Colorfulifesite responds: Is spirituality compatible with wealth accumulation?

My automatic answer would be: NO. Why? because of the simple reason that wealth is expressed in what’s physical and ephemeral, whereas spirituality concerns itself with the intangible and eternal (like a memory, a proverb, or values passed on from generation to generation).

Yet upon deeper pondering, it occurred to me that it might be just the way we choose to understand the question. Let me explain: in what way are we inquiring about the compatibility of spiritual interest with the burden of accumulating wealth?

As a mother, I see both matters as compatible. Accumulating material things would help me raise my family (cat included!) more comfortably. This would give them a feeling of safety, and being loved, as they are well-provided for. And with our basic needs covered, we could “worry” about the next-level needs such as esteem and self-actualization, both of which are strongly connected with spiritual growth. 

This is only me, of course: a career-woman living in a developed country, lucky enough to have a livelihood and a strong social network of support.

What about the woman who’s the exact opposite of me? a younger, single female, living in a poorer country, with no job and no one to rely on? would she have a stronger or equal faith than/as what I have? would she be more spiritually mature than I am? is she holding on to spirituality as her means of consolation, or is she really maximizing her full potential in spiritual development because she’s not distracted with “worldly” and “material” concerns?

SPIRITUAL WEALTH MENTAL WEALTH FINANCIAL WEALTH PHYSICAL WEALTH WORLD PEACE LIVE AND AFFECTION

Image courtesy of: http://love-peace-gratitude.blogspot.com.es/p/spiritual-wealth.html

As a citizen, my stance only became more confounded the day I read the Dalai Lama utter the following statement:

The economic system of Marxism is founded on moral principles, while capitalism is concerned only with gain and profitability. Marxism is concerned with the distribution of wealth on an equal basis … as well as the fate of those who are underprivileged and in need, and [it] cares about the victims of minority-imposed exploitation. For those reasons, the system appeals to me, and it seems fair. (“Of course the Dalai Lama’s a Marxist”, The Guardian)

because wealth distribution is only feasible after there has been prior accumulation! (Karl Marx actually predicted that capitalism would evolve in a more socialist/communist system and the material wealth that has been accumulated would make a fairer redistribution possible.)

Therefore, to be able to apply the moral principles the Dalai Lama spoke of, it is necessary (but not limited) to have “something” with which to materialize those concepts. For instance, buddhist households must have enough rice to give alms to the monks, if they want to express compassion. And how would they have “enough” rice to share if they hadn’t previously saved and accumulated it? Although this is not the only way compassion can be practiced, it is one very important aspect to consider.

Inspired from the same above-mentioned article about the Dalai Lama, I started to form my final conclusion. It also noted that:

[…] relief of suffering can only come from the realisation that pleasing ourselves doesn’t bring happiness – instead we must try to work skilfully and compassionately with others, as part of interwoven systems of connectivity that bind us together.

I believe that the accord between material abundance and spirituality boils down to the INTENTION of accumulating wealth in the first place.

Individuals who aim to earn a lot of money to fulfill their roles as breadwinners are not only executing their obligation, but they are also practicing generosity, compassion and patience towards others. This undoubtedly cultivates the spirit.

Households who save and invest their money to guarantee a good future for the younger members are exercising generosity and sacrifice, to say the least. This sets an example for other family members and therefore expands the cause of spirituality.

A society that allows the public use and enjoyment of environmental wealth (forest and seas, for example), who redistributes existing richness to the less-privileged are implementing social and economic justice to its citizens. This makes indiviual spirituality flourish, may it be through the soothing effects of being surrounded by nature, or the satisfaction of being assured of one’s survival.

My final answer then is a YES. Accumulating wealth is compatible with spirituality provided that the intention for doing so leads to practicing moral principles and advancing the cause of spirituality.

Hidden-nomics (5): the unlisted, immeasurable, unfathomable value of the environment

Forest_Enchanted

Image courtesy of: https://josemariasison.org

Dear Reader,

The poem I shared was written by Jose María Sison, founder of the Communist Party of the Philippines. (I think it later turned into a song) I hope you would overlook his political inclination and appreciate how beautifully and realistically he depicted the struggle of our natural environment through the forest.

The issue here goes beyond the hidden (read: unmeasured/unmeasurable/subjective) value of the environment. It’s the fact that most of people don’t even take the time to stop and wonder what natural resources mean to their existence.

Without clean air, they would be breathing toxins that would make them sick, rendering them perhaps sterile and sickly in the future.

Rising seas would eventually diminish land area, increase housing prices and affect agriculture, industry and services (imagine how the tourism sector would fare!) among others.

Wide-spread droughts would expand desertification and turn fertile soil into waste territory- useless for human, animal and plant alike.

Are more examples needed?

In Sison’s poem, the forest could have perfectly been substituted by the sea, river, plateau, mountain, meadow, ricefield, and so on. He would’ve talked about water nymphs, trolls and Bigfoot. He would’ve invoked fishermen, woodcutters and farmers as brave warriors protecting their homes against villains. He could’ve even talked about you, defending your own house from shameless vandals who would try to ransack it, empty it, and destroy it, leaving you homeless and bereaved of resources.

So why is it that some people still can’t relate?

The first time I’ve been made aware of the environmental problem was when I was 10. Since then, I haven’t stopped reading about forecasts, as well as materials about immediate and longer-term responses to the detected problems. I remembered being so impressed with what I read that I started then and there to voluntarily clean the beach near where I lived, reduce my fresh water consumption and recycle as much as I could. I would also scold people in my school whenever I saw them throwing trash on the ground. I took everything very seriously.

I remember handing stickers to my classmates and telling them about the things I learned, the dolphins and whales that are becoming endangered, the dodo bird that got extinct because of game hunters… some of my peers believed me, some just considered me a geek. Nevertheless, I know some of them took note and became more aware of their actions towards their surroundings.

