiliates could result in possible diversion of the trust fund into business ventures other than the intended investment specified by the SEC. 

In 2005, Senator Serge Osmena, during committee hearings, mentioned about CAP and PPI impropriety in handling their trust fund. Specifically, he pointed to the questionable investment of CAP in its affiliates company such as the Fil-Estate Management, Inc (FEMA) and PPI appointment of Rizal commercial Banking Corporation (RCBC) as its trustee bank. Likewise, Atty. Maricel Lopez, counsel for CAP planholders accused CAP’s executives of diverting P25 billion of its trust funds to its affiliated corporations (Camp John Hay Development Corporation, Metro Railway Transit and Fil-Estate Company).

As a result, CAP had incurred P1 billion loss in bad investment in FEMA alone, a holding company of the Sobrepeña family, which also controls CAP. Moreover, CAP engaged the trust fund in a 14 wrong mix of investments from related parties at questionable prices. On the other hand, PPI and its trustee bank, RCBC, both owned by the Yuchengco Group of Companies (YGC), have interlocking officers. While PPI is in financial distress, the YGC has earned a whopping 1055% ROI on its P165 million investment in just 8 years.


Planholders Holding the Empty Bag
As pre-need companies collapse, plan holders were left holding the proverbial empty bag. Their hopes were dashed. If you browse some of the forums on educational plan, you'll read nasty comments about these plans. Anger, rage, resentment and fury enveloped the mood of the forums. Typical questions "What to do now? How can I recover my hard earned money? How can I contact them?" filled the thread. 

Solution

1. Stop Open Ended Plan
When tuition fee skyrocketed after The Education Act of 2002 was passed, yields on investments cannot cope up with the increase in tuition fees. Forecasting the pre-need's maturing obligations in the future became difficult.  An open ended plan requires the pre-need company to pay the tuition fee charged by schools regardless of cost. 

Before the Education Act of 2002, the maximum tuition fee increase is 15%, can you imagine the increase when the education sector is deregulated? The increase of tuition fees for ten years since 2002 was 1,200%! Now, the pre-need companies needs to find a way to compensate this increase in tuition fees which was not factored anyway in their initial investment programs. 

Stock market offers the highest yield on any investment. It is also the riskiest. The average return of the stock market for 20 years is 14% compounded. If a pre-need company went to the stock market to cover the increase in tuition fees, it is not enough. 

A fixed value educational plan on the other hand will sway other prospective clients into doing their own investment plan to cover their children's education in the future. However, majority of the working Filipinos have little technical knowledge on investments. Dipping in this new territory will be challenging for them. 

I am doing my own educational plan for my daughter through stock market. Once  she reaches college, she'll have enough to pay for her tuition fees and other expenses.

Thus, fixed value plan still offers significant value to prospective clients if pre-need companies will just explain how their monthly payments compounded into ten percent can result into significant value in the future and cover the majority of the tuition fees.

2. Independent Trustee
As mentioned above, there could be a possibility that a collusion between affiliate companies may happen if the pre-need company and trustee are related. In order to avoid this, the regulator must strictly implement the policy of having an independent trustee. 

3. Sound Investment Policies
What is a sound investment policy in the first place? Risks must be assessed and considered in investment decision. The Asian financial crisis in 1997 reduced some of the pre-need companies' trust fund value considerably. I believe that you should not invest more than 25% of the fund in stock market because of the heightened risks associated on it. The portfolio must be a mix of various investments which should include real estate, stocks, government bonds, corporate loans, various projects.

4. Pre-need Insurance
Similar to a bank whose deposits are insured to certain extent, a portion of the premiums paid by planholders must be insured. This is to ensure that plan holders who typically belongs to the lower income bracket of our society are sure to get at least a portion of their hard earned money.

5. Strong Regulatory Implementation
According to the Senate Economic Planning Office, one of the major reasons of the pre-need industry's collapse is the lax monitoring of SEC and its failure to act decisively on a troubled pre-need company. 

