6 Steps to Financial Freedom

Being a member of the International Marketing Group, I am so blessed to have learned the concepts of financial management at this early stage of my life. I may still be starting out, but at least I’ve got the fundamentals of financial management correct now.

I’ve always believed that God wants me to be responsible for my time, treasures and my talents. I have worked hard to manage my time and talents but it is my treasures that I have no idea of managing.

My best friend in high school introduced me to IMG just this year 2007 and I am glad I became a part of the company. My blog schedule for today is on financial management so I want to share with you IMG’s 6 steps to Financial Freedom and how it has applied to me:

1.) Increase cash flow

a.) Earn Additional income
b.) Manage expenses

- I have strived to follow the first step by earning both active and passive income through IMG’s system. I have also managed to teach part time and at the same time explore the possibilities of earning income online. With regards to the expenses, it is important that I list down all my expenses and work within a budget. That is what I had been doing now for months.

2.) Manage debt

a.) Consolidate Debt
b.) Strive to eliminate debt

- I’ve managed debt by resorting to lower interest rates. I have availed of balance transfer features. The regular interest charged by credit card companies is 3.5 % per month. But if you avail of balance transfer features by “transferring” your debt to other credit cards then you can avail of 0.99 % interest per month. I have discussed this extensively in my post entitled “Getting out of the credit card debt mess.”

3.) Create emergency fund

a.) Save at least six months income
b.) Prepare for emergency expenses

- This is something I have not done yet, but will be planning to do in the months or years to come. Once debt is eliminated I can now start to save at least 6 months income. This is just to ensure that you are liquid enough in case there are some things that must be bought with in cash. This could also be used for emergency expenses.

4.) Ensure proper protection

a.) Protect against loss of income
b.) Protect Family assets

- I have achieved this through availing of insurance. Insurance policies protect loss of income by compensating the person insured and his loved ones if ever the person insured losses the capacity to produce active income because of death or accident. Protecting family assets is also achieved by availing of non-life insurance such as fire insurance etc.

5.) Build long-term asset accumulation

a.) Outpace inflation
b.) Reduce taxation

- This is normally what is known as the “investment” stage. If you are “investing” in something that is less than the inflation rate then you loose in the long run. Always make sure that you are investing above the inflation rate. For some who still does not understand what inflation rate means and how it could affect you I will probably discuss it in a future post. Most experts suggest that if you are in the Philippines you should invest in something that is above 7 % (Even if now the inflation rate is below 2 % +) Currently you cannot put your money in the bank an expect a return of above 7 % since interest for savings is way below 2 % and interest for time deposit accounts is from 3 to 5 %

Clearly, the only way to achieve this is through the stock market, mutual funds investments and other types of investments giving you a return of more than 7 % per annum.

With regards to taxes, remember that the government taxes income, not wealth.

6.) Preserve your estate

a.) Help Reduce estate taxes
b.) Build a family legacy

This is something that I plan to do probably 20 years from now. There are a lot of ways to achieve this. I would probably tackle this in another post since this is a somewhat complicated topic.
This is the overview of IMG’s financial strategy which I have strived to religiously follow. The steps must be followed sequentially. It is advisable that you should go through them one step at a time. However since I have learned about this just lately, I have managed to invest without first eliminating my debt. I should have eliminated my debt first and investe later. But I believe that it still worked out for my advantage since the year 2005 to 2010 is considered by many experts as “a window of investment opportunities” considering that the stock market is at it’s highest and the fundamentals of the Philippine economy are in place. I will discuss more on financial strategies on my future posts.

Want to get wealthy ? Think like the bank

Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total of P 100,000.00 (Philippine peso)

Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum.

So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.

Is this a “live happily ever after” story or not? Do you consider this OFW as somebody who has “wisely” handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.

Consider the following table:




Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation:

72 / interest = No. of years it takes for your money to double

(Note: If you want to know more about the Rule of 72, read my post entitled “The magic of the Rule of 72”)

In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.

The bank on the other hand takes that P 100,000.00 and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds etc. averaging a 12 % return on the P 100,000.00 that the OFW placed under time deposit. Under the rule of 72, that same amount of money will double every 6 years. (72 divided by 12 % interest = 6 years)

So when the OFW went back to the bank after 36 years and claimed his P 100,000.00 the bank manager gladly gave him back his P 100,000.00 plus the interest of P 300,000 amounting to P 400,000.00. After all they already made P 6 million pesos out of the OFW’s P 100,000.00. (Now isn’t that hi-way robbery?)

You want to be wealthy and a better steward of your money? Think like the bank!!!