23 years have passed since then, more than 2 decades since that first Greenpeace pamphlet I read explaining the locust plague. The same types of campaigns are still being carried out, but the effect is not the same. I ask myself what the problem could be (don’t you?). After all, the information was fact-based; data seemed solid and the campaigners didn’t scrimp in using alarming vocabulary.

Then it dawned to me: the constant bombardment of intense information, based on massive data has lost its effect. Perhaps in the ’70s, that kind of messaging was able to shock passersby. But in this millenia, people just look, read and go on with their lives, appearing to be desensitized.

How to reverse this? Go beyond speaking to the people individually: beat messages of empowerment and directly thank the citizens for their little daily efforts. Make them realize that when many small actions are summed with the rest of what others do, the outcomes become a great, big help to the environment! 

It is of no surprise that people feel a great weight on their shoulders, pressuring them, forcing them to save the sea turtle, the baobab or the elephants- elements that probably seem so far and unfamiliar to them. The fact is that when it comes to discussions on environmental issues, the initial reaction would be enthusiasm, then anger, followed by a common call for action. Afterwards, bewilderment will rise into their eyes when they start to hear about the tons of water they could save a day, the thousands of species disappearing each hour, or the volume of greenhouse gases they could help prevent from being emitted.

So why not, instead of asking them to DO, also thank them for what they’re currently SACRIFICING to contribute to the cause?

We should all gear towards the turning point. We should resist their despair. We should retaliate their common cry, “There’s no way we can help because a million others would be doing the opposite” with, “You’re already doing your best. Congratulations! Thank you! Keep it up! And when you feel ready to do more, go ahead and do it!”.

Let politicans do what they do best: politics. Let lobbyers influence decision-makers that their agenda is far more important than anyone else’s. Let the activists raise their voices in protest. Let the researchers continue their work on just how fast we are nearing to doomsday.

In the meantime, you, me, us, we can simply be more aware of our actions towards the environment. I’m not even talking about the Amazon rainforest or the Arctic. I’m talking about our immediate environment: how do we consume? what do we consume? what do we do with our waste? do we defend our immediate environment when harassed? do we tolerate vandalism?

It really boils down to what lives we want to lead, and what world we would like to leave behind for our children, or our neighbor’s children, if you don’t plan on having your own. The point is, we should start factoring in the environment when making decisions. Even if it just means saving on our monthly water and electric bill.

It couldn’t be too hard. Human nature has a great level of plasticity, in the sense that it is equipped to adjust according to the circumstances. We just have to will it. We just have to want it.

And as usual, dear reader, I will end this one by encouraging you:

Think about it.

 

 

Of thieves, value and the bitcoin

On the eve of the Epiphany (Feast of 3 Kings), our house got robbed. Thankfully, not many things were stolen, only some jewelries. The loss of my meaningful trinkets upset me a lot (not to mention the fact that my sense of safety and security were both shaken up). After all, they weren’t only pretty, shiny things- they also held great sentimental value as most of them were gifts. Of course, for the thieves, the only value those jewels have is their monetary value.

For centuries now, men have assigned value on different objects ranging from salt to gold. Those same objects were even used as a means for payment because of the value attached to them. Consensually, society has given value on objects that would otherwise be just “things”. That is why the crooks who broke into our house were tempted to steal my jewelries: to make the most of the accumulated value held by the precious metals and stones.

I suppose that their end game would be to exchange those knicknacks for money, another “value holder”- commonly accepted in exchange for goods and services, and also useful to amass value (although its value could potentially decrease in time, while the value of jewelries could go up).

All of these got me thinking how much the things we hold valuable have changed now. It’s no longer news that digitalisation has allowed for the birth of new tenders and payment methods. Currently, it has become possible for many people to purchase, settle debts and save money without having to use real cash (through credit or debit cards, mobile transactions, e-money or different investment vehicles). Why is that? well, just as is the case with money, all these new means of payment work out because of a consensus. Aside from the convened value they hold, an important part of it also depends upon the public’s willingness to support the value agreed.

The same goes with the biggest frenzy at the moment: the bitcoin. I’ve been trying my best to express my thoughts about it, but I found an article online so I simply decided to translate it and share it with you, dear reader. Please stay tuned for Colorfulifesite’s opinion on this subject.

Note about the article’s author: The original article was written by economist Daniel Villegas of the Mexican National Autonomous University (UNAM) for Dinero En Imagen online news. Mr Villegas was kind enough to give me permission to translate this simple, straight-to-the-point and insightful article so non-Spanish speakers could get a glimpse of his illuminating ideas.

Gracias D. Villegas, ha sido un verdadero placer aprender de su artículo.

I bought bitcoin and I realized why it could be the start of a great bubble

By: DANIEL VILLEGAS

EDITOR. Economist at the UNAM with exprience in macroeconomic indicators.

 

Mexico City – The bitcoin euphoria has reached suspicious heights.

Nobody imagined that at the start of the year, this cryptocurrency’s value would rise up to 1,695% in 2017. Indeed, when it was created, it started with a value of 908 which hiked up to 17,600 US dollars.

btcusd

Image courtesy of: http://www.dineroeimagen.com

Public opinion has also escalated regarding this digital currency. Even the Bank of Mexico, the country’s Ministry of Finance and the National Banking and Securities Commission have said their piece about it (arguing that it is not a legal tender in the country).

(Investopedia defines legal tender as “any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation.”)

In a joint press release, members of the Mexican financial authorities warned that the virutal assets are used as a device to store and interchange electronic information, without any legal support from any of them or from the government.

Despite this, many Mexicans still take their chances on the bitcoin, without minding that its soaring price is sustained on a fragile backing: the belief that everybody else thinks it has value. A common factor among the biggest financial crises in the past.

This presents a great problem since Mexican bitcoin enthusiasts could be living in an informational bubble that fogs their reality.

Why? because people purchase bitcoins with the hope of eventually using it to spend on goods and services they regularly acquire, without having to covert it to Mexican pesos.

The problem

We tried to discover just how acknowledged this cryptocurrency is; that is to say, how much do people know or not know about this type of “digital asset”.

