Plastic or No Plastic (Or, How Not To Allow Credit Cards To Rule Your Life)

Truth be told and coming from experience, I’ll be quite biased here. If you don’t need one, don’t get a credit card. Seriously. It can potentially ruin your financial life. I’m not kidding. If you can pay cash anyway, use cash.

But for the sake of journalistic fairness, I’d like to present to you the potential benefits and the possible drawbacks of owning a piece of swipe-able plastic.

Why should I get a credit card 101

Credit cards are potentially a good thing, if you pay your balance in full and on time. If you can’t commit to that, please proceed to the next section.

There are a lot of benefits that you can derive from owning a credit card. However, this comes with the proviso that you have to use it correctly – by paying your amount due in full and on time, all the time. A credit card can help you manage your finances better by allowing you to consolidate all your bills and pay them all at the same time. The problem with paying utility bills is that they all have their own due dates. A lot of credit card products have auto-debit facilities that allow you to settle your utility bills at the same due date as your credit card.

Some credit card products allow you to earn miles with a partner airline company. This is good for people who love traveling or who are constantly traveling because of business needs. At the same time, with the advent of online booking and e-ticketing, it’s more convenient nowadays to book and buy your ticket online rather than reserving and paying with a travel agent. But you would need a credit card for this. Credit cards also allow you access to online shopping and acquire products at a potentially lower price online compared to buying it in a physical store.

Other specialty cards allow you to get special rebates on your purchases which I think is a good thing because it helps save you money on essentials such as gas, groceries, utilities, medicine, etc.

Many credit cards offer reward points that allow you get products as a reward from a rewards catalog. Now this is something that I wouldn’t wish on anyone. It provides you an incentive to use your credit card as often as you can to get points. You’re piling debt on yourself just to get that reward item. Why not just buy it if you really need it?

Why should I not get a credit card

Remember that the credit card industry is a business which thrives if more people have more debt, so it is in their best interests to keep you indebted. The promos that they create aim at the end goal of you taking in more debt that you can handle, at which point, they will offer you the “courtesy” of converting your balance. They make more money on this by charging interest on your converted balance. You’re already paying interest on interest.

Credit cards can also paint you an unrealistic picture of financial health. Some credit cardholders regard their credit limit as an extension of their bank accounts when actual use of it eats up on the amount of money you actually have. This unrealistic picture may lead you into making poorly thought out financial decisions which may put you further in debt.

A lot of people have fallen into a bad cycle of credit that they just can’t pull themselves out of. If you feel like you’re in one, seek expert advice. But even before you get yourself into the possibility of that situation, ask yourself first these two questions: 1. Do I really need it? 2. Will I be able to use it within my means?

Let’s Talk About Credit Cards

The unofficial start of the Christmas season is when people us the word “stickers” and “planners” in the same sentence. At this point in time, registers are also going “swipe!” rather than “ka-ching!” It’s the time of the year when plastics rule.

Let’s talk about these ubiquitous rectangular plastic cards whose convenience everyone (especially the banks) is raving about. Is it really that convenient?

The Concept Behind The Credit Card

A credit card basically is a physical proof of what you would call a line of credit. Lines of credits are debt facilities extended to entities, either individuals or corporations, that allow them to “borrow” money from the bank within a certain credit limit, interest-free, as long as you re-pay it within the term of the line of credit. The term is usually very short, the most common term being a 30-day or one-month period.

A good example of the use of a line of credit in a business setting is when a company delivers goods to its customer on November 2 and the customer says that he cannot pay until November 20. The problem is that you have an account payable to your supplier that falls due on November 15. The business can draw the amount needed from the line of credit and use it to pay the their supplier and then wait until their customer pays so that they can repay the money borrowed without having to pay for interest.

Personal Credit Cards

The concept have been applied to personal finance and retail banking groups now offer a whole gamut of credit card products to individuals. The concept remains the same, however, the impact is different.

Credit cards come in all colors, credit limits and card networks. The most popular ones are Visa and Mastercard, with almost every bank offering card products under both card networks. Think of it this way, Visa and Mastercard are like mobile networks Globe and Smart while card-issuing companies are like mobile phone brands Nokia, Samsung, Motorola, etc. Each credit card has its own features but it uses either the Visa or the Mastercard network to facilitate payments.

You also have a hierarchy of card types like Classic/Blue, Gold, Platinum and Titanium, the main difference being the size of the credit limit and the amount of membership fees and the privileges and other fringe benefits that come with it.

