Author Topic: CASE STUDY-I can't pay my debt-save emergency fund-invest in stocks all at once!  (Read 2500 times)

thatbrowncat

  • 5 O'Clock Shadow
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  • Posts: 46
  • Age: 27
  • Location: Davao City, Philippines
Hi there!

Iím needing a little help here. This post is lengthy, but do bear with me!

*** Our currency is the Philippine Peso, but I converted the amount to US Dollar since most of the people here are from the states.

*** $1 = P 44.84 (As of October 15, 2014)


Background Information

Iím 22 years old and I live in the Philippines. Iím a nurse by profession, but I chose not to practice it. I work as an Administrative Assistant in the Social Welfare Department of our government. Itís my 1st job and Iíve been an AA for 1 year and 10 months. I work from 8 AM - 5 PM, Mondays to Fridays.

In my teens, I taught myself how to draw and how to use adobe photoshop. This has helped me greatly, since I used what I learned to generate income separate from my work salary.

I still live with my mom. My dad died when I was 6 years old , and my mom has been the breadwinner ever since. Mom pays for almost everything. Our maidsí salaries, school tuition fees; weekly allowance; and household expenditures. My mom is the Regional Director of a National Government Agency. people think weíre richÖ.. but weíre not (financially). Mom is still paying of her credit card debt (around $ 11, 150.75) incurred while I was still studying in college.

Weíre not extravagant. We donít have a car. We donít go out. We donít party. I still wear some of my clothes 6 years ago. I rarely buy new clothes. My mom is actually lucky in raffle draws. Once, she won million pesos! But that amount didnít last in her hands. I have no idea how she spent her money, but I knew she bought jewelry and renovated the house. She also invested in a fishcage business (which she eventually sold).

  Even though I love my mom, I promised myself that I would learn how to be financially literate (this led me to scourge the net for financial advice, and I discovered MMM because of this!)

I dreamed of investing in the Philippine Stockmarket last year, but it was just last Sept 2014 that I was able to realize this dream with COL Financial (an online broker). For as low as $ 111.51, I already started to invest! I planned to invest $ 111.51 monthly in stocks. However, according to the financial blogs and books I read, they encouraged building an Emergency Fund worth 3-6 months of monthly expenses. I decided to save $ 669.05, and I did!

Unfortunately, a series of events led to that depletion of fund.

1.   I became sick and I spent the money for my medications (although the health card covered the doctors consultation fees, laboratory exams)
2.   I lent additional cash to mom. She wanted to use her credit card to buy groceries. I told her that it would be better if I lent her cash, instead of swiping her cards.
3.   Half-brother approached me one day and wanted to borrow $189.56!  If he couldnít get the money, then his wife would leave him, bringing along their son. (this is a long storyÖ it involves a wife who loves jewelry, a husband who wants to please the wife, a cellphone pawned, the money gambled and lost, and a wife who is demanding where the hell the husbandís phone was)

Now that my emergency fund is depleted, I want to start building it over again. However, I am very much aware that time is of the essence. If I wait another 6 months to replete my Emergency fund, then I would have wasted the potential for my money to grow in stocks!


MMMís post ďYour Debt is an Emergency ď  made me think my health insurance and postpaid plans as debt! Gosh! How I really wanted to eliminate my debt!



INCOME

***From my  8 AM- 5 PM job.
GROSS      :   $ 332.98
TAKE-HOME   :   $ 294.56

   ***My take-home pay differs sometimes. There are months when itís 2-3 dollars higher. There are also times itís 2-3 dollars lower.

CURRENT EXPENSES

VARIABLE MONTHLY EXPENSES = $22.30
PERSONAL EXPENSES   ;   $ 22.30
               > covers expenses such as books (love to read them); or when I
want to buy clothes/bags/shoes (when my old ones are beyond repair)
               >covers cash sometimes mom borrows for the maids weekly
allowance


FIXED MONTHLY EXPENSES =       $ 120.16
   ***Amount of cash that I automatically set aside without thinking

TITHES         :   $ 29.44
FOR MOM              :   $ 78.06
                    > covers the cellphone postpaid plan payment
                     > covers the water bills or other household expenditures

TRANSPORT BUDGET   :   $22. 30
               > Weekly budget = $ 5.58
               >daily actual expense    = $ 0.71
                  > Jeepney commute ( base of hill to work) = $ .27
                  > Jeepney commute (work to base of hill) =$ 0.22
                  > tricicad commute  ( base of hill to house) = $ 0.22

*** Our subdivision is located on top of a hill. When itís still early, I can walk from our house going down to the main highway. Itís a 13-15 minute walk.
*** When itís late, I donít walk from the highway going to our house. I take a ďTricicadĒ. Imagine a motor with a sidecar that can cater 8 people. 8 people = $.15; 4 people = $ 0.22
*** I get my snacks from this budget too.
*** There are instances when I exceed my daily actual expense; such as: date with boyfriend; boss tasks me to go to another office
*** My mom has a car servicing her from house to the office When sheís not on travel, I usually hitch a ride with her going to my workplace. I save $ 0.71!