Some would be ready to reply, “of course they (vendors) won’t accept it, it’s better to change it to pesos”, to which we should then respond that one of the purposes of the bitcoin is to serve as a (direct) means of payment (eg: one can possess 3g of gold but most probably no shop would accept it to pay for a purchase).

The experiment was disappointing: we talked to nearly 15 business establishments- most of them located in a shopping center- to inquire whether they would accept my bitcoin as payment. The answer was always a firm NO.

Some didn’t even have the slightest idea about the bitcoin, something that shouldn’t come as a surprise.

According to the National Survey for Financial Inclusion 2015, only 44% of the adult population are “banked” and only 9.5% of them rely on mobile banking services.

Add to this the fact that 92% of the respondents revealed thay they prefer other types of payment such as credit cards or digital transactions.

This is but a small proof of why it could be difficult for the bitcoin to be accepted as a regular means of payment in Mexico.

So then, if it won’t work as a payment method -and most probably it won’t do so for a long time-, why are people risking their money investing on the bitcoin?

Perhaps we could turn to one of the most influential economists of the 20th century, John Maynard Keynes.

In one of his most cited passages, he proposed an experiment:

“A contest… where the participants would have to select 6 of the most beautiful faces among hundreds of pictures.

The winner will be the person whose choice approximately matches the average preference of the rest of participants.

This way, each contestant would have to choose NOT those who they consider more beautiful, but those whom he thinks will please the rest.”

How would this apply to the bitcoin? Keynes used this make-believe contest to explain the behavior of investors and the weakness attributed to these types of markets.

This weakness refers to the gradual increase of people who invest in businesses they don’t really know much about. (So proportionally, there are more and more people putting their money in enterprises they are ignorant of. Remember the most recent financial crisis triggered by junk bonds?)

Additionally, he explains that a “conventional valuation” (ie: agreed estimated value) established as a result of the “mass psychology” of many ignorant people is prone to violent alterations due to strong changes in opinion, as a consequence of factors not highly related to the probable returns (of the investment).

(That is to say: the evolution of the bitcoin’s value is more susceptible to public opinion, than to the changes in demand -because supply is already capped- or the arrival of other cryptocurrencies.)

This is the most worrying part: the belief that the bitcoin could make people rich could end at any given time, and this could easily mean an abandonment of the investment and a substantial crash in its price.

Simply put, the question as to “how far would the bitcoin’s price go?” is at this moment, more for psychologists than for financiers.

(End of article)

***

To be continued…

Colorfulifesite responds: Why do rich people say “Money can’t buy happiness”?

The short answer

Because they spend their money un-wisely. On the wrong things.

The longer answer

People with lots of money, proclaiming that it can’t buy happiness are implying that as of the moment, the things they’ve purchased have not brought them what they were looking for. But before we get to the longer answer, the first question is: Would you recognize happiness if it looked you in the eye?

To be able to find happiness, we must first define what happiness is for us; and be honest in doing so, because the quest for happiness is a lifelong commitment to ourselves (whether we admit it or not). And once defined, we would spend time, money and effort into having that in our lives.

The problem is that we confuse happiness with other concepts imposed by society in general. Social media posts seem to promise us fulfillment by finding the “right” person- and so we spend money on dates, clothes, cosmetics, gifts, and who knows what else? Our peers look happy when they acquire more money, increase their investments and save resources for rainy days. And sometimes, culture dictates that we spend what little we have on “rituals” such as costumes, decorations and gifts, when what we really seek is belongingness.

Colorfulifesite has identified two of the most confounded concepts of happiness:

1. When we believe our happiness depends on others

As children, we observed how adults appear to be happy when faced with acknowledgement. So we incorporated that information in our little minds and from that very moment, we started to automatically pursue it from people that surround us. Now, that is not bad. In fact, recognition is useful to reinforce positive behavior. Yet as we grew older, we started to let ourselves be defined on what others think about us: their approval, acceptance, admiration, criticism, etc… As a result, we don’t think twice in exerting all manners of effort to gain that esteem.

Similarly, notice how some would spend time and money on travelling or eating out, then show pictures of the trip or dishes, just to earn “likes”, “hearts” and comments on social media. This behavior simply feeds something toxic within,  and the more it is nourished, the fatter and hungrier it gets. The by-product is easily confused with happiness, but one day, without noticing, we will end up living for “it” and internally killing ourselves in the process.

2. Confusing the means and the end

Money is a medium of transaction. We use it to purchase goods and services to cover our basic needs and when that is done, we spend the remainder to fulfill our whims.

So the system goes… we try to earn money to buy the things we need and want, and logically, we try to have more to be able to purchse more. However, somewhere in between earning and purchasing, people get caught up in acquiring more and more money, they seem to forget its utility. I would even go as far as dare say that there are those who use their saved money to buy more money (through investments, foreign currency, etc…), and so they end up amassing great sums of it, without any intention of putting it to good (or bad) use.

Money cannot buy absolute happiness, but it can produce a cheer or two

As Chomsky pointed out, the problem with the type of consumerism today is that it isolates people in tiny little islands, making them deprived of human contact. And miserably so, for human’s survival has always depended on being part of a society. This is how our species was able to reproduce and stand the test of time.

Perhaps, if we propose another definition of happiness, people can then seek a different, more genuine but simpler contentment. A type which would not depend on the ever-changing fad, nor on what others might think, rather, a happiness that would be based on associations, human relations,  the potential to show and receive compassion, to give and welcome comfort, to experience love…

Notice how people coming out of theaters, movies, concerts, or even a gym class, seem less detached than those who just came from shopping. If rich people spent their money creating or strengthening human relations, they might have a better chance at finding happiness. Of course this is not a scientific law, it’s a humble expression of frequent observations. But, dear reader, if you have observations of your own, please remember to leave a comment on this article about what you’ve perceived.

 

 

 

 

Adulting and Money Management 2: “Hooray, I have money! now what?”

To read the first part of the Adulting and Money Management Series, click here.

Money management becomes tricky as we grow older. To prove my point, try to remember when you were younger and you used to be so determined and focused to save whatever money you had. It could be to buy “that shirt”, “that book”, “that pair of shoes”, or even just to “put it in the bank”.