Getting your first credit card

Straight out of college and into the workforce, I wanted to already have a credit card and start swiping. Young people had and still have a notion that credit cards are an endless source of cash. Nobody really explained that “credit” means debt. But when I attempted to apply for one after opening a savings account with my bank, my application was conditionally accepted, the conditioning being I open another account with the bank with 10,000.00 which will be locked in as a guarantee against the credit card. Of course I didn’t accept the condition.

Later on, I would receive my first ever credit card in the mail from another bank with which I had a (bigger) savings account. And I realized that in order for your application for a credit card to be approved, you need to establish a banking relationship with the issuing bank first. Since then, I have received five credit cards from three different banks. That’s because credit card companies share a database of credit users where they fish for potential new clients. Be flattered if you receive a call from them because they think that you’re good business. That might also be a good time to re-assess your spending habits. That’s just my opinion of course.

In the next blogs, we’ll discuss the benefits and drawbacks of owning a credit card. We’ll also explore the market to see what kind of credit card products are out there. If you have questions, you know the drill!

A Layman’s Guide To Picking Stocks

For a lot of people, the stock market is a big black hole and stocks are nothing but worthless pieces of speculative paper. As I’ve discussed under Stocks 101, this is of course not true. Stocks represent ownership of a company – a claim on the assets of the company and a right to share in its profits.

We’ve also discussed how stock prices rise and fall and what influence these fluctuations. In this article, we will discuss how to pick stocks for your investment.

For me, Rule #1 is “Never invest in the stock of a company whose products you’d never buy.” Only invest in companies whose products you believe in. This is a personal opinion, I’m not sure if you’d read this rule elsewhere. But I believe that investing in the stock of a company whose products you consume creates a beneficial investment cycle. Consuming the products of the company you invest in improves their financial health, which enhances the public perception
of the company and enhances the stock price. For example, why will you buy stocks of GMA Network, Inc. if you’re a die-hard Kapamilya? Most of a broadcasting network’s earnings come from advertising, whose rates are determined by their ratings or audience shares. If you’re not contributing to GMA’s audience shares, it doesn’t also contribute to GMA’s better financial performance, which will be reflected on GMA’s stock performance.

There two main methods that stock analysts use to analyze stocks: technical analysis and fundamental analysis. Technical analysis refers to the study of the movement of the stock price over a certain period of time and making recommendations based on the trends gathered from the observations on the price movements.Fundamental analysis is the analysis of the financial fundamentals of the company, assessing it financial health and determining how these fundamentals will influence future stock prices and dividends.

No analysis is better than the other; in fact, I believe that both methods are necessary in making very good stock picks.

Another thing is for sure: there are a lot of gold mines in the stock market. Striking the gold pot does not mean being limited to the same stocks that everyone else is investing in, so don’t worry about not being able to acquire the stocks that business writers are raving about.

Online stockbrokers provide research services at no extra cost, but of course the risk will be borne solely by the investor, which means, if you made any investment based on the research advice provided and you incurred losses from this investment, the research firm will not be liable for this loss.

For me, you need a good combination of fundamental data and technical analysis before you decide on investing a significant amount of money. Personally, I use two metrics in determining which stocks I want to invest in. First, the stock price should have increased by at least 50% over the last twelve months. Second, and this one gets a bit more technical, the price to earnings ratio should be around 9-12x.

The price-to-earnings (P/E) ratio is the peso amount of the price of the company’s stock divided by the peso amount of the earnings of the company per share (Earnings per share is the total earnings of th company divided by the number of shares, for example, if earnings is 1 million and you have 1,000 shares, earnings per share is 1,000 pesos per share). The result is a multiple that roughly tells you how much the public perceives the company is worth in relation to its earnings. For example if the stock is currently trading at 5,000 per share and the earnings per share is 1,000, you have a P/E ratio of 5, which would be too low, based on my standards. A company’s P/E ratio can also tell you a bit about the characteristics of the company. A company with a low P/E ratio is usually in the traditional industries and has been around for a bit and has consistently paid dividends while companies with higher P/E ratios are younger and tend to congregate in the emerging industries. That said, companies with higher P/E ratios tend to be more speculative. For me, my speculative threshold is a P/E ratio of 12-15x. This means that the public thinks you are worth 15 million pesos  even if you just earned  1 million pesos over a certain period.

There were about 10-15 companies who met my standards when I first did my stock picks. Weeding out some companies that I wouldn’t be a consumer of, I ended up investing in seven stocks. So far, my strategy has worked. I’ve had minimal losses on some speculative stocks but earned 15% over the last one-and-a-half months.

If you want to know more about which stocks I picked and why, or if you need help in creating your own investment strategy, let me know.