Sources:

http://www.senate.gov.ph/publications/PB%202009-02%20-%20%20What%20the%20pre-need%20industry%20needs.pdf

http://www.congress.gov.ph/download/cpbd/07-Pre-Need.pdf

http://www.oecd.org/finance/private-pensions/2763673.pdf

http://newsinfo.inquirer.net/488207/ppi-collapse-dashes-dreams-of-245000-policyholders

http://newsinfo.inquirer.net/488919/plan-holders-seek-to-defer-liquidation-of-preneed-firm

http://newsinfo.inquirer.net/489799/only-20-preneed-firms-remain-out-of-200-plus

http://business.inquirer.net/143337/list-of-distressed-preneed-firms

http://www.abs-cbnnews.com/business/01/20/09/pacific-plans-gets-new-lease-life

Term Insurance Only, Please...

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Recently, I just applied for a term insurance from AXA. When I saw the application details, the insurance name is called Flexi Protect. You know insurance companies has a lot of names under their sleeves for any type of insurance you can imagine. I wrote an e-mail to the insurance agent who gave me a draft of the insurance policy so that I can take a look at the program, coverage and costs.

 Initially, I was given a Flexi Protect policy with a few riders attached into it. Insurance riders are additional coverage with additional cost. Insurance riders are called as such because they "ride" on main types of insurance. They cannot be sold alone or separately. They are dependent on main insurance policies.

During the coverage period, if you die prematurely, your loved ones (beneficiary) will receive the insured amount from the insurance company. These funds reduces the financial burden of your loved ones considerably for the burial and wake expenses. At the same time, if you shoulder most of the financial burden of your family, your loved ones will have something to fall back while they cope up and adjust with your death.

The covered insured amount is Php 2.4 M and I'm paying Php 1,000 per month. I asked for a lower premium because the riders that were initially suggested were already removed. However, the agent told me that they have a minimum payment threshold and I could not go lower than that. Anyway, since the insured amount went higher, I did not squabble with the agent anymore. I trust him.

http://www.flickr.com/photos/11599314@N00/2848983753

I know the covered amount is more than enough to cover my daughters tuition fee in case I'm called by God to return home with Him. Also, my wife won't struggle that much in raising our daughter alone. One million in the stock market over a long period of time will be enough to cover my daughter's education. That gives me a sense of security in my daughter's future. Since I basically shoulder my family's major finances, I need to get an insurance to avoid the shock of financial loss.

Term insurance is the most basic type of insurance. From the word "term", it means a specific period of time. It can be 1 year, 10 years or 20 years. It is the cheapest type of insurance. I don't need investment related insurance products because I want to invest on my own. 

Since I only wanted a term insurance, I ended up with a term insurance. No ifs, no buts.

What To Do with Oddlot Shares From Stock Dividend?

Have you guys received your 30% stock dividend from MBT (Metrobank)? I received mine. Whenever I am receiving dividends from publicly listed companies, it’s always a great feeling. And it never grows old.

MBT’s price is around 80 so its board lot is 10 because its price is between 50 and 1000 pesos. Please see below board lot table.

If stock price is 1000 pesos or more	Board lot is 5
If stock price is between 50 and 1000 pesos	Board lot is 10
If stock price is between 5 and 50 pesos	Board lot is 100
If stock price is between 50 centavos and 5 pesos	Board lot is 1000
If stock price is between 5 centavos and 50 centavos	Board lot is 10,000
If stock price is between 1 centavos and 5 centavos	Board lot is 1,000,000

Let’s say I received 312 MBT shares as dividends. I can sell the 310 MBT shares at the main board while the remaining 2 shares can only be sold at the oddlot board.
When I checked the number of shares I received from MBT, I noticed that the number of shares credited is not rounded off to ten. May butal siya. 

Dreaded Oddlot Shares

So what will I do with these 2 oddlot shares? The bid and asking price for oddlot shares generally deviate from the current price of the stock considerably. To illustrate what I am trying to convey, see below BPI’s real time quote.

COLFinancial screengrab

The bid and asking price were heaven apart from each other! Yesterday, BPI price is 96.50. If you want to buy 8 oddlot shares, you need to pay 144.50 per shares, a 50 increase from yesterday’s price! On the other hand, if you want to sell your 2 oddlot shares, a buyer is willing to acquire your 2 oddlot shares at 90.15, a 7% decrease from yesterday’s price. The price fluctuations at oddlot board are quite huge.

