Why I Increase my HDMF / Pag-IBIG Contribution?

As per RA 9679, membership to the Home Development Mutual Fund (HDMF) or popularly known as Pag-IBIG fund, has become mandatory for all employees, workers, professionals, officers and companies who are also compulsorily covered by the SSS and GSIS. The amount of monthly contribution is at 1-2% of the salary with P5000 used as the maximum monthly compensation used in the computation. Basically, that is the P100 employee and P100 employer share you may have noticed in your payslips.

For me, I have been saving more than this minimum amount for several years already. I have increased the amount every time I received salary increases. So here are the primary reasons on why I chose to increase my monthly HDMF Contributions.

 

  1. It serves as forced savings for me.

I may have said it previous blogs that I am not very thrifty. However, I know the importance of savings and investments. Savings that are auto deducted from my gross pay works best for me. With Pag-IBIG Contributions, I no longer need to worry about setting aside money for this as it is already deducted from my pay.

Also, savings in Pag-IBIG are not accessible. Our monthly savings, employer counterpart share (if any) and total annual dividend earnings comprise the member’s Total Accumulated Savings or TAV. Our TAV can be withdrawn after 20 years of continuous membership, upon retirement at age 65, separation of service due to health reason, permanent departure from the country or upon death and total disability. This means my savings here will surely go to my retirement fund and will have the chance to grow over time.

 

  1. Annual dividend earnings that are government-guaranteed.

The Pag-IBIG Savings Program is a fast, easy and affordable way for Pag-IBIG members to save for the future.  The dividend rate is not fixed, but as far as I’m concerned, any dividend rate is most likely higher than any bank saving account interest.

There are several UITFs and Mutual Funds available in the market that also provides returns higher than bank interest. I also have those with other financial institutions, but what I see as advantageous with putting money with HDMF is that there is no fixed or minimum amount. So for those who cannot afford to set aside the usual P1000 or more monthly investment, we can just add up to our HDMF contributions for any amount.

 

  1. I might just avail a housing loan someday.

My family and I are currently living a cozy home within the city. It’s nothing big, but it is close to just everything. However, it is not exactly the dream home I had in mind when I was young and dreamy. Someday, my husband and I might just want to build our dream retirement home, and an HDMF housing loan might come handy.

There are two important factors that affect the loan amount you are entitled to. First is the amount of contribution and second is your net disposable income. If you want to avail of a bigger loan amount, you need to increase your contribution and show that your net disposable income is also large enough to cover the monthly contributions. I don’t have much control over our net disposable income, but we definitely control the amount of contribution.

 

  1. Higher contributions means higher loanable amounts.

Aside from housing loans, short term loans are also available for HDMF / Pag-IBIG members. There is a Calamity Loan for members affected by unforeseen calamity like flood, fire, volcanic eruption and other similar cases. There is also a Multi-purpose loan that you can use for any reason.

I many not have any urgent need for a loan right now, but who knows what might come in the coming years. Having an available credit line is added insurance to any possible financial issues.

 

 

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How much do we need in Retirement Funds?

If you are like me, you are also hoping to retire comfortably with our families and are wondering how much funds we really need for our retirement. There are several ways that this is being estimated. I’ve read a lot of articles about this topic, and I’m sharing with you what I’ve gathered.

One popular approach I’ve read is to make a projection of your annual income shortly before you retire. 70 to 80 percent of that projected income is assumed to be the yearly retirement income you need in order to maintain your standard of living. If you project 700K as pre-retirement income, 490K-560K should be your annual retirement income. If you expect to live for 15 years after retirement and does not expect any other income that time, you should have 7.35 million – 8.4 million stashed away.  A variation of this method of estimating your retirement need is to use your projected expenses multiplied by your retirement years.

As an accountant, another widespread method used is considering present values, future values, inflation rates, interest rates, saving and expenses, and pre and post retirement years. In this method, we look at the current expenses and get the future value of our expenses. This becomes the required yearly funds needed in our retirement years. You deduct from that amount any expected pension amounts, and the resulting figure is the retirement income gap. The retirement income gap multiplied by the expected retirement years is the amount you should already have by the time you retire. From this amount, you can deduct any expected lump sum benefit or maturity of investments to arrive at the required savings amount by retirement age. After having that amount, you can already compute for the required annual savings using Present value formulas and considering pre-retirement years and estimated interest income.  Confused? Well, you don’t need to worry about making these computations as most retirement calculators you can search in the internet uses this method.

Another method which I personally use is the age-based savings milestones by Fidelity Investment which is very much easy to remember and gives a way to check if we are on track. This method is most relevant in the United States because it factors in their 401(k) or workplace retirement plan and their social security. However, I personally make this my general guideline since it is easier to remember.