Didn’t you use to scrimp on buying snacks at school? didn’t you keep those envelopes containing cash- from your godparents- so you wouldn’t be tempted to use it? didn’t you try to outsmart your parents, siblings, or other family members to cover some of your expenses so that you could have more money, faster?

By the time we enter into adulthood, we start to be distracted from goals such as saving money or even increasing our income… There are just so many nice things to buy, a lot of delicious new food to taste, and look at all those places where we could travel- am I right?

Imagen relacionada

Image courtesy of: http://www.jocelynrish.com/

I don’t have the capacity to address all the above-mentioned concerns. However today, in the name of “adulting”, allow me to shine a spotlight on investment as an alternative to increase the money you have saved. And as a possible choice for investment, this post will also include a short discussion about Mutual Funds.

The completion of this second part of the Adulting and Money Management Series would not be possible without the very dependable Mr. Arnel Martil. His professional aid/opinion/words/common sense/truthslaps have truly made this post not only satisfactory, but also very beneficial to the reader.

Thank you very much, Arnel for your help!

-*-

Colorfulifesite (C): Arnel, what’s the difference between saving and investing? Which would you say is more important between the two? For instance, let’s say that I just received an inheritance or a huge bonus. Which should be my priority?

Arnel (A): The big difference between savings and investments is time.

Savings is usually money you set aside for short-term goals.

One reason you might want to save now is so you have some money to invest later. Money deposited into a savings account is usually very safe but would only earn a small amount of money in return. Another great thing about a savings account is you can get your money out of the account whenever you want.

When you say saving, you are just putting your money in a bank or as a reserve. It’s as if you’re hiding it under your pillow. It is a “parking place” where the “principal” or the amount you’ve saved is safe; it provides money for short term goals as well as emergencies.

By investing, you allow your money to grow. 

It accumulates money for long-term goals. You could lose your principal, but you have the opportunity to earn more money.

When you invest, you set your money aside for future income, benefit or profit to meet long-term goals. When you invest your money, there is no guarantee that your money will grow or increase. The earnings or losses from investments are usually more than what you would make or lose in a savings account. Investors recognize that it usually takes a long time to earn the big bucks, so most of the time they are in it for the long haul.

C: What would you say is the NUMBER ONE enemy of the people who are currently saving money? What’s the most effective technique you’ve applied to make sure you or your family could save?

A: Inflation is one of the downsides if we rely only on saving. It is an increase in price that makes a “market baskets” of goods and services more expensive over time- a silent killer of your finances. (Note: inflation reduces the value of your money because with the same amount, it can purchase less goods and services than before.)

For us to beat inflation, we should invest in investment vehicles like bonds, stocks, mutual fund, UITF or Unit Investment Trust Fund* (see Glossary at the end of the article for more information on terms with asterisks), or real estate. As an adviser, we do not discourage saving money in a bank account because you can recover and use that money 24/7 in case of an emergency. But if you want something for long term, like if you are planning for future education or personal retirement, invest in a vehicle that allows your money to grow if done right… annual returns of 50% is possible.

Regarding saving techniques, it really depends on the person’s budget; it should be such that his lifestyle wouldn’t be compromised. 

C: The most typical advice is the 20-60-20 rule, where 20% of a person’s income should go to savings and investment, 60% on essential expenses and 20% on discretionary expenses a.k.a. wants, rather than needs. (For some insight on budgeting and saving, see Colorfulifesite Blog’s post on making ends meet, here and proving that you could save, here.)

A: Just remember that the bottom line is saving for your future.

C: Suppose I’m now ready to invest- will it make sense for me to borrow the money I would put in the investment vehicle of my choice?

A: As an adviser I would say, before you decide to invest, you should settle your debts first.

You must start paying off the ones with small interest, and little by little, proceed by paying loans with bigger interest. The reason for this is you might have difficulties if you prioritize the debts with bigger interest, because there’s a tendency it might be too much for you and it could lead to you not being able to continue paying.

Once the debt is settled, you can then start to save and invest.

C: In my opinion, borrowing money can be a useful tool for money management. But it can also spell disaster for anyone who misuses it. Under the context of making your money grow, I believe that it only makes sense to take a loan when:

You are 100% sure that you could pay it off, interest plus principal, without sacrificing neither your current lifestyle nor your future prospects. (More of this on this series’ next post!)

A: You can be financially independent at any income level, but one should develop a certain behavior and discipline when saving and not to spend too much. However big your monthly salary is, even at 100 thousand per month, if your mentality is all about spending and spending, the end result will be an impoverished you.

C: Now, I noticed that mutual funds have been “a thing” for quite some time. What can you tell us about it?

A: Mutual funds are pooled investments which everyone can participate in. In the Philippines, it could be with capital as little as Php 5,000.00 (Colorfulifesite advises for you to consult your bank or financial adviser for the minimum capital requirements in your country).

It is a good investment option because they do not require much effort and time compared to others (e.g stocks, one’s own business). A professional fund manager handles your mutual fund. All you need to do is put in the money. In a mutual fund, you will become an investor, part-owner or shareholder of blue chips- nationally recognized, well-established and financially sound companies- where a mutual fund company has invested in.

Where I work, or in any mutual fund, historically in 5 years’ time, investment has been seen to double.

That’s why, we advice to lock in 5 years if people want to invest in a mutual fund.

C: I guess the time has come for me to share my own investment experience. You see, I invested a little money that I had before. Just like in a mutual fund, I was asked to lock my capital for a minimum of 5 years. I could put in more money, but I couldn’t withdraw it until after that period. However, when time came for me to recover my investment, I simply got the capital back! I was told by my adviser that it was due to the financial crisis. Now, what was I supposed to do with that? Of course I was happy I got the whole of my capital back, that I didn’t lose any money. But what a waste! I could’ve invested it in another product and at least earn 5% from it.

A: Maybe the investment you did at that time had an insurance added-on.

