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This
April 24 to 30, the country will be celebrating its
annual Credit Consciousness Week. The celebration, as
decreed in Presidential Proclamation 568 signed by
former President Fidel V. Ramos, is aimed at creating
awareness among Filipinos on the uses of credit for
economic growth.
As the
Proclamation states, “Attainment of. . . a newly
industrialized country. . . will be boosted if all
sectors of society are made fully aware of the vital
role that capital formation
. . . play in the country’s economic development.”
The use
of credit has been in recorded history since the time of
Hammurabi. Hammurabi was the sixth king of
Babylon
and reigned during 1795 B.C. to 1750 B.C. His laws, now
enshrined as the Hammurabi Code, contained excerpts on
the extension of credit in doing trade in the early
years of human history.
Credit
can be defined in many ways depending on whom you talk
to. For the businessman, credit plays a crucial role in
increasing sales potentials. Consumers, on the other
hand, buy essential and nonessential items using their
credit cards. Go over to the
US
and you will know the ill effects of misusing credit.
Plastic
fantastic
In life,
the only things certain are debt (sic) and taxes. Due to
the amount of national debt the country has incurred
over the years, it is estimated that each of us 88
million Filipinos owes about P43,000 to the creditors of
the government. One creative way of reducing debt, then,
is to increase population—at least for the P43,000 to go
down.
Filipinos are increasingly becoming aware of the
benefits of credit. We just don’t appreciate it. And,
most of the time, we just don’t know how to use it well.
We take advantage of it, especially during the sale
craze that conspicuously falls on paydays. I am talking
about how we use (or misuse) credit cards.
A laptop
that costs about P50,000, bought on 12 months’ “easy”
installments. A matching set of new shirt, pants and
shoes that set you off by about P4,500. And the look on
your face when you see your credit-card bill the
following month? Priceless and pained.
Where
did your salary go? Why, to the retailers, of course!
That’s how the economy works, right?
Yes,
that’s why money makes the world go round. Money goes
around in a cycle called the financial system. But you
don’t have to get trapped inside a cycle of
earn-spend-pay off debts and earn-spend-pay off debts,
and so on and so forth.
Splendid
spending
Spending
is good. Splurging is not. Financial planners will
always advise you to have a savings plan. What financial
planners sometimes forget to tell their clients is to
have a spending plan to complement it.
There
are items that fall under necessary spending each
month—food, utilities, rent, etc. If you think about it,
investing in a pooled fund is also spending. It’s just
that you’re making a wiser decision with regard to where
you are spending your money on.
But
beyond the semantics of the word spending, one thing
that we should incorporate into our spending plan is to
have a “Happy Fund.” For lack of a better term, I call
it the Happy Fund to represent that amount of money you
could, and should, spend per month on nonessential
items.
Let’s
face it. As much as we’d like to save for retirement, we
also want to enjoy the money that we earn. The
establishment of a Happy Fund will assure you that
that’s possible and it will put a cap on your total
spending. The tricky part is how big a percentage of
your monthly income you should peg as your Happy Fund.
Assuming
you go by the 10-percent savings rule, then your Happy
Fund should ostensibly be less than that. Arbitrarily,
we can post 5 percent of your monthly income as your
Happy Fund. So this means that anyone earning below
P20,000 per month will have difficulty putting up a
Happy Fund.
Good
credit
So, if
someone takes home P20,000 per month, the person’s Happy
Fund will only be P1,000. What can you buy on P1,000?
Not much. But by doing this exercise, it is hoped that
the person will get a better perspective on how and
where to spend his or her money.
Imagine
if this person has a credit card and goes to the mall.
Without any real idea about how much he or she should
actually be spending, the figure that this person
probably knows is P20,000. By doing that, this person
gets into the trap of the earn-spend-pay off debts
cycle.
On the
flipside, though, if this person carefully manages his
or her money via the savings and spending plan, then the
person can use his or her credit card wisely. Having a
credit card is telling yourself that you are a
financially responsible person. I’ve had my own
misadventures with mine, and the priceless and pained
look on my face during those times I was looking at the
bill are just not worth it.
Using
credit wisely as a consumer will help you and the
economy in more ways than one. You will help boost the
national savings rate. You will be able to spend
comfortably years from now. And, more important, if you
are financially responsible, the only thing certain in
your life will be future income and taxes!
Sherwin
Chan is a member of Sun Life and offers protection and
investment needs. He trades in the stock market and is a
member of Absolute Traders. He attended the 7th RFP
Program. He maintains a blog at http://guerillainvesting.blogspot.com.
You may reach him at guerillainvesting@yahoo.com.
Join the
11th RFP Program (July 5 to August 23). Visit
www.rfp-philippines.com or inquire at info@rfp-philippines.com/tel.
634-2204. |
