Sunday, July 20, 2014

Roadmap to Financial Wellness – BDO UITF Seminar

Yesterday, July 19, a seminar entitled Roadmap to Financial Wellness happened in the BDO Corporate Center (BDO Amorsolo Hall, Makati Ave. cor. H.V. dela Costa). It was organized by the Trust and Investment Group of BDO. I participated in the event which started at 9:30 am registration with 10 am beginning of seminar proper, ending at 12 nn.

The previous seminar on financial wellness that I attended offered free food and this one is no different. I was excited (internally) with the free coffee, which you have the leniency of concocting yourself, the free super thin potato chips with heavenly crisps, and the free Krispy Kreme doughnut, which I gave to my wife in the afternoon (she was working Saturday OT in Ortigas).

The difference with this seminar was that it was comprised of a small group (less than 100), which facilitated better interaction between speaker and audience. The seminar environment was extremely excellent, with participants having their own desk with 2 chairs. The air conditioned room was extensively cool.

The whole discussion circulated in the usual “save, be debt-free, and invest” advocacy of financial institutions, but had a focus on Unit Investment Trust Funds or UITFs. A summary of the discourse follows…

The speaker, Mr. Justin Galan, a BDO employee and UITF plan member, pointed 3 objectives of the seminar.

Objectives of the BDO Financial Wellness Seminar

  1. Assess one’s financial life.
  2. Check lifestyle.
  3. Determine options in wealth building, staying wealthy, and sharing.

He discussed the A.S.S.I.S.T. road signs, an acronym for Assess, Settle, Save, Invest, Share, and Take Action.

Assess

According to a 2012 survey of Money Summit

  • 43.8% of Filipinos spent more than their income.
  • 51.5% spend as much as their income.
  • and 4.6% spent less than their income.
Money Summit 2013 infographic

Image Source money-summit.com.

Admittedly, I’m in the 51.5%, which means that I’m not able to save any money after the paycheck comes in. If we really want to save, we basically need to have a clear budget. There are many Excel files for budgeting on the internet that are surprisingly free. In my opinion though, it’s better for us to have a personalized budget table so we can visualize on our own where our expenses are allocated.

Creating a budget is time-consuming at most. But not knowing where our money goes indicates an unhealthy approach to our finances. Budgeting makes our expenses transparent and knowing where our money goes also helps us know where it shouldn’t.

Budgeting is both easy and hard. Easy in a sense that we can jot down every expense in a day. What is difficult is the devotion to do it everyday. But a proper mindset and consistent action always lead to good results (Chinkee Tan – Filipino Motivational Speaker). Religiously do budgeting for 21 days and it will become a habit that hopefully we will not, and should not, break.

Settle

Humanity loves debts. Countries have debts to other countries, and it’s like if you don’t have it you’re not in. No wonder sites like ManvsDebt exists. Filipinos in particular are very fond of debts. I remember how my parents used to discuss about how to pay them. Some people whom I used to know borrowed money and went to forgotten land never to be heard of again. Sari-sari stores have these signs in their windows saying “Bawal umutang” (loaning not allowed).

Justin Galan said that there are 2 causes of debts. These are

  1. spending tomorrows’ income today
  2. and not willing to change when circumstances change.

Since there’s no way we can spend a paycheck that’ll come tomorrow or say next week, our tendency is to ask loan from a friend, immediate family member, or even use credit cards. Circumstances like losing a job could also contribute to the existence of debts when we don’t tighten the belt.

Debts, though, are not all that bad. It’s just a matter of knowing what a good debt and bad debt is.

  • Good debts help improve your life (e.g. house, car, school supplies for kids, etc.)
  • Bad debts are things that are not essential (e.g. new gadgets when you already have one, excessive fine dining using credit cards, etc.)

Get Out of Bad Debt

Justin, and the previous SunLife Financial Seminar that I’ve been to, suggested a plan of escape from debts.

  1. Lists all debts.
  2. Rank your debts, from debts that need urgent payment down to the least urgent.
  3. Create your payment plan using the ranking you made. Of course pay the urgent debts first.
  4. Use windfalls to pay your debts instead of buying your wants.

It’s sad to think that we need to use our windfalls just to pay for our debts. But it’s better than to try and escape it. The Bible even warns about unpaid debts.

Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law.
– Romans 13:8

Credit cards are a major subject when it comes to debts. Some time back, I hated credit cards due to reports of people not being able to pay, then get served with letters from law offices. I told myself that I will never get involved with these cards.

Until one day, a credit card from BPI unknowingly got processed. For the first 2 years that I had the card, I never used it, and BPI waived my annual fees during those years. For the third year my brother advised me to use the credit card because I could benefit from the points, I should just remember to pay it off before the cutoff date.

Thus, a simple experiment opened me to a whole new world of buying via credit card. I can’t recall what exactly it was that I bought, but the experience of giving your signature in exchange of stuffs was quite astounding.

Being a man who can’t sleep when in debt, I always made it a point to pay my credit cards on time. This helped me avoid the so-called interests that these credit card companies implement. Now I have 2 credit cards. The latest being a BDO credit card which, once again, I had no idea how it got processed. It seems like, if you have a payroll account in one bank, you’re automatically eligible to have a credit card.

Not long enough, I developed a thinking that these credit cards are money that I own. Until my wife snapped me back to the idea that they are money that we borrow.

I’m still in doubt when it comes to using my credit cards. I don’t like debts, and I worry that someone somewhere will try to hack my cards and go smorgasbord on my credits. Thus, I don’t use my credit cards on any online transactions, up until I’m sure that online transactions are very, very, very secure.

I also try to be wise in paying my annual membership fees. When the months for the annuals are nearing (July for BDO, August for BPI), I ask the credit companies if I could waive the fees, and somehow, as long as you regularly use your credit cards, BDO and BPI are willing to waive them. Not that bad.

What is bad is when we don’t pay our credit card bills in full and on time. This is what causes people to be in debt, never be able to pay, and get served with a letter from a law office.

The seminar speaker enumerated some tips on how to use our credit cards wisely.

  1. Know your credit card.
    1. Know the credit limit. Having a large credit limit could potentially put you in deep trouble. Avoid the thinking that you can spend as high as what the card offers.
    2. Fees and charges. BDO and BPI seem to accept annual fee waivers as long as the cards are regularly used.
    3. Cutoffs. Remember to always pay in full before the cutoff date.
    4. Services, features, and promos. BPI has this Real Thrills promo (i.e., as of this month) wherein you can exchange free food in Chowking for a single receipt purchase of say ₱2,500. BDO has BDO Rewards that offers 10x bonus points every time we pay bills online.
    5. Terms and conditions. It’s not necessary to read and memorize all the terms and conditions. Just read what you might think is important.
  2. Limit the number of cards you have. There’s no point in owning a lot of credit cards when you don’t use them often. Besides, the annual fees will surely surprise you.
  3. Keep track of your spending.
  4. Pay in full. Always. Credit card companies love it when people take installment plans because of the compounding interest. Paying in full before the cutoff avoids these interests.
Pay in cash
– Warren Buffett, successful investor of the 20th century

Save

Why do we save? What is our reason for saving? Justin asked the audience and he got the answers he wanted.

  • We save for health emergencies and emergency funds when we suddenly lose our job. Sadly, according to a 2013 BSP survey, the average cash on hand of Filipino families for emergencies is only ₱1,681. That amount could accommodate for medicines alone.
  • Save for future financial plans like retirement and tuition fees. There are 36 million BDO account holders. But 23 million or 64% have balances below ₱5,000. That’s 6 in 10 Filipinos that have less than ₱5,000 in savings.

One trick to saving is the “pay yourself first” method where expense = income – savings. Before you compute for expenses, take out your savings first. Another trick is what Suze Orman, Oprah Winfrey’s financial planner, quoted.

Live below your means.
– Suze Orman

Many of us want our savings to grow. That’s why we sometimes place our savings in time deposits. But time deposits have very low interest rates. Using a savings calculator Justin pointed out

  • ₱5,000/month in time deposits with 1% interest rate can become ₱1m in 16 years.
  • While investments with 10% interest rate will be ₱1m in 9 years only.

So what investment vehicles do BDO offer?

Invest

First rule of thumb in investing, which I’ve already heard every so often, is invest in yourself. How? By feeding your mind. Always be in the know when it comes to money matters. That’s the reason why I attended this seminar in the first place.