There is a product called a VUL** or Variable Universal Life Insurance where, aside from saving for your future your principal earns interest and it offers protection. It’s a sort of 2 in 1 product: life insurance ***plus mutual fund.

It is also a good investment since the money you save will grow and accumulate. The advantage of investing in any VUL products is it offers insurance or life protection, so in case the family breadwinner or the income generator has suddenly run out of time, his remaining family members would not suffer.

May I ask which company you invested in? How come the result was only a break even after 5 years?

C: The truth is, I remember which company it was, but I don’t remember the conditions. I think the problem was, I didn’t take it too seriously at that time… (facepalm)

A: Before you choose any type of investment, you must first do a background check of the company: their historical performances, how many years have then been operating- is it at least 10 years or 20 years?- so you could avoid scams. There’s no investment where you could earn money speedily, like let’s say, double your money in 2-4 weeks. There is an investment principle where we are advised to apply the RULE of 72****.

C: What can you say about my experience? Or worse, what can you say to those who lost money in their investments? Undeniably, many people are afraid of investing, and are afraid of the term “finance”, due to the crisis that hit us…  

A: As an adviser, I would say that before entering any investment scheme like stocks, mutual fund or UITF, you should first build the foundation of your investment by securing a life insurance, because the return on the investment tools I’ve mentioned is not guaranteed… In the case where a person secures a life insurance, if something happens or let’s say he or she will be “taken out of the picture”, there’s assurance for the surviving family members or beneficiaries that they wouldn’t be burdened or worried about how to go on with their financial life.

Life insurance could also help pay loans and other liabilities. It could be used to fund obligations like college education, car loan, house or lot… at least there will be money to pay them off. If the insured breadwinner dies, at least there will be resources to supply his surviving family’s needs.

C: That is a very interesting concept you introduced there, Arnel. In fact, an article I read explained it like this: When you don’t have assets built up (as young people do in their early-work life), you are most vulnerable. In case of an emergency, your family will have nothing to fall back on. So a life insurance is a good way to provide financial protection to your family even in your absence.

In another article, I learned that one of the wealth-building strategies we didn’t know about is to incorporate the use of whole life insurance as a strong basis for a solid investment plan. In fact, Investopedia defines this just the way you explained it:

Whole life insurance is a contract with premiums that includes insurance and investment components. The insurance component pays a predetermined amount when the insured individual dies. The investment component builds an accumulated cash value the insured individual can borrow against or withdraw.

A: If your investment of choice includes an insurance feature, it’s hard to say that you end up “losing” or “earning less”. There’s a guaranteed face amount***** or insurance amount in case of death, plus you can avail of riders****** or additional benefits like critical illness, hospital expenses and disability benefits. You could benefit from it in the long run.

C: Going back to my mishap… Needless to say, my experience made me afraid to invest again. So I just keep my money in a bank. However, it does make sense to also invest some of it especially if I were to increase the value of my money.

What are my other options? I’ve thought about bonds and stock options. But the truth is I know nothing! What advice could you give me?

A: All investments involve taking risk. It’s important that when you go into any investment in stocks, bonds or mutual funds you have a full understanding that you could lose some or all of your money in any one investment. There is really risk in investment, and there’s no guarantee.

It is often said that the greater the risk, the greater the potential reward in investing, but taking on unnecessary risk is often avoidable. An investor’s best alternative to protect themselves against risk is by spreading their money among various investments, hoping that if one investment loses money, the other investments will make up for those losses. This strategy, called “diversification” which can be neatly summed up as, “Don’t put all your eggs in one basket.”

Once you’ve saved money for investing, consider carefully all your options and think about what diversification strategy makes sense for you.

Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.

Just don’t put “all your eggs” in a bank because imagine if you have 2 million Philipine Pesos (Php) saved in a bank then all of a sudden, it gets bankrupt. Take note that the maximum loss that could be covered by banks in the Philippines is 5oo thousand pesos…

Or suppose that a depositor has millions of money in a bank during times of economic and financial uncertainties. Imagine if the bank discovered that the depositor died- accounts will automatically be frozen, no cash withdrawal could be done and to top it all, the money is subject for estate tax. 

I must say that it would be the main difference between investing in a bank or in a financial services company like where I work (he he): one advantage about investing in a financial services firm is that the client has the possibility to choose that all proceeds may be free from whithholding and estate taxes. Unlike in banks, where the gains an investor acquires are subject to those two taxes, aside from the “normal” ones the government would require.

This is not to discredit banks, but just to put things in perspective with your readers.

C: Let’s say I finally dare to invest in mutual funds. Should I also diversify according to my objectives? For instance, I want to save for a down payment to buy a house? Or I’m thinking of saving for my son’s college education? That’s already 2 objectives.

Won’t I end up paying more than I should, or in other words: won’t I end up earning less than I could? 

A: The answer depends on when you will need the money, your goals, and if you will be able to sleep at night if you purchase a risky investment where you could lose your principal.

For instance, if you are saving for retirement, and you have 35 years before you retire, you may want to consider riskier investment products, knowing that if you stick to only the “savings” products or to less risky investment products, your money will grow too slowly—or, given inflation and taxes, you may lose the purchasing power of your money. A frequent mistake people make is putting money they will not need for a very long time in investments that pay a low amount of interest.

On the other hand, if you are saving for a short-term goal, five years or less, you don’t want to choose risky investments, because when it’s time to sell, you may have to take a loss. Since investments often move up and down in value rapidly, you want to make sure that you can wait and sell at the best possible time.

Time is money.

As we would say in my company, “The best time to invest was yesterday, the next best time is today. And the worst time is tomorrow. Because sometimes tomorrow becomes never.”

-The End-

Mr. Martil is a financial adviser in a leading international financial services company. He is a loving husband and father to his family. Likewise, you were able to witness what a kind and reliable friend he is- generous enough to spend time with Colorfulifesite Blog and answer some of the very basic questions about investment and mutual funds.

