BUSINESS : MONEY LENDING

Money lending business, (pautang or 5-6) has been one of the oldest business opportunities that has imbibed itself into the culture of Filipinos. If you ask someone whether he prefers to purchase a product with the total cash on hand or purchase it in installments with a 10% interest rate, he will most likely choose the installment plan. The simple reason? We like to see our money spent in small amounts rather than in lump sums.

Now while it is true that paying in installments is a good plan, the interest rate robs us directly from our bank account or wallet. But I'm not going to talk about buy and sell in this topic. I'm merely setting an example that is directly related to the money lending business.

The term 5-6 is derived from the interest rate that has been used in money lending business for a long time. By lending 5, we receive 6 in the end, which in total is actually 20% profit.

So what are the things you should be considering? For starters, how much are you willing to risk? I'm mentioning this because money lending business does not give you a 100% chance at profit. You will have to expect that sometimes, someone will not pay.

Let's say for example you decided to venture into this business and have an excess of 5,000. Two individual come to you. Both are asking to borrow 4,000. How will you divide your 5,000?
In money lending business, it is important for entrepreneurs to diversify. Lend 2,500 to each person rather than giving the full amount to only one. By doing so, you will get a lesser chance at losing. Even if one decides to run away, the other one will still profit you.

Now the next issue is to how long will it take for them to pay? Set a limit where you and your client can meet half way. Do not impose a specific time frame just because it is how you want it to be. Be lenient. I myself tried this and gave the person 15 days to pay me back only to have me wait for 15 days more. If you can willingly wait for a month, then that would give your client an ample time to earn and pay you.

What is your preferred interest rate? You can opt for the usual 20%/5-6 but to keep your client hooked, go for lesser rates. This will separate you from other lenders and at the same time, lessen the burden of your clients.

One thing I'd like to recommend to everyone venturing into money lending business is to have your client pay in at most 3 divided payments. the first payment should be the highest amount. Once this is done, your client will feel lighter when the succeeding two payments are made.

Keep your money cycling. Your 5,000 will get far. While others prefer that you take away a small percentage for your own, my advice is to keep everything moving. Lend it to other people, keep diversifying. If I decide to offer 10% interest rate a month, that will profit me 500 from my 5,000. If I get the full one year profit, I'd have received 220%, which is 11,000 (5,000 invested money + 6,000 profit).

Now that may be just a small amount but remember, you've already gained more than double your investment in just over a year by simply doing nothing, merely lending it to your clients.

Money lending business is naturally frustrating. While it is true that the return is quite high, the thought of going from one place to another, searching for your clients to pay on time, thinking if your money will still generate you income or simply disappear into thin air is just alarming.

In this business, you have to be a patient person. Someone who can't tolerate waiting will not survive or experience wealth in this venture. Learn how to wait, and how to do it with a smile on your face.

I made mention of examples that I consider my recommendations for this type of business. Understand that they are my opinions only and that you can formulate your own means of profiting from your invested money. Some offer 20% while others 10%. I made a 30 day limit for payments as an example, you on the other hand can opt for only 15 days.

How you decide on making profit or wealth will have a direct effect on the customers you attract and serve for a period of time. Take time to think about it. Ponder on the factors that can both benefit you and your clients.

At the end of the day, it will all boil down to one important thing, will your clients pay?

It is true that when someone is in need, they tend to become too emotional and end up trying to convince everyone to help them. That is a similar concept with the money lending business. Your clients will be the kindest persons on earth just so you will let them borrow your money. The problem comes when the expected date of payment comes and they are nowhere to be found.

We can only lessen the percentage of failing but not totally prevent it. Here are some factors you should consider about the person to whom you're going to lend your money.
1. Lend money to financially capable persons. There comes a time when someone doesn't have enough to spend on a particular period. They're not poor, just financially challenged at times. These are the types of clients you want to deal with. It is likely for them to pay you as compared to those who are financially unstable.
2. Do not add burden to an already burdened man. Someone who cannot sustain a stable income is still trying hard to survive financially. It is not the right time for them to borrow an amount that has an additional interest rate. They will most likely be unable to pay and may even run away with your money.
3. A collateral will help. If you can convince your client to leave a collateral until the whole amount is paid, then that will ensure the return of your investment and profit.