BDO offers the Unit Investment Trust Fund or UITF. According to a Money Summit survey of 2012, less than 1% of Filipinos own investments as compared to our Southeast Asian neighbors in which even taxicab drivers have investments. Note that stocks funds outrate the interest of bank deposits. In the said survey, bank deposits had an interest rate of 0.25% p.a. while stocks funds were a whopping 18% p.a.

Before we get excited and plunge head on into this so-called UITF, we must understand that it has its risk like a Mutual Fund. In fact, it looks exactly like a Mutual Fund. I won’t delve into the subject of similarities and differences of the two, but if you want to get into it, I found a good enough info here.

Identifying What Works For You

It is prevalent that we do our research first before we decide to put our money in any investment vehicle. The following is a comparison of saving and investment.

Options

Concerns

Deposit

Low interest rate

Mutual Funds

Entry fees, exit fees, and other charges

Direct

Huge amount of capital needed

Stocks

Needs time to monitor

Paluwagan

Credibility

Business

Time, effort and at times large capital

Real estate

Big investment

It is also important to check your risk tolerance, which could be based on the Investment Life Cycle wherein

  • The Accumulation Phase is between 20–40 years old.
  • The Consolidation Phase is between 41–60 years old.
  • The Spending/Gifting Phase is between 61–80 years old.
rediff 2007 infographic

Image Source www.rediff.com.

If you have enough resources to put your eggs in a lot of different baskets do so. A diverse portfolio of investments is good. But pay attention to the progress of each one. Over-diversification might give you a headache and monitoring each investment could become a nightmare. Understand also the risk-reward rule. The higher the risk the higher the potential for a high return, the lower the risk, the lower the potential for a high return.

Now let’s focus on what BDO Investments has to offer.

What is UITF?

According to the speaker Justin the Unit Investment Trust Fund is

  • An open-ended investment, meaning it is an unlimited, no maturity date form of investment.
  • It is a pooled funds of investors that are placed in stocks/equities, government securities/treasury bills, corporate bonds, and other tradable securities. This is similar to Mutual Funds.
  • Operated by a trust group of any commercial banks, in this case by the BDO Trust and Investments Group who arranged the seminar. Mutual Funds are offered by companies who have licensed Mutual Fund agents such as SunLife Financial.

And it has many forms namely

  • Peso Money Market Fund
  • Peso Bond Fund
  • GS Fund
  • Peso Fixed Income Fund
  • Peso Balanced Fund
  • Equity Fund
  • Sustainable Dividend Fund
  • Focused Equity Fund
  • Dollar Money Market Fund
  • Dollar Bond Fund
  • Medium Term Dollar Bond Fund

There are actually 4 types of UITFs in which all of the above fall into. Check out this primer on UITFs and a report on the performances of each one in 2013.

UITF, according to BDO was introduced in the Philipines by trust entities in 2005, and has continued to grow ever since. I will most probably be joining one next year when the windfalls come.

For now, here is the link on BDOs UITF website.

The seminar went on to focus on the Easy Investment Plan or EIP which was enticing because with just ₱1,000 you can start investing.

Then we went on to graphs, charts, and other sophisticated tables that involved the stock market, what the NAVpu or Net Asset Value per unit is, and the sample top ten stocks that BDO currently holds (which I noticed PLDT and BPI were included).

It was a whirlwind of information that I’ve yet to absorb even now. But the Investment group were kind enough to give us UITF and EIP brochures before the start of the seminar and that is what I’m currently reading.

Sharing

I’m hoping that this little information about UITF will convince the reader to probe deeper into the subject. UITF is one of many investment vehicles that have the advantage of not having a maturity date. But keep in mind that any investment needs time to grow.

If you have any information you wish to share about UITFs please do so in the comments. I’d be happy to read more information about the good and the bad sides of UITFs.

Taking Action

Words without action are meaningless. To become financially well needs action. Let us help ourselves by assessing our lives, be debt-free, by saving, and most of all investing.

In conclusion, these are the A.S.S.I.S.T. road signs of the BDO Roadmap to Financial Wellness Seminar.

  • Assess your life.
  • Settle any debts.
  • Save for emergencies and future financial plans.
  • Invest in whatever investment vehicle suited to you.
  • Share the knowledge that you’ve gained.
  • Take Action to become financially well.

I’ve learned quite a lot about the new investment vehicle in the form of UITF. It was all great. Especially the super thin potato chips… such heavenly crisps.