Glossary:

*UITF- Unit Investment Trust Funds (UITFs) are ready-made investments that allow the pooling of funds from different investors with similar investment objectives. These funds are managed by professional fund managers and are invested in various financial instruments such as money market securities, bonds and equities, which are normally available to bigger investors only. (Source: http://www.bdo.com.ph)

**VUL-Variable universal life insurance (VUL) is a form of cash-value life insurancethat offers both a death benefit and an investment feature. (Source: http://www.investopedia.com)

It is a life insurance policy that combines the features of variable life insurance and universal life insurance. Where the former constitutes a fixed premium insurance policy that provides a return based on the income performance of an investment portfolio. While the latter combines the benefits of an adjustable premium, adjustable coverage term life insurance, and a savings account. (Source: http://www.businessdictionary.com)

***Life insurance- Insurance cover that serves two major purposes: (1) to substitute for the insured’s income if he or she dies, and (2) to qualify the insured for favorable tax treatment. The policy holders buy insurance cover from an insurance company, and pay specific periodic amounts (premiums) for the term (duration or life) of the policy. If the insured dies before the this term is completed, a guaranteed sum (the face amount of the policy) is paid to one or more named beneficiaries. If the insured survives the term then, depending on the type of the policy, he or she may receive the full or a part of the face amount of the policy. (Souce: http://www.businessdictionary.com)

****Rule of 72- The “rule of 72” is a simplified way to calculate how long an investment takes to double, given a fixed annual rate of interest. You divide 72 by the annual rate of return you receive on your investments, and that number is a rough estimate of years it takes to double your money. For example, $1 invested at 10% takes 7.2 years (72 divided by 10) to turn into $2. (Source: http://www.usatoday.com)

*****Face amount- Sum of money for which an insurance cover is obtained, usually shown on the top sheet (face) of the policy. In life insurance, face amount is the sum paid on the policy’s maturity date, on the death of the insured, or (if the policy terms permit) on his or her total disability. (Source: http://www.businessdictionary.com)

******Riders- Additional clause, document, or slip of paper that adds, alters, amends, or removes the provisions of an associated or attached agreement or contract (such as an insurance policy) or a negotiable instrument. (Source: ww.businessdictionary.com)

Sources:

  1. Investopedia
  2. Business Dictionary
  3. “How Do You Make Money from UITF Investing?”, by Fitz, Ready to Be Rich Blogsite, available at: https://fitzvillafuerte.com/how-do-you-make-money-from-uitf-investing.html
  4. Unit Investment Trust Funds, available at BDO website: https://www.bdo.com.ph/personal/trust-and-investments/unit-investment-trust-funds
  5. “Doubling Your Money: The Rule of 72”, by Wes Moss, Advice IQ, USA Today, available at: http://www.usatoday.com/story/money/personalfinance/2015/04/25/adviceiq-doubling-your-money/26339307/
  6. “The #1 Wealth Building Strategy You Don’t Know About”, by Paradigmlife Blogsite, available at: http://paradigmlife.net/blog/the-1-wealth-building-strategy/
  7. “Are You Building a Strong Foundation for Creating Wealth?”, available at: http://www.firstpost.com/investing/are-you-building-a-strong-foundation-for-creating-wealth-2682980.html

Garage Sale Diaries 2: Online Version

Author’s note: I used the webpage http://www.leboncoin.fr to sell my second-hand items.

Image courtesy of: http://www.arkhen.net

The online version of my first garage sale is shaping up to become more like an opportunity to reflect on human behaviour- mine, primarily.

This mini-project has enabled me to reflect about myself.

The first on the list were my intentions when I decided to take this on. Of course, the main objective was to earn a little money while getting rid of things that are already of no use to us- most especially baby’s equipment. I’d be lying if I said I didn’t need the money. I’m not desperate, but if I can earn a little to cover some costs of moving from one country to another then I’ll go for it!

I made it a point to price the items a bit higher than if I sold them to friends. I thought it would also leave room for negotiation in case I like the buyer. Is this my little way to have fun? by taking this small chance to manifest the control freak in me and having a valid reason for it? I had a good laugh meditating at this first of many thoughts.

The second realization I had was that through this type of exchange, one gets a peek at the human psychology in a very candid way. It might be due to the anonimity, mixed with the  honesty system. I invite you to read on and see what I mean:

The first item I ever sold was a hair dryer. It was a little more than a  year old and I can tell you it has only been used exactly 5 times. I got so many inquiries about it and after receiving each text message or each email, I would refer to the potential buyer as a “she”. What a surprise to discover that most of them were a “he”. I was very surprised! more so because the guy who finally bought the hair dryer had really short hair… (Oh, and the cheeky monkey tried to make me lower the price even more. Tough luck!)

When I told my husband about this strange phenomenon, he explained it wisely enough by reasoning out it’s a cheap Christmas gift. And if it works perfectly, then it would clearly suit the girl’s need.

I tried to fight the stuck-up girl in me from judging the situation. I’m not confirming that the buyer would truly give the used hair dryer as a gift; but as I tried to picture myself receiving a second-hand or pre-loved present, I didn’t think I’d like it.

Further along my daydreaming, I imagined myself thinking that the giver is stingy, that he or she doesn’t appreciate me much for giving me a cheap pre-used hair dryer and that I would definitely think twice the next time I get a gift for that person.

Immediately, I felt (I still do) so bad for being so superficial and not having any excuse for it. Sorry but there’s no childhood trauma, nor a family tradition that could explain why I’m this shallow. The only thing I could say for my part is that I would not give a second-hand gift to anyone, unless the recipient himself tells me he doesn’t mind, or that’s what he wants.

For a while, I tried to reflect upon this from a different angle- the gift’s utility. If someone gave me a pre-loved item as a gift, will I use it? or will it just be stuck in a cabinet gathering dust? In the case of the hair dryer, I had to admit to myself that it is a useful gift. Winter is settling in fast in the Northern Hemisphere- many people still want to wash their hair and not freeze afterwards, including me!

Lesson learned: price tags say little about what a gift represents. The real question for the buyer/gift giver is- was it a bargain or a waste of money?

