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10 ways to spend on ‘protective expenses’ (and why!)

The second part in our “A Php 50,000 question” series
By Jennee Grace Rubrico, Dulce Castillo-Morales and Joe Esgerra |



Investment adviser and CEO of Personal Finance Advisers Philippines Corp., Efren Ll. Cruz, defines protective expenses as “expenses that—in the case of partial or total loss—can restore an item to its prior state, or restore for a limited amount of time the productive capacity of a person or item.”



Thus, a windfall of Php 50,000 can restore your peace of mind and actually give you a second wind, so to speak. The primary consideration when choosing, he says, is your financial goal in life and risk preference or tolerance. Here are some ways to attain that.



1. Buy insurance

Whether you’re a business owner or not, buying insurance should be a priority. Cruz urges business owners to buy insurance for their most important asset—their life. This should be followed by buying insurance on their business assets, he says.


Insurer American International Group Inc., for instance, offers businesses accident and health insurance for their employees. It also offers casualty insurance to provide protection against legal liability for bodily injury and property damage claims suffered by a third party arising from an insured’s business activities and products sold. There’s also an insurance product that protects companies from the consequence of property damage, which includes potential loss from business interruption, resulting in reduced productivity.




2. Pay off debt

It is always a good idea to pay down any kind of debt. Not only will it do wonders for your peace of mind, it will also save you from taxes or interest on those debts. “Pay off as much outstanding debt as you can because, chances are, what you’re paying in interest will be far more than what you’ll be making from that Php 50,000,” says Arturo Ilano, professor at the Cesar E.A. Virata School of Business at the University of the Philippines-Diliman. But if you are relying on interest-free loans from friends and family, then this is not an issue, he adds.



3. Invest in mutual funds, UITFs, etc.

You won’t go wrong if you invest in mutual funds, unit investment trust funds, exchange-traded funds and variable universal life insurance, among others.


Anna Lissa Chan-Macabanti, Sun Life financial advisor, says investing in mutual funds yields higher returns than savings in banks. Because the money is invested in a diverse portfolio of securities, it allows clients to own a wide range of securities from various companies. “[Investing in mutual funds] lessens exposure to risks compared to owning one or a few securities,” she says.




4. Invest in stocks

If you want more control over your finances, investing in stocks may be a better option for you as opposed to investing in pooled funds. Since you’re basically on your own—that is, you don’t have a portfolio manager helping you track which companies will do well or not—you have to be always on your toes.


As legendary investor Warren Buffett has advised, when it comes to investing, “Be fearful when others are greedy, and be greedy when others are fearful.”



5 to 6. Open a savings account or start a college fund for your kids

This may be a good time to kickstart that college fund that you have been meaning to start for your children. Opening individual savings accounts for all your children is a smart idea, too. It will get them, especially the grade-schoolers, into the money-saving habit. Maybe you can convince your little ones to add those coins and loose bills they have saved in their piggy banks or alkansya into their savings account.




7. Add to your emergency fund

Financial adviser Rienzie Biolena says an emergency fund, ideally worth six months of paid expenses, is critical not just for every family, but also for every individual. “For a two-income family, three months’ worth of emergency fund would suffice; for a one-income family, six months’ worth would be more suitable. Still, two-income families or even individuals can also strive for six months’ worth, depending on the level of ‘comfort’ they have for this buffer fund,” he says.



8. Add to your retirement fund

Socking away Php 50,000 into your retirement fund would be a big boost, especially if the money were invested on the right instrument early on, Biolena says. “A one-time Php 50,000 investment would already be worth Php 1.5 million in 30 years, if invested in a stock fund earning 12 percent per year,” he says.


Now, that is Php 1.5 million more for you during retirement, an amount which can already mean additional funds should you or any of your family members need hospitalization, medicine, a caregiver, or even a vacation, he says. “Contrast that if the same amount would just be allocated for a gadget or any asset that really goes down in value over time.”




9. Make a will

Hire an estate planner. “Planning for one’s estate is one arduous and complicated task. But the benefits—harmonious relations among surviving family members, a secure future for them, or continued charitable support to an institution—is all worth it,” says Biolena.



10. Hire a financial planner

You might as well go the distance and hire a professional to help you take care of your finances. The beauty of having a financial planner is that you have an adviser not beholden to any financial institution, and thus won’t be pushing you to buy certain investment products. Instead, he’ll make sure to recommend a product or service that suits you best, says Biolena.


Independent financial planners should have your best interests as a goal, agrees Cruz. “A financial planner worth his salt will not sell any product first, he will come up with a plan for his client based on the latter’s assumptions about the future—not based on standard assumptions of providers of financial products. The end result will be strategy recommendations on how to achieve such a future. Only when the client is ready to execute will the financial planner recommend third-party products, or sell products under his wing, if he is licensed to do so,” he adds.








This article originally appeared in the June 2015 issue of Entrepreneur Philippines magazine. Minor edits have been made by

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