… conclusion

Let me go back to the economic gibberish once more. Whenever we curb our consumption, assuming that a substantial number of us do, we can actually prevent prices from rising and even cause it to decrease. It’s called the Law of Demand & Supply. Let us be refreshed on what this fundamental economic principle is all about – nosebleed courtesy of Investopedia.

“Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. “

Simply put – increase in demand will result to a lower supply, therefore prices go up. A decrease in demand will result to an increase in supply which will drive prices down. Juxtapose this with a national consumption level, say on the way we spend on mobile communication. If we curb the way we use our mobile phones, the telecom companies will be alarmed with the reduction of their revenues and will entice subscribers with more promos, discounted rates and the like just so that consumption will revert to more comfortable levels. We can use the same argument for other goods and services like chicken, electricity, water, gasoline, etc. This should work, well at least in theory. History will reveal that some industries have reduced their prices because the demand level dipped and the only way for them to survive is to cut down prices. Many of the things we consume have disproportionately high profit margins such as soap, shampoo, detergent, toothpaste, etc. If we can only educate the consumers on how they can prevent prices from rising by manipulating our consumption, we can actually have healthier bank accounts.

If the others will not see the light and affect an epic change in the national scene, we can still do so on an individual level. All we need is the resolve to be more prudent, stay away from having a consumer lifestyle, care less about what our nosy neighbors think of us, practice delayed gratification and so forth and so on. Prices will always rise whether we like it or not but we will only be victims if we allow it to be so.

Let’s check our lifestyle: “Some who are poor pretend to be rich; Others who are rich pretend to be poor.” – Proverbs 13:7, NLT

Let’s be diligent: “Lazy hands make a man poor, but diligent hands bring wealth. – Proverbs 10:4, NIV

Inflation has been rising. Government says it is now beyond 4% and many institutions are saying that we can expect inflation to breach the 5% mark very soon. The government already conceded that it will miss its inflation target — what they are not saying is they are missing the target by a mile.  The other day, I passed by the gas station to get some unleaded fuel and told the gasoline attendant to pump me P 1,000 worth of fuel. For a cheapskate like me, that’s a lot of money to part but we all need to spend, whether we like it or not.  As I was watching the pump, I was surprised to see that my precious 1,000 bucks was only able to buy a little over 17 liters of fuel! The nostalgic in me reminisced about the bygone years where pumping 500 pesos was enough to fill my gas tank – oh the glory days! It’s not just fuel that reduced my purchasing power, the same applies whenever we buy groceries, pay for bills, eat at restaurants and the like.

From my perspective, I don’t think inflation is just at 4 to 5% — and my wallet agrees with me.

Just what is inflation? Investopedia defines inflation as “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.” In practical terms, it means that prices will rise according to the inflation rate over one year (per annum); if inflation is at 4%, a P100 per kilogram of Chicken today will cost P104 per kilogram next year.  Consumer Price Index or CPI is the barometer to which inflation is measured. In general, the consumer price index reflects changes in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The basket includes the most basic goods the average Filipino family consumes – general food items, utilities, oil, etc.

Alright, enough economic gibberish – no one wants to be reminded of the boring economics classes we had to take during our student days. Unfortunately, the ‘boring economics’ we all hate is pretty much the reason why we are all dumbfounded – trying to figure why the value of money in our wallets are shrinking.

Our knee jerk reaction to rising prices is always to be overwhelmed, and for a good reason. I’m not sure if this applies to other folks but here’s how I react whenever inflation is very high: disbelief, anger, frustration, blame, acceptance, indifference. I get shocked that prices goes up so fast so soon (like fuel); then I am annoyed as to why prices are going up such as external factors (middle east situation, financial crisis, etc.); I move on to being frustrated – frustrated at the government for not making the right responses, frustrated at myself for my microscopic income; then I blame the government for being inept and sometimes blame myself for missed business opportunities that would have cushioned the rising prices; I slowly begin accepting the harsh economic realities that life is as such and there’s really nothing I can do about it; finally, I move to being indifferent – after all, my ramblings will not bring prices down and I resign to the fact that there’s nothing I can do.

… to be continued.

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.