The next two items I sold together were Leo’s first bathtub (the foldable type) and the seat. This time around, I made sure people would make a good deal out of them. I figured that if future parents are scouting for second hand baby equipment online, it’s because they’re making every cent count.

My husband and I bought a couple of things from Leboncoin for our son, but mostly we got brand new items. It made a dent on our wallets but we thought, “This is our first baby!”. And hard as it is to explain, it’s exactly because of this that I understand why some parents would prefer to get pre-loved items and save their money for other things.

Gigoteuse/Turbulette d'hiver 3 mois- 9 mois

Image courtesy of: http://www.leboncoin.fr

Personally, I would not buy second hand baby equipment from strangers. I’m annoyingly scrupulous about these kinds of things. Funnily enough, I believe that is precisely why I made sure the equipment were in good condition.

Lesson learned: Empathy arises in the most mysterious of ways.

The third item I was able to sell was a black dress. I priced it very cheaply because truth be told, it was bought by one of my very good friends L! Just like what happened with J, I didn’t hesitate to let her be the new proud owner of that robe de fête because I know how much she would care for it. Besides, with my new-mom figure, I can’t deny that it would look so much better on her!

It must be said though, that my experience in online selling is as varied as the amount of people who have inquired about the items I’ve put on display. So without boring you with the details of our interaction, I shall simply list below the interesting observations I gathered from this social experiment cyber vide grenier.

1. People may adopt irritating attitudes when contacting the seller: asking for a discount, requesting for the item to be sent by mail or worse, demanding the seller to go to their place to deliver the purchase. I tried to never lose the opportunity to exercise patience and politeness towards these people. But I also made it a point to be firm about my terms and conditions.

Lesson learned: somehow, it’s so much easier to exercise assertiveness when you can’t put a face on the person receiving your message.

2. Others don’t really know what they want.I learned how to detect them and didn’t lose time entertaining them when they start telling me about their lives and why they think they should buy the item or not. But if they make inquiries about the item (price, quality, brand and other characteristics), then as a seller I have the obligation to reply truthfully. Leboncoin works based on an honesty system and so far it has worked well for me.

Lesson learned: unless you’re really in need of money, entertaining undecided online buyers for pre-loved items is a waste of time. Turn your efforts into something more useful like better describing the item on display.

3. Before uploading pictures and details about the items to be sold, I should have tried to put myself into the shoes of potential buyers. This would have allowed me to think about the questions I would ask in case I get interested in anything: “How do I know this is an authentic (brandname) polo shirt?”, “What other payment options do you offer aside from cash?”, “Is it possible to meet up with you halfway between my place and yours for me to pick the item up?”, “What guarantee do I have?”, “What happens if this doesn’t work?”, et cetera, et cetera…

Lesson learned: at the end of the day haste only brings half-baked results and more work than expected.

Humidificateur Ultrasonique

Image courtesy of: http://www.leboncoin.fr

4. I admit that even before I sold anything, I was already prepared to keep the stocked items back. Somebody else will always offer a better price, a better quality or even a more convenient way of delivering the item to the buyer. So it should not come as a surprise if there are items left unsold.

To solve my dilemma about space and storage, I made a mental list of which friend will receive such and such item if I failed to sell them.

Lesson learned: even the best laid plans do not lead to the most ideal results. 

-The End-

Endnote: Please excuse the shameless plugging!

Garage Sale Diaries 1: In-Person Version

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Image courtesy of: http://northernconnectionmag.com/

Rewind back to 24 years ago in Binakayan, Kawit, Cavite (Philippines):

I tried having a garage sale when I was 8 years old. I was suddenly obsessed with having a lot of cash, so I collected all my nice things and took a long, good look at them: a neon-green plastic jewelry box with its lock and key, a super-hero themed coin bank, a black and pink striped jumping rope (a boy from my class bought it for me so I could give it as a birthday gift to another girl, but I kept it anyway; he didn’t seem to mind when I told him) and my 60+ bead-shaped plastic “kisses” (a.k.a. aroma beads).

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Image courtesy of: http://scentdeals.com/

I thought they would be irresistible to all my friends and in my mind, I was already projecting sales of up to 50 pesos!

Sad to say, the enterprise was not successful because when my first customers arrived asking how much things cost, I realized I couldn’t put any price on anything on display! The thought of my jumping rope being used by Beng-beng or my coin bank being filled with Dan-dan’s filthy coins (I meant that literally, that boy was not very hygienic) didn’t sit well with me. Quickly I changed my mind and gave up my dream of having 50 pesos for the day. But that was okay, I forgot all about it as soon as we ran out to play. I think we ended up climbing a guava tree that afternoon…

Fast forward to when I’m 32 years old, in Paris 12ème (France)

*Note: Garage sale is called vide grenier in French. This literally means “empty attic”.

As I carefully picked clothing too bulky to be brought back to Madrid, I remembered the exact moment I purchased each of them: the very first black coat I bought as “serious” office outfit, the white blazer I got for a wedding I couldn’t attend to because I got sick, the pencil cut skirt that was wearable during all the 4 seasons, the little black dress I purchased on sale for a New Year’s Eve party and the maroon dress I got “just because”.

Hard as it was for me to part with them, I saved myself from getting too emotional by offering them to my friends first. I didn’t mind selling them at a very low price- what mattered was that they were going to the hands of someone who would appreciate and take care of them as much as I did.

My husband criticized me at first because he considered the prices as a big joke. I said of course I could’ve sold the items at 5 times more expensive but my conscience wouldn’t allow it. Each item must be at least 5 years old, was purchased either on sale or in an outlet store and was very much used back then. I just took care of my clothes really well. (My secret? I brought them to the dry cleaners instead of washing and ironing them myself.)

Anyway, I sent a text message to my friend J (we’re both petite women, so I thought maybe she’d like to check the stuff out). She was thrilled and agreed to come to our house.

She came, brought Leo a gift for his 1st birthday and got me a box of chocolates. This garage sale started out pretty well, wouldn’t you agree?