Here’s the table they provided:

Save the equivalent of :                               By Age:

1x their annual salary                                     35

2x their annual salary                                     40

3x their annual salary                                     45

4x their annual salary                                     50

5x their annual salary                                     55

8x their annual salary                                     67

 

You can just adjust the numbers or goals here if you think they are too small, but for myself, I just use it to check myself from time to time if I am on track with my retirement savings. Also, I don’t consider here any real estate or other investments that I don’t intend to use up during retirement.

If you think the amount you come up is too low, please also remember that you may still have other income by that age, and you can also earn a lot from placing the funds in high return investments. The savings goal also appears reasonable here especially if you started planning for retirement early. By saving around 10-20% of your income towards your retirement funds, you would actually be able to meet these goals.

Like most Filipinos, I am honestly also struggling to save up for my retirement. Nonetheless, it’s better to have a goal than to have nowhere to begin with.  Happy Saving!

Financial Statement Analysis

Financial statement analysis can be described as the analysis of the balance sheet, profit and loss statements, cash flows and statements of equity of a business in order to understand the risk and profitability of the undertaking, and quantify the past, current and prospective performance of a business. It is a very valuable tool to a business for several reasons.  It helps investors and other users of information gain an understanding of what’s going on with the business and analyze its performance over a specific time period, and helps them in making important decisions. It can help identify strengths and weaknesses in a business in order to form recommendations and forecasts.

Performing financial statement analysis does not only require the use of ratios and comparing data. Other relevant factors in the operations, the industry and the economy should also be considered in making the analysis.

An in depth financial statement analysis can be horizontal analysis or vertical analysis. Horizontal analysis includes comparison of financial statement of different periods and focuses on trends in the financial statements over time, whereas vertical analysis is performed by looking into the results within the same period and making each amount a percentage of a selected relevant denominator.

Financial statement analysis involves the use of financial ratios. I’m sharing below the common ratios useful when analyzing a Company’s financial statements.

Liquidity Ratios  – These ratios analyze the ability to pay off current liabilities as they fall due.

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = Quick Assets / Current Liabilities

Quick Assets = Current Assets – Inventories

Net Working Capital Ratio = Net Working capital / Total Assets

Net Working Capital = Current Assets – Current Liabilities

 

Profitability Analysis Ratios   – These ratios show a company’s overall efficiency and performance.

Return on Assets (ROA) = Net Income / Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Return on Equity (ROE) = Net Income / Average Stockholders’ Equity

Average Stockholders’ Equity  = (Beginning Stockholders’ Equity + Ending                                                                                                Stockholders’ Equity) / 2

Return on Common Equity (ROCE) = Net Income / Average common Stockholders’ Equity

Average Common Stockholders’ Equity = (Beginning Common Stockholders’                                                                       Equity + Ending Common Stockholders’ Equity) / 2

Profit Margin = Net Income / Sales

Earnings Per Share (EPS) = Net Income / Number of Common Shares Outstanding

 

Activity Analysis Ratios   – These ratios gauge the efficiency of the business practices and measures ability to convert assets into cash.

Assets Turnover Ratio = Sales / Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Accounts Receivable Turnover Ratio = Sales/ Average Accounts Receivable

Average Accounts Receivable = (Beginning Accounts Receivable + Ending                                                                              Accounts Receivable) / 2

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

 

Capital Structure Analysis Ratios  

Debt to Equity Ratio = Total Liabilities / Total Stockholders’ Equity

Interest Coverage Ratio = Income Before Interest and Income Tax Expenses/ Interest                                                                                      Expense

Income Before Interest and Income Tax Expenses  = Income Before Income Taxes +                                                                                                                       Interest Expense

 

Capital Market Analysis Ratios  

Price Earnings (PE) Ratio =  Market Price of Common Stock Per Share / Earnings Per Share

Market to Book Ratio = Market Price of Common Stock Per Share / Book Value of Equity                                                               Per Common Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock /                                                                                                   Number of Common Shares

Dividend Yield = Annual Dividends Per Common Share / Market Price of Common Stock                                               Per Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock /                                                                                               Number of Common Shares

Dividend Payout Ratio = Cash Dividends/ Net Income

 

 

Where to invest your money?

My mother is also an accountant and is a good investor. She started early into investing, and she has oriented us to the idea of investing even when we were young. At the age of 18, my mother took investment plans for me and my brothers. At age 28, I already received the fruits of the investment she opened for me at age 18.

When I married my husband at age 24, we also started having small investments of our own. I wasn’t really a business person, so I was mainly into stocks and investment funds.

Here are a few types of investments you can consider. I might just make separate articles discussing them in detail, but for now, I’ll just a give a brief overview of these types of investments.