ASSETS
*** This is what brings cash to my pocket

-   $ 111.51 in the stockmarket
o   ( I started last September 2014)
-   $ 44.60 worth ďtiny snacks storeĒ
o    (My officemate and I invested $13.38 to sell snacks to our fellow officemates last May 2014. Business was good, until last August 2014. The budget unit started to sell their snacks as well.)

LIABILITIES
*** What takes cash out of my pocket
1.   Health Insurance
   > $ 193.62 payment for 20 quarters ============================== $ 3,872.44
   > As of October 15, 2014, remaining balance ======================= $ 2,517.08
   > As of October 15, 2014, I have made my 7th quarter payment. 13 more quarters to go!
   
**Mom surprised me with this. She met my late dadís friend who works for a certain Health Insurance Company.
**Mom told me that she bought me a Health Insurance. I was surprised because I had no plans to even purchase one. Since my mother suggested that it would be useful, I decided to pay for it around the 2nd or 3rd quarter.

2.  Cellphone Postpaid Plan
      > estimated monthly expenditures = $ 54- $ 64
      > For payment until 2016

**Mother gifted me with an iPhone 4s postpaid plan in Aug 2012. At first, she was the one paying for it.
** In March 2014, I decided to ditch the plan and go prepaid. I figured that I simply needed a phone that could send messages and call. I would probably purchase a tablet for capable of reading ebooks, surfing the net, playing games and transferring files from tablet to computer.
** In April 2014, mom surprised me with a Samsung Galaxy S5. It was still the same postpaid plan, except that she ďupgradedĒ it. I volunteered to pay for it since I already had cash to pay for it.
** The mobile data is useful in my job! When thereís no internet connection, or when my boss wants me to send certain files when Iím not in the office, I simply activate the mobile data, and Iím done!


   
===========SUMMARY===========================

INCOME

   GROSS MONTHLY           $ 332.98
   TAKE HOME MONTHLY   $ 294.56
   YEARLY TAKE HOME           $ 3, 534.72

CURRENT EXPENSES

   VARIABLE   $22.30
   FIXED   $ 120.16
TOTAL       $142.46

ASSETS

   STOCKS   $ 111.51
   STORE   $ 44.60

TOTAL      $ 156.11

LIABILITIES

   HEALTH INSURANCE   $ 2,517.08
   POSTPAID PLAN   $ 1,296- & $ 1,536

TOTAL      $ 3,813.08 -- $ 4,053.08



Specific Problems

1.   How will I spend the (TAKE HOME MONTHLY Ė TOTAL CURRENT EXPENSES) or $ 152.10 ?
                        > Pay my health insurance completely first?
                        > Build my emergency fund first?
                        > Skip the emergency fund and continue investing in stocks (the market is down
                             right now)!
                        > (Insert your own suggestion)

2.   What strategies/actions should I take to address the problems in Number 1?
                       >   Bike to work to reduce transpo costs? (problem is, Iím still scared of biking
                                along the main highway)
                       >       Continue to pay health insurance in installments
                       >        Increase my income by looking for other income-generating opportunities
                       >         Terminate the postpaid plan
                       >    (insert your suggestion)


And there you have it!
Thanks for reading! I would really appreciate any suggestion/comments.


Bob W

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  • Age: 60
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That is the most complete case study I have seen here!  Good job.

My answer --

Continue to pay the health cost on installments.

Put all excess money into a stock fund labeled emergency fund.  Yes,  it might go down a bit in the short term.  So set a target of 30% above what you think you need in an emergency fund.  Diversify your stock funds internationally. 

Continue in this manner indefinitely.

plank

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  • Posts: 70
The phone is killing your savings ability.  You can get a much cheaper plan. 

Good luck to you.

mozar

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I would focus on the emergency fund and then start thinking about your income. Does nursing pay better?
Long term you should figure out how much you are willing to give your mom and brother and set a limit. You could give them an amount monthly and after that say that's it. That way you can help them (which from what I heard is important in your culture) without draining money away from your future.

Thegoblinchief

  • Guest
I don't know anything about Philippine tax law, but do you have any tax-advantaged investment accounts like a 401(k) (income tax deferred) or ROTH IRA (investments post-tax, but grows tax free)? Investing through vehicles like that makes a huge difference in compounding over time.

Note: quick googling suggests that the PERA is what you want. Get a decent amount in that to start compounding for your "old person" money (55+). If early retirement is on the radar, then build a standard taxable investment portfolio, or work on other income streams (hobby job, income property, etc).

I don't know what investments are available to you, but you want them to be a broad-based index fund, ideally with lots of international exposure so you limit your exposure to your home country.

Learn to bike or take the walk. 15 minutes is a nice leisurely stroll.

Tell your mom to stop "gifting" you phones that have expensive recurring costs.