Reading up on financial education

Question: What are the best books on personal finance that you can recommend? Thank you, sir.—Honney Natividad via Twitter

Answer: Best is a relative term and I may not be the right person to give you a qualified answer. However, I can give you my opinion on some books that I personally find insightful and helpful. Finance, even Personal Finance, is a very broad subject matter involving many disciplines and there are many good books out there that are very good read.

There are books that write about the technical aspects of personal finance and zeroes in on specific subject matter, i.e., investing, estate planning, stock market, insurance planning, accounting and the like. There are also books that tackle the broad spectrum of personal financial planning. There are also many books that tackle behavioral issues on finance that belongs on the motivational or self-help genre. Then there are the hybrids that try to give you a more balanced view on the technical as well as the behavioral issues on the finance and I personally go for these books.

Perhaps the most popular finance books are those written by Robert Kiyosaki, which were brought about by the highly popular Rich Dad Poor Dad bestseller. The book is so popular that it created some sort of cult-like behavior among many, which is quite disturbing if you ask me.

Rich Dad Poor Dad and Kiyosaki’s succeeding books have some good points but they are quite over-rated for me because they lack some specificity and many readers question the validity of his claims. Like any book, we should learn to eat it like a fish, we get the meat and throw away the bones, as the saying goes.

Let me give you a list of books that I highly recommend because I like the way they were written—balanced and grounded on solid financial principles; yet they can still help you get motivated. Sorry, Kiyosaki fans, you won’t find his books on my list.

1) Total Money Make Over and Financial Peace by Dave Ramsey—OK I admit it, I’m a Dave Ramsey fan boy and for a good reason. I like his straightforward approach on personal finance. His books, particularly Total Money Make Over is very practical and it is full of real stories of people who overcame financial difficulties.

Ramsey is a no-nonsense finance guru yet you can really sense his sincerity in trying to help people get out of the financial mess they are into. These two books are great starter books that will open your eyes and give you hope.

2) Pwede Na! The Complete Pinoy Guide to Personal Finance by Efren Ll. Cruz—Hands down, Efren’s books are the best personal finance book ever written by a Filipino. It is a concise yet surprisingly comprehensive book that will guide the reader in the many facets of financial planning and financial instruments. As the title connotes, it is indeed a complete guide, yet it will not overwhelm you as you find yourself glued to the pages.

3) Millionaire Next Door—by Thomas J. Stanley and William D. Danko. This is an iconic book that discusses the behavior of Millionaire in the USA. It is not only insightful, it will actually shatter many of our misconception on wealth and wealth accumulation. I particularly like this book because it is based on solid research. This is a good financial behavior book that may help you change your mindset.

4) Automatic Millionaire by David Bach—this book by a best-selling author gives you an overly simplistic view on achieving wealth and yet it is effective in its message that in eating an elephant, we need to do it one bite at a time. Simple, practical and sensible.

5) Money Matters by Larry Burkett—Financial counseling is the most effective route toward achieving financial security but many do not have access to good financial counselors or advisors. Money Matters is a form of counseling book and I like the question-and-answer format. The questions are very practical and real, not superfluous or ambivalent. The answers of Mr. Burkett are successful in providing advice in an emphatic way; yet, you will find that his answers have sound financial grounding.

6) Till Debt Do Us Part by Chinkee Tan—another book written by a local author that I highly recommend. Chinkee’s book deals with an issue that plagues many Filipinos and yet one that is hardly discussed openly. The author successfully convinces the reader that debt is not a good thing and yet it gives us hope that being truly debt-free is within the reach of the average Pinoy. I like the practical steps in finding a solution to the debt trap written specifically for the Pinoy psyche. Chinkee has written many best-selling books but Till Debt Do Us Part remains to be my favorite.

There are so many other good books and reading them is definitely a good idea. Just make sure that you are objective in reading the book and it does help to check the authenticity of the author. Many are led astray by what they read so I want to reiterate this concern. Notwithstanding the many “bad” finance books out there (local and foreign), I implore the Pinoys to get a book on personal finance and read. One good idea can change your future and redirect you to the path to financial peace.

I am in the process of writing a book myself but recommending it here will be self-serving so let me just stick to the six I mentioned. Financial wisdom will be yours if you seek it. Hope this helps.

