It’s payday weekend yet all I can think about is how I’ll have nothing left but cartoon flies in my wallet after paying all the bills (this month’s and the installments from the enhanced community quarantine period) and buying groceries. My savings is currently non-existent and I badly want to get out of this circle of financial desperation.
I’ll admit that I haven’t been responsible with my money and have a hard time figuring out whether I’m in a position to invest it or not. I took it upon myself to finally ask for expert advice. Rexanne Cosico of Your Trusty Financial Consultant answered my call for help. She’s been a full-time financial consultant for Pru Life UK since March 2020 and has received rookie awards for her performance as a part-timer in 2019. She was also a delegate at a conference for financial consultants held in Kuching, Malaysia. We had a chat about money misconceptions, leaving something for yourself when you’re the family breadwinner and how to find out if you’re spending too much.
Hi, Rex! With money being tight for a lot of people these days, how are you and Your Trusty Financial Consultant? Are people investing more or less during the pandemic?
Hello, Amrie! The pandemic affected all of us in different ways. For many, it highlighted the value of being financially prepared in times of emergencies/unforeseen events.
Most of my clients with extra cash to spare started their first insurance and investment citing the threat of COVID-19 as their main motivation for getting insured and starting their first investment.
Can you tell us a little bit about yourself and the work that you do as a financial advisor?
In January 2019, I started as a part-time financial advisor. It started as a sort of New Year’s resolution for me. I wanted to go for self-growth and help my fam and friends have someone they can trust when it comes to insurance and investments.
As a rookie financial advisor, I was able to see the importance of what we do: insuring Filipinos so that they are protected from financial crises when unforeseen sickness, accidents, disabilities, and death happens. At the same time, we help Filipinos learn why investing (which makes your money work for you and, historically, gain more interest than being put alone in the bank) is a MUST.
Most of my clients are fellow millennials with zero knowledge about insurance and investments, so I’m thankful for the training I got from my team that allowed me to help my clients become more financially literate. I became a full-time financial advisor in March 2020.
For people who are new to the world of investments and insurance, can you tell us the difference between the two? When is a plan considered to be both?
There’s really so much to unpack about investments and insurance, so I’ll try to keep this as simple as possible. [Laughs]
Investments have two different types. One is direct investing where you are the one in control of investing your money and “making it grow,” be it in real estate, a business, investing in the stock market, etc. The other type is indirect investing, where a “fund manager,” made up of investing experts, pools money from different investors and is in charge of investing in the stock market’s listed companies and monitoring these investments on a day-to-day basis.
If you are someone who is not committed to devoting time, knowledge and effort when it comes to investing, I’d say go for indirect investing (which is what most insurance companies offer).
Now, here’s the importance of investing. Historically, investments can make your money grow as much as 15 percent annually depending on the performance of the fund. When you compare that to keeping all your savings in the bank alone and getting just .25 percent annual returns, it’s a BIG difference.
Just remember though that actual investment returns are NEVER guaranteed. In simple terms, the 15 percent projection is not set in stone. Fund managers can only give projections of the fund since no one can accurately predict the future (who could’ve predicted COVID bringing down stock prices, for instance, and who knows the exact day when we fully recover from COVID?). However, the historical trend is that sooner or later, investments will go up rather than down.
Next, insurance saves you or your family from financial crises if you get caught in an accident, lose a body part or become a person with a disability, get diagnosed with a critical illness and when you die. Insurance companies offer guaranteed compensations in case any of these events happen provided that you pass the application process.
It is always better to get insurance while you are younger and more healthy since insurance payments become more expensive every year you age. Also, you can never tell when you’ll need the benefits from an insurance policy, so getting insured as soon as you’re able is a must.
A plan that combines both insurance and investments is called a VUL (Variable Universal Life or Variable Unit Linked) plan. A VUL Plan should be tailor-fitted to you and your budget so getting a financial consultant who’ll help you out in this regard is very important. The minimum amount for an insurance policy varies with age, but for millennials, it’s as low as 1,500 per month.
A lot of people think that it’s enough to put their money in the bank and to pay their contributions to government agencies such as SSS. What does a financial plan accomplish that the two can’t?
First off, it’s important to note that even though we advocate for people to get their own insurance and investment plans, we still highly encourage people to put money in the bank and to pay government contributions to SSS, Philhealth, and PAG-IBIG.
It’s important to have an emergency fund (3-6 times your monthly salary) in the bank for precisely that, emergencies. Money in the bank is something you can gain access to very easily (which is sometimes a double-edged sword).
Paying contributions to government agencies allows you to enjoy the perks that come with it. For instance, Philhealth covers a small portion of some hospital bills.
For me, the difference in getting your own policy is the privilege of getting more control of your own future. Your VUL insurance, for example, can leave your family with up to P4 million when you leave the world. The bank and government agencies don’t offer that assurance. Nor do they for sickness, accidents, and disabilities. In terms of investments, as I explained earlier, you get to have as high as 15 percent returns as opposed to the less than 1 percent from banks.
Is it a smart move to get one even though you’re living just a little above paycheck to paycheck?
If you’re living just paycheck to paycheck then, to be honest, I would say it’s not a smart move YET. You might just end up forfeiting your payments if you can’t commit to it for the long-term.
As a financial advisor, I will encourage someone living just above paycheck to paycheck to find other sources of income, enforce budgeting systems (if possible), correct wrong income allotments (if any), and set up an emergency fund first before starting a VUL policy. As soon as you determine that you can afford it though, I encourage you to make it a priority.
A lot of young Filipino professionals have a hard time saving their money early because of family commitments. What’s your advice for folks with family members who depend on or borrow money from them?
This scenario is very typical in Filipino families. While I am in no way encouraging you not to help family members out, always remember to prioritize yourself and your future too. My number one advice is this: make sure the cycle stops with you.
If you don’t find a way to save money for yourself in the future, chances are, your future siblings, nieces, nephews and children will be taking the place you’re in right now. It’s good and well to help our families, but remember to help your future self too. Just like what they say when it comes to love, always leave something for yourself and don’t give everything away!
What are your tips for people who have zero motivation to keep an eye on their finances?
First tip, create a vision board or write down your tangible goals. Is it a car? a house or a condo? A trip around the world? When do you hope to achieve these goals? How much will these cost? A vision board will help you manifest these goals and hopefully guide you into doing whatever you can to turn them into reality.
Second tip, know your deepest why. Who will benefit or suffer if you and your lifestyle improves or deteriorates due to your finances? It’s not just you. It’s also the people closest to you.
How can we check if we’re spending too much?
A good formula to follow is the income-savings = expense formula. Always isolate savings first, then do all you can to stick to the budget that’s left. You can also try experimenting with other budgeting schemes. The key is to find out which works for you.
A lot of people started their own business in the past few months. How do we know if this is the right move or not?
Honestly? We don’t. [Laughs] Some businesses take years to grow; some leave others bankrupt during the first few years then abruptly take off.
I guess from a financial standpoint, starting a business is a gamble, so don’t invest money you are not willing to lose. Afterward, make sure you continuously track your new business’ cash flow. Learn from experience, and always give it your best shot!
Where can our readers reach you if they have some questions for you?
If you have any questions about insurance and investments, starting a VUL policy now or in the future, or being a part-time financial consultant, please reach out to me through my Your Trusty Financial Consultant FB page or send me an email.