So, after the customary “how are yous?”, “fine and yous?” , etc… she proceeded to try on the clothes. She loved almost all of them because she purchased 6 out of the 10 items I was selling. J was also very shocked at how low I priced each clothing. But I explained that they were really used clothes. They just don’t look it because I really paid attention not to wear them out.

She was so happy with her purchases, she asked me to go with her the next time she went clothes shopping! She even said that she has never dressed so elegantly for work. I was truly, very glad. That honestly made parting with my clothes much easier, seeing that my friend was so happy. She looked beautiful, of course. But what made her more beautiful was the look in her eyes when she saw herself in the mirror wearing my pre-loved stuff. It’s as if she couldn’t believe what she was seeing! And that, dear reader was the cherry on top.

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Image courtesy of: http://rcmuret.footeo.com/

I wholeheartedly bade farewell to my precious clothes and sincerely wished my friend the same confidence and poise that they used to give me.

Why am I disclosing all this?

First of all because as obvious as it might sound, garage sales are truly a great way to rid oneself of things we don’t want or need anymore. Even if the sole purpose is just to de-clutter limited space (we can’t all have Kylie Jenner’s mansion now, can we?), this is a great way to do it.

Second of all, it is worth mentioning that people are big on acquiring second-hand items in France. When not buying, people wouldn’t hesitate to get usable furniture or decoration left on the street. You see, some really generous (or desperate) folks would leave their possessions on the pavement for the rest of us to freely pick up: baby strollers, cabinets, bedside tables, books, kitchen appliances… once or twice I even saw toilet bowls.

However, we’re talking about things that I really did love. So the “love” in “pre-loved” isn’t just a term. It really described how I felt about those clothes, explaining why I made sure they went to very good hands.

Truth be told, I wouldn’t have gone back to Madrid with any of them. Had my friend not purchased anything, I would’ve sold them online at a higher price. But I’m currently selling other things that way and the dynamics are totally different (more of this later). As I’ve said earlier, it seems I made the right choice because I disposed of them immediately and my friend was able to shop without the hassle of actually doing it the traditional way.

My husband told me that I might as well have handed the clothes for free, if I were going to sell them so cheaply. What he doesn’t understand is that there’s a reason why a “symbolic price” is called as such. The psychology of the person who acquires something differs when it is freely offered to them, compared to when they have to give something in exchange.

Another reason I’m sharing this is because garage sales are another fun way to bond- aside from sleep overs, dinners, movie nights, shopping trips or drinking sprees.

Several years ago, a friend also held a garage sale in her house. Her aim was to make more space in her closet, so she invited family members and some friends to take a look at her stuff (for some reason, I ended up not paying for anything I got). And it was there where I got the idea to hold a garage sale for friends.

I believe this is a good idea especially if you’re trying to sell anything with sentimental value because you wouldn’t want just anybody to go to your house and try or test them, would you? At least that was how I felt about the whole ordeal.

When it comes to your friends being your “clients”, you can easily slip in a few snacks, some gossip tidbits from your common circle, talk comfortably about anything that comes up and it’s even nice when they stay for a while longer even after the purchase.

Additionally, I would like to let people know how much joy the whole process gave me: from the day I had to text my friend, to the moment she came to our house (bearing gifts, too!) and finally upon seeing her so proud of herself for having acquired such nice items at a very low cost… I know I made my friend happy and at the same time, she knows she’s helping me a lot with our packing problems. It’s a win-win situation.

Lastly, when I compare this experience to my first intent of garage sale a quarter of a century ago I realize that the reason why it didn’t happen was because I really couldn’t make do without those bibelots. They may be junk to anybody else, but for me, the jewelry box was magical, the coin bank was cool, the skipping rope gave me super powers and the aroma beads multiplied themselves when flattened with a pencil… In short, they were irreplaceable objects back then.

This time around, I had to be practical and admit that clothes are expendable. To give you a clearer idea of my point: I would never sell any of the books or comic books I had here in Paris, may they be bought, salvaged from a park bench or originally brought from Madrid 3 years ago.

Tips

Before ending this entry, I would also like to share some tips I got from this personal experience namely regarding garage sale and pricing.

But before that, may I first suggest that you be very clear on why you’re having a garage sale. Is it to de-clutter your wardrobe? Perhaps you want to make space for new stuff? Or maybe just like me, you’re moving and doesn’t want to bother with packing bulky stuff like winter clothes. It is also possible that you simply wish to raise funds for something new to purchase!

This is a very important step because the reason you’re doing it will determine the rest of the things you’ll have to do to make the garage sale: the choice of items to sell, the pricing, the choice of how to hold the event, etc…

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Image courtesy of: https://enlightenedcustomer.wordpress.com

In my case, I wanted to get rid of some of our things and at the same time earn a bit of money to pay for the boxes we have to send to our new house. But I also wanted the future customers to find real value on what they’ll buy from me. I want to be part of that group who does what’s in their hands to curb excessive commercialism. I would like to contribute to a more sustainable, less aggressive model of consuming in my own little way…

Having said that, below are some of the tips I promised earlier:

On garage sales

  • Gather all the objects you want to get rid of.
  • Separate them in groups according to: very good condition, good condition, slightly impaired and very impaired.
  • Donate the very impaired ones. People buying second hand items are most probably not first-timers and they would be pissed off if they discover they’d been outsmarted. Admittedly, many people sell very impaired objects. My husband once got a vacuum cleaner that never worked. But I would suggest you save yourself the trouble of potentially facing a non-content buyer.
  • Itemize the objects and write a brief description about them.

On pricing items in your garage sale

  • Search for the items you’re selling and find out how much they cost when brand new. From there, price your products according to their condition, how many times they have been used and how much do you think they are in demand.
  • Ask yourself whether you’d buy the same second-hand objects at the prices you just set. Be very honest with your answer. Also, ask people around you for their opinion.

After you’re all set, I believe you are now ready to announce your garage sale via SMS, group chatting devices, social media and of course- through word of mouth!

Tune in next week for “Garage Sale Diaries 2: Online Version”.