Appears in Philippine Daily Inquirer

Question: Should I invest in a life insurance or use the money to expand my small business?—Mary Anne Maloles Tesoro via Facebook

Answer: I am a firm believer of life insurance. I make sure my life insurance policies are always in force as they give me and my wife peace of mind. With the way I travel and the many hazards I face like sleeping audiences and bored readers, life insurance is an important risk protection tool for me. Life insurance is first and foremost a tool for risk management by way of a risk transfer mechanism. Simply put, certain life risk such as untimely death or serious physical breakdown can be assumed by way of an adequate life insurance policy. Since I am married, happily at that, and have four lovely children, having the protection of a life insurance policy is a priority.

Life insurance as an investment is another story. The primary purpose of life insurance is to provide financial protection against life’s risk but investment can be a secondary benefit. It is difficult to compare life insurance with other forms of investments because of the nature of insurance itself. Life insurance needs to deal with actuarial tables and a lot of probabilities because of its primary tables. All those probabilities need to be accounted for and adequate provisions must be made. When you invest in a life insurance policy, not all the money goes to investment as some is allocated for insurance premiums. There are many types of life insurance but since you are referring to it as an investment, I assume you are talking about the variable universal life or unit linked insurance—an insurance  policy with an attached investment similar to Mutual Funds or Unit Investment Trust Funds. Variable type insurance will not perform at par with a mutual fund or a UITF because not all the money is invested in the funds—premiums for insurance protection are allocated from the money invested and these are recurring charges. The bigger the coverage, the smaller the amount goes to pure investments. Its advantage, however, is when the insured (or investor) dies, the named beneficiaries will get both the insurance coverage and investments as well as some estate tax benefits.

Comparing life insurance and small business is like comparing apples with durian, which are worlds apart. Further, the issue of risk and return comes to play in this concern and business is always risky and speculative. Business is also where you can really earn a lot of income and it can substantially grow your capital, albeit all the risk it carries. I’d like to look at insurance as a way to protect future income while business or investments is a way to maximize income. Will business be better as an investment? Definitely! A good business idea coupled with a good business plan and impeccable timing can make your capital grow bigger and faster than paper assets. But, as the saying goes, the higher the yields, the higher the risks. Most start-ups fail and the percentage of those that succeeded is quite disappointing. Yet, I believe we should take a wee bit more risk with our money and be a tad more entrepreneurial—as cliché as it sounds, no guts no glory. Just be prudent and know what you are getting into.

Know your objectives. If your objective is substantial capital gain or adequate provision of income, life insurance products are not the answer—business or other investments are. If your objective is moderate capital growth with financial protection against life’s risks, then life insurance is something you can consider. Also, life insurance products are long-term in nature.

Should you choose between life insurance and business? I say you may need both. If you have loved ones depending on you and your income, you definitely need to assess your life insurance needs. If you are disappointed with the gains you get from other investments like time deposits or special deposit accounts (yields are lower than inflation) then do consider other investments, small (or large) business being one of them.

Just a friendly reminder: Before letting go of your hard-earned money, investigate before investing; check out your alternatives and if need be, talk to professionals. Remember, prudence is always a good virtue.

This article also appears at the Philippine Daily Inquirer

Question: I attended your seminar “Steps to Financial Peace” and you mentioned about pooled funds as a good way to invest. I wanted to ask more about pooled funds but was unable to, so I’m writing you and asking you about it. I would also like to know if I can invest small amounts but on a regular basis in those funds.—Val Baguios, International Organization for Migration (IOM) staff

Answer: Val, thank you for attending my seminar and I pray that you learned much from me and the other speakers. It seems the seminar achieved its objective since you are now asking about pooled funds for your investments.

Let me start by defining what a pooled fund is, borrowing the definition from Investopedia.com: “Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar (peso) of investment, diversification and professional money management.”

It looks like the definition made it more complex than it really is. Pooled funds are investments where people put their money, with an investment manager handling the investments. To explain further, let me use this analogy: Assuming you want to invest but do not know the first thing in investing in stocks or bonds. You can join a “pool” of investors who allow an investment manager …

Read full article at http://business.inquirer.net/13315/all-about-pooled-funds