  1. Real Estate – They are more tangible investment. Real estate can be income producing or not, but they can also generate you income through capital appreciation.
  1. Business – This is a popular way to gain financial independence, but is also very risky. This can be in the form of product or service meant to earn a profit. In running a business, there are fears that you need to overcome, but once you overcome them, results could be very rewarding.
  1. Savings Account – A small interest is better than nothing at all. Keeping you hard earned money in the bank will give you interest in your money. Interest rates are very minimal though.
  1. Time Deposits – Time deposits provide higher interest than savings account without being too risky.
  1. Treasury bills and bonds – These types of investments are almost risk-free since your investments would be handled by the government.
  1. Mutual Funds – When investing in mutual funds, you are gaining better returns and better security knowing that your money is being managed by a professional fund manager. A mutual fund is basically a pool of funds from different individuals or companies that are invested in different platforms. You earn from appreciation of value, interest or dividends.
  1. Unit Investment Trust Funds (UITF) – This type of investment is somewhat similar to a mutual find, but offered mainly by banks. Same with mutual funds, your investment can be in money market funds, bond funds, balanced funds and equity funds.
  1. Stock Market – When you have already learned to tolerate higher risks, you can start investing directly in the stock market. A stock is an equity or share giving you a stake in a company and its profits.

I have ventured to most of these types of investments. You might not appreciate or get lucky with all of these investment types, but surely, you’ll find something suitable for you and your dreams of a better future.

Life as an External Auditor

I spent almost four years of my life as an external auditor working with a big Firm.  After graduating, I had taught in a University for 1 semester before I finally decided to work as an external auditor and experience the CPA profession at its fullest. Key responsibilities included reviewing spreadsheets, examining financial controls, gauging levels of risks in the organization, ensuring assets are safeguarded, reviewing processes, preparing reports, doing analysis and presenting findings and recommendations to management. I wanted and enjoyed all these, plus, I wanted the corporate look that auditors exude.

The life of an auditor is definitely not easy. A typical day would be going to the work early, facing spreadsheet, trial balances and other schedules that would not even tie up, clients of different personalities, time pressure, deadlines, and then going home late at night just to get some sleep. It’s not at all that bad. Auditors do find a way to enjoy things even at times of extreme stress. We eat out a lot and go for vacations on non-peak seasons, and enjoy the company of each other even when stuck in a client’s office full of dusty files and records.

I have no regrets at all for having stayed in audit for more than 3 years. External auditors can really stand in pride knowing that it is their profession to give confidence to stakeholders of businesses. An auditor understands a business, how it is run and how it manages risks. This gives you an edge on your next career since you are trained to understand the complete business flow, and not focus only on the financial records.  The difficulty you face each day in the different clients you handle also molds you to be very detailed at work and to have strong analytical skills. You also get to improve your time management skills when you are in audit facing time pressure and stress daily.

I am writing this blog because I am forever thankful for my audit experience. I would have stayed if my priorities had not changed back then. My son was already turning three and I knew I needed to give more time for him for his formative years. I may not choose to go back to audit now, but I have achieved what I have achieved now because of the lessons I’ve learned from my work as an external auditor.  I am commended by my employer and clients because of skills that I’ve gained from working with a Big Four. I must add that salary is also good in audit. There are yearly increases and promotions. I reached the Senior Auditor position in less than two years and doubled my first salary. On top of that, I have found close friends in audit. They are friends who I’ve shared the emotional ride that comes with audit seasons.

BIR Registration for Professionals and Sole Proprietorship

I am currently in the process of finishing registering my profession and my husband’s new business with the Bureau of Internal Revenue(BIR). Registering with the BIR is one major step in starting an undertaking. For myself, I choose to register as a professional for my freelance bookkeeping, while for my husband, he is registering as a sole proprietor.

Here are the requirements that we had to prepare before filling up the needed BIR forms:

  • DTI Certification (Sole Proprietorship)
  • Contract of Lease (Sole Proprietorship)
  • Mayor’s Permit (Sole Proprietorship)
  • Professional Tax Receipt (Professionals)
  • Books of Accounts

Before you start processing, you have to confirm first with BIR on your current Regional District Office (RDO) and the RDO of the business you are registering. If your current RDO is not the same with your business address, you need to file an update using BIR Form 1905 to the current RDO for the transfer of registered address.

Here are the steps for registering with BIR:

  1. Prepare in 3 copies BIR Form 1901 (Application Form) and BIR Form 0605 (Payment Form). Please use the e-forms for Form 0605.
  2. Go to the RDO with jurisdiction over your registered business address.
  3. Submit your documents for review and they will assess the fees needed.
  4. After the assessment, go to an accredited bank to pay the fees using BIR Form 0605.
  5. Go back to the BIR office and approach the registration officer. Submit your documents including a copy of the payment form.
  6. Attend a seminar with BIR.
  7. Submit your books of accounts to be stamped by BIR.
  8. Wait for the release of your Certificate of Registration (COR).

After receiving your COR, you will already be able to go to accredited printers to order invoices and/or official receipts. Printers would usually process the Authority to Print (ATP) themselves after you present the a copy of your COR and Payment Form.

Then, you are done! Good luck on your new venture.