The rising cost of goods and services have been a big concern to us Filipinos for many months now. Official numbers puts inflation at around 4% but it seems that the rising prices goes beyond the official numbers. Generally, the barometer to measure inflation is the Consumer Price Index of the CPI. An earlier 3 part blog delved a lot about the rising prices and how we can survive amidst the higher cost of goods and services. For me, CPI is not a very realistic measurement of personal inflation since there are many items in our budget that are not being measured in the index such as education, among others. We all experience that tuition and education related expenses are somewhere between 5 to as much as 12% and if education composes a big chunk of our budgets, actual realized inflation will be much higher than the index.

Read Rising prices blog, part 1, part 2, part 3

I was listening to a podcast earlier and hyperinflation in Zimbabwe was referred to in a coy manner. Zimbabwe has suffered an incredible rise in prices in the past that actual measurement of inflation is rather moot. It was said that hyperinflation in that African country was so bad that prices doubles every 30 hours or so.

Just what is hyperinflation anyway? Investopedia has this to say:

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.

Investopedia further explains…

When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value.

One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion, doubling every 28 hours.

The experience of Zimbabwe is now for the books… they actually have multi-billion dollar notes so the term ‘Billionaire’ does not really mean anything there. The good news is Zimbabwe has since been able to curb its unbelievable hyperinflation and is trying to put it’s macroeconomic situation in order.

Looking at the situation of Zimbabwe or even other countries which registers double-digit inflation gives us a bit of relief and we must acknowledge that we are still a blessed nation despite our many issues.  There are many things we should be thankful for, we just need to be reminded from time to time.

Let them thank the LORD for his steadfast love, for his wondrous works to the children of man! – Psalm 107:15 (English Standard Version)

I am really passionate about teaching the youth on money.

Sharing the video of my latest guesting at ANC’s Shoptalk.

Part 1 – with me.

Part 2 with Pastor Jayson Lo.

Millionaires don’t always earn their money overnight; they often get there via hard work and shrewd investment. Many of us don’t mind doing the former, but it’s the latter that often stymies those who need a little chat from a mentor to know where they can start.

As a financial adviser and the director of the Registered Financial Institute of the Philippines, people have come to me asking what’s a good investment, and when to stop throwing good money after bad. I usually give twelve simple guidelines, and people can put into practice the first three or six steps depending at what financial point in their lives they may be when starting out. If you’re just starting out on the road to financial health, set these three goals to achieve in 2011: positive cash flow, savings goals, and building your capacity to invest.

I never tire of speaking on the topic of personal finance, even after 20 years in the financial services industry, which is why I agreed to be tapped by UCC as one of their key speakers or beacons for exclusive dialogues in a series called “Beacons of Change: Coffee Collaboration.”

The first step is making more money and/or spending less, in essence achieving positive cash flow. You can do this by increasing the ways you get active or passive income, or decreasing your expenses (especially after you identify non-essentials you can defer to another date or do without). Positive cash flow involves earning more money or spending less money, although the ideal state is doing both.

Savings goals involve setting up your emergency fund (equivalent to at least three months’ worth of expenses) then other funds for your short-, medium- and long term needs (ex. a new car or vacation abroad, further studies to advance in your career, retirement). Building a separate fund for investments will take time, but so will your capacity to decide which investments are good for you.

There are many important aspects of financial management that money-smart people should learn or know about. In my columns for Business Mirror and Moneysense, I have talked about these basics and you can always hear that from me in my live seminars.

Those who attended my previous talks told me that it was an “eye-opener” as they learned things they had previously overlooked or ignored in their quest to financial well-being. Education is an investment not only for your children (if you have any), but also for yourself to gain an edge in the market or workplace. I advise you pay close attention to building your skills, whatever the job or position you hold. Education is an investment. Build on your competence. In fact, education could be what sets you on the road to earning more money.

Like the parable of the talents in the New Testament (Matthew 25:14-30), each of us is given something we can use to invest and grow exponentially, rather than hide and bury it in the ground. So if you have Php 100,000 what can you do with it to make it grow even more? Assuming that you already have an emergency fund and no debt, you should determine your investment objective and time frame as well as assess your tolerance for risk. From there, you can explore what investment works best for you, from time deposits or treasury bills (low-risk), to mutual funds that have both bonds and stocks in the fund (medium-risk), to high risk ventures such as the stock market. In the UCC vision logbook, I recommend that beginners should practice with small amounts. Taking risks can be very profitable, but being good at it requires practice.

Whatever your goals are, you have to become a no-nonsense investor, because great investment opportunities can be losing poker games if one does not pay full attention to what is going on. I also caution many people against putting everything they have in a high-yield investment, because one should only take risks when you already have savings and non-risky investments to fall back on.

Following my advice may take some discipline and attention to detail, but if one believes in making money work for you, after all the hard work you put into earning it—you’ll be part of a generation that’s working smarter, not just harder.