Online Stock Brokers Allow Easy Entry Into Stock Market

Gone are the days when having a stockbroker means you’re a millionaire with a lot of cash to spare. Thanks to the advent of new and secure online stock trading platforms, investing in the stock market can be as easy as opening a deposit account with your bank, or even easier. Read More…

Stocks 101

This will be veering away from my lesson plan but I believe that when an opportunity strikes, it has to be seized. Friends, the Philippine Stock Exchange Index or PSEi is one of the best performing indexes in the Asian region and it would be a letdown for me if I don’t let you in on this opportunity to earn a lot more than your usual deposits. But before anything else, let’s start with stocks. What are stocks anyway? Read More…

Innovative Time Deposit Product Pays Interest Every Quarter

Premiere Bank

Premiere Bank offers competitive interest rates for its time deposit products.

Some of the best financial products are quite easy to miss. Take for example this Certificate of Time Deposit product offered by Premiere Bank. Premiere Bank is a rather medium-sized bank with a handful of branches in Metro Manila and the surrounding provinces. As a small bank, you have to compete with the big players for new client and this leads to innovative products being introduced into the market. Read More…

Hiatus Over – Exciting, New Things For The Manila Finance Guy

A lot of things happened while I was gone and I’d like to apologize to all of you who have been following the blog for the absence of any new entry in the past month. During the last month, I got into a car accident (no one got hurt), a dismissed policeman held hostage and killed tourists from Hong Kong, Miss Philippines Venus Raj came home with a major major finish in the Miss Universe 2010 pageant, I renewed my car insurance and decided to start investing directly into stocks. And now the latest news is that I am in between jobs! For a change, I will do something that deals directly with improving the lives of people, a very abrupt change compared to the high-brow world of finance. But fret not, I will continue this blog and I will actually have more time for it. And I’m starting by picking up from where we last left off. And I’m introducing new things to this blog that I’ve always wanted to add before. Watch out for it!

It’s About Time For Time Deposits

A few years ago when I was still in high school (this makes me re-think the use of the adjective “few”), I was encouraging my friends and classmates to pool our funds together so that we can invest our money in a time  deposit account. I chanced upon a centerfold ad on Buy & Sell back then, displaying the requirements and interest rates of time deposit accounts of major banks. Would you believe me if I tell you that in 2000 (ehem, high school), banks were offering interest rates on time deposits of up to 9.75% p.a.? To put that into perspective, these days, a major bank like Metrobank will give you an interest rate of 1% per annum… if you invest 1 million pesos… and if you hold the money for 5 years… plus one day. I’m telling you, that money would be better off sitting somewhere else. Read More…

Inquirer: P25B raised from retail treasury bonds

Retail treasury bonds or RTB’s are included in another class of investment securities you can put your money in. The article below fairly gives an detailed explanation of what retail treasury bonds are. If you want to invest in these treasury bonds, contact the Trust department of the banks acting as issue managers as mentioned below. I will soon write an article about bonds and other debt securities.

P25B raised from retail treasury bonds
By Ronnel Domingo
Philippine Daily Inquirer
First Posted 18:09:00 08/10/2010

MANILA, Philippines—The Bureau of Treasury raised on Tuesday P25 billion from retail treasury bonds in a price setting auction for five-year, seven-year and 10-year issues.

The five-year bond fetched 5.875 percent, the seven-year 6.625 percent, and the 10-year 7.25 percent.

Issue managers said they would recommend offering another P50 billion worth of the RTBs to the public, to be available under August 17.

Gov’t sets yields of retail T-bonds
By Ronnel Domingo
Philippine Daily Inquirer
First Posted 21:17:00 08/10/2010

THE BUREAU of the Treasury on Tuesday raised P25 billion in retail treasury bonds (RTBs) through a price-setting auction for the debt paper maturing in five, seven and 10 years. Read More…

Inquirer: RP stocks defy cautious mood overseas, posts new 31-month high

This is one reason why I think none of us should be leaving this country for supposed greener pastures. Third World is the new First World, baby.

RP stocks defy cautious mood overseas, posts new 31-month high
By Doris Dumlao
Philippine Daily Inquirer

MANILA, Philippines – (UPDATE) Local stocks eked out a slim gain to hit a new 31-month high on Monday as follow-through buying defied a cautious overseas sentiment.

The main-share Philippine Stock Exchange index added 8.44 points or 0.24 percent to finish at 3,524.70.

This was so far the best level hit by the index since closing at 3,617.29 on January 2, 2008. The local equities market was supported by a firm trading on most counters except for the property sub-index, which succumbed to profit-taking. Read More…