Now, let’s take a look at the main board lot. The bid and ask spreads are reasonable. They are sensible. The bid and asking price do not deviate much from yesterday’s price.

COLFinancial screengrab

Strike While the Iron is Hot

MBT’s 30% stock dividends were distributed yesterday. The recipients include owners, institutional investors, and of course us, the retail investors. I am 100% sure that I am not the only one who receives an oddlot shares from this 30% stock dividend. Since the oddlot shares are still hot and fresh, retail investors having oddlot shares dilemma flock the market to either buy or sell their oddlot shares.  Take a look at the oddlot board of MBT today.

COLFinancial screengrab

The bid and ask spreads did not deviate much from yesterday’s price because there are retail investors who either want to buy or sell their oddlot shares. Hundreds if not thousands retail investors received oddlot shares in this 30% stock dividend of MBT. The evidence is not lying. Did you notice the number of MBT trades for oddlot today? The total is 97. That was a sizable number for oddlot shares trading. If you compare it with BPI’s oddlot shares above, BPI’s number of oddlot trades is only 3.

NOW is the time to buy oddlot shares while the price is still reasonable. In my case, I need to buy 8 oddlot shares so that all my shares can be traded at main board in the future.

Alternatively, if I want to sell my two oddlot shares, I’ll do it now while the price is still sensible. It won’t be too long before MBT’s trading of oddlot shares will exhibit absurd bid and ask spreads similar to BPI above.

What to do?

If you have oddlot shares, I suggest that you either buy or sell them NOW while the prices are still sensible and buyers and sellers abound. Since I am long term investor, I just bought 8 shares of MBT so that in the future, I can sell them at the main board and within the market’s reasonable fluctuations.

Related Reading: What Stocks Can You Buy for 5000 Pesos

Why MBT Went Down From P99.50 to P76.5?

Last August 29,2013  I opened my account in my stockbrokers online platform trading and was surprised that Metrobank (MBT) is trading at 76.5. It went down from 99.45 to 76.5, a massive fall of 23%!

Obviously I immediately investigated what had happened. I checked if it is included in the top losers of the day, it was not there.  I’m having an idea already that the 30% stock dividend was already distributed.  I checked the ex date of the stock dividend and the date was August 29, 2013. So there you go, that was the answer on why MBT massively went down.

When I saw my portfolio, my MBT stock is having more than 30% loss! Wow! Can you imagine that, a 30% loss! Since a blue chip stock like MBT doesn’t fall as much as 30% in one day, where is the stock dividend? Why it is not reflecting in my portfolio? You know seeing that 30% loss is a sore eye to me.

Last August 28, 2013, MBT price is P99.50. The following day, which is the ex date of the 30% stock dividend, the price was amended to P76.50.

In stock dividend, here are some of the rules you need to observe.

a. The market capitalization remains the same

b .Number of shares are increased by the %  stock dividend

c. Price is decreased by the %  stock dividend

Before 30% Stock Dividend
# of Shares	2,111,386,017
Price	99.5
Total Market Capitalization	210,082,908,691.50
After 30% Stock Dividend
# of Shares	2,111,386,017
30% stock dividend (2,111,386,017 x 30%)	633,415,805
Total # of shares	2,744,801,822
Price (210,082,908,691.50 ÷ 2,744,801,822)	76.53846154125
Total Market Capitalization	210,082,908,691.50

Notice that Total Market Capitalization is the same. In essence, your shares value did not change at all. The price decrease was offset by an increase in the number of shares.

The correct price is 76.53846154125. However, you will never see that price in the stock market. The allowable fluctuations for prices between 50 to 99.50 is .05 only. Thus, the rounding off 76.53846154125 is 76.50.

This is the reason why the price of MBT is 76.50 last August  29, 2013.

Currently, the price already reflects the 30% stock dividend but the 30% additional shares are not yet issued to stockholders because the payment date is on Sep 16, 2013.

Presently, you’ll see a big loss in your MBT’s portfolio but that is not a concern because you will receive additional 30% shares on Sep 16, 2013.

By the way, stock dividends are also called scrip dividends.

Bigger Salary First Before You Can Budget and Save?

http://www.flickr.com/photos/76657755@N04/7027596629

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.