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The Rule of Thumb on Savings

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Jake

'Overspending on cars now could lead to having walk in retirement' - Gaurav Ghose

Wealth management books, articles, trainings, and forums offer the same general idea on savings and income protection but slightly differ on how much they should be setting aside per investment basket. I also tried to play around on which percentage allocation will I be able to prepare for my future financial obligations.

Before we proceed on the percentage allocation, let us know the different Investment baskets we need to consider. This is best explained using Colayco's illustration of Investment Baskets:

  1. Protection Basket
    • Emergency Fund – 3-6 months worth of personal expense
    • Life Insurance
    • Medical Insurance
  2. Life Goal Basket
    • Children's Education
    • House
    • Car
    • Etc.
  3. Retirement Basket
    • Day-to-day expenses
    • Medical Expenses
The percentage allocation that is common within these reference materials is the Ten Percent Rule. i.e. 10% on Protection, 10% of Life Goals, and 10% on retirement, leaving behind 70% for expenses.

But this doesn't seem to apply in reality, considering that expenses are varying due to Life Goals i.e. family. On top of that, there is inflation and interest rate you are using for your investment. In short, you need to vary your percentage allocation per age to fit your financial objective while maintain a relatively good lifestyle.

I referenced these from an article Dubai, written by Gaurav Ghose. His article states that you need to increase your fund allocation for your retirement as you near your retirement age.

Let us consider our Average Joe:
  • Have a stable job
  • Desires to have a family with two kids
  • Desires to have a car and house of his own
  • Would like to retire at age 60
Age
Protection
Life Goals
*Retirement
**Expenses
25-30
10%
10%
10%
70%
30-40
10%
20%
10%
60%
40-50
10%
20%
20%
50%
50-60
10%
10%
30%
50%

Age 25-30: Average Joe is still single and may have a few dependencies at hand. i.e. parents or siblings

Age 30-40: Common age to start a family. If you start to have kids at this age, your life goal baskets or expenses might increase as well, but DON'T NEGLECT your protection basket especially if you have more dependencies already.

Age 40-50: This is usually the time wherein people plan to have a house or car of their own. However, this is also a crucial stage wherein they need to increase their percentage allocation for their retirement.

Age 50-60: More often than not, children are already working at this age. To retire comfortably at age 60, they need to 'pump-up' further their retirement fund.

*Retirement fund should be invested in an instrument earning an average of 10% p.a.

**Average inflation rate is at 5.5% p.a.

In a nutshell, you must be flexible on allocating your funds depending on your personal and family needs, but don't leave any of these investment baskets empty. Don't overspend and invest for your future.
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Multi-level Marketing: Not a SCAM

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Jake

Multi-level marketing or MLM is a marketing strategy in which members of the MLM could profit either by selling products or by recruiting new members.

For optimist, MLM is closely associated with the word business opportunity, or life-changing opportunity.

For pessimist, they associate MLM with the words "SCAM", or "PYRAMIDAL SCHEME"

It pains me to hear people who have perception on MLM as a scam or laugh on the members who struggle on recruiting down lines.

New models of MLM are currently facing a lot of challenges to be accepted as legitimate business models due to the SINS of previous MLM. Recruited members without entrepreneurial spirit often change their perception of MLM on the first sign of production downturn. And when they gave-up, they tag it as a SCAM. Shame on you!

6-Digits a week

This is true. It's not a joke, and they are consistent with this production. But always take note on the story behind their success. No one becomes successful overnight. Before they even reached this level of income, they were consistent with their hard-work. Not just days, weeks, or months, but years of consistent effort.

Don't believe in easy money

Recruiters love to show off their pay checks, their luxury bags, cars, watches and Euro trip vacation pictures. Most of the time, prospects are enticed to join due to their upgraded lifestyle. But be careful, prospects often perceive this as an 'Easy Money'.

For recruiters

Be careful on the words you use when presenting to prospects. Do not just show the perks of being part of MLM, but also show to them the challenges they need to face to become successful on this business.

For prospects who are thinking of joining

This business is not for the faint heart. You must have the entrepreneurial spirit to endure challenges on this kind of business. The perks are real, these are not SCAM, but expect that you have to deliver consistent effort for you to become successful as your recruiters.

For those who are already part of MLM

Kudos to you. Don't give up. Continue on what you are doing. Don't lose your heart when your prospect rejected your proposal or invite. You have to treat this as a business. You have to be creative when selling this opportunity to your prospects.
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How I gained from Hospital Income Benefit

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Jake


 

Last week, October 24-29, I was confined in the hospital for 6 days due to dengue. The total hospital bill for 6 days (including medicines) amounted to Php 20,534.

Due to my medical insurances (i.e. Medicard, Philhealth, Hospital Income Benefit from Sun Life), I only need to pay, Php -8,893. Yup, that's right. NEGATIVE. It means that I even gained money from my 6 days confinement.


Here is the Breakdown:

Total Hospital Bill: 20,534

Covered by Medicard and Philhealth: 17,427

Hospital Income Benefit: Php 2,000 x 6 days = Php 12,000

Hospital income benefit is an income replacement benefit from my life insurance which pays me Php 2,000 for every day I am confined in the hospital. Since I was confined for 6 days, I'll be getting Php 12,000.

Hospital income benefit is not a form of hospital reimbursement. It is an income replacement on the event that you were hospitalized. This is perfect for people who are self-employed or has completely variable income.

For me to have this benefit, I am paying an extra Php 490/month. But this benefit will not go to waste if I'm healthy. On the event that I maintained myself healthy, that monthly charge will go to my MF investment in my Variable Life Insurance Policy.

Of course, I don't want to make this Hospital Income Benefit a form of "Cash Cow" for my gain. Having dengue is something I don't want to experience again. It was torture.

The Lesson: "Wag magpakagat sa lamok"
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