Always be wise in handling your money when venturing into money lending business. The profit and wealth obtained is high but the risks are higher.

BUSINESS : INVESTING WITH THE BEST RETURNS

Ever wondered what investments give us the best returns? Is it equities, real estate, sovereign bonds or business? How about structured notes, mutual funds or index funds? What about derivatives, options or forwards?

Well, there seems to be a plethora of investments out there, from simple ones to really sophisticated instruments. The yields that you get from these investments will depend on the risk that you are willing to take and that will be affected by many factors like the market, economy, politics and every other conceivable situation.

Here’s one investment that will surely give you a very good yield, no risk and even limitless return on equity. It is such a good investment that, as a financial planner, it is always my first recommendation. No, it’s not a scam, it’s really legitimate. It is education.

Education gives us the ability to learn things that open doors for us. It makes us knowledgeable on the risks that we are about to take. It spares us from a lot of mistakes that can cause us a lot of financial and psychological grief.

Education goes beyond a university, it goes beyond classrooms, it goes beyond training rooms. I am always very eager to attend trainings, read books and materials, surf the web, browse through e-mails, listen to good speakers, etc. I’ve made a lot of investments, and there is only one investment that I count on that will yield me positive returns—education. If I total the amount of money I spent to further my education professionally, I probably could buy a nice car already. But had I not invested in my education, I don’t think I will be where I am right now.

Part of my education is also talking to a lot of people. Having coffee with people will really be such an enriching experience that really gives untold rewards. I remember conversing with Francis Kong late last year and he mentioned something to me that really caught my attention—leveraging oneself and working with partners. I actually read that somewhere and my encounter with Francis validated that, and I took action. The benefits that I enjoy from applying what I learn because of education is really beyond any mathematical comp*tation.

“Whether rich, middle class or poor, they all have one thing in common: to make more money and to be more successful in life. They are pretty much open to anything they can get hold onto to improve themselves and the way they do things.

“But one glaring thing that caught my attention is that rich people put value in educating themselves more than they entertain themselves; while poor people entertain themselves more than they educate themselves.

“How can you prove that? If you invite poor people to a seminar or learning event, the first question they ask is, ‘May bayad ba? Libre ba? [Does it have a fee? Is it for free?]’ If you say yes, they start to change the topic and pretend they never asked. Other poor people will respond, ‘Ang mahal naman! [It’s too expensive!]’

“However, rich people will ask question like ’Ano ang topic? Ano ang matutunan ko? [What is the topic? What can I learn from it?]’ Rich people will respond, “Kahit mahal. Gagawa ako ng paraan. [Even if it is expensive, I will find a way to raise the money to get there.]’”

Want to understand personal finance better? Invest in your education. Buy books, attend seminars. I knew someone who took the Registered Financial Planner course and paid P 25,000. What was incredible is that he is not in any financial industry and has no plan of being a financial practitioner. When I asked him why he needed to take the course, he said that P25,000 was a small cost to shell out if that will mean he can put his financial life in order, save on hiring a planner, make wiser financial decisions and understand investing better. Wow!

What follows next is the life experience you gain along your goal towards financial freedom.

Where is the best place to put my money?

You have to determine for yourself the right investment portfolio that will work for you given your goals and financial situation. Study the different investment vehicles available and see where best you can park your money:

1. BANK DEPOSITS

Pros: They are safe since the Philippine Deposit Insurance Corporation (PDIC) insures deposits up to P250,000. They provide steady interest income. They are also easily accessible. A savings and current account can help you manage your day-to-day expenses.
Cons: Interest on savings and current accounts are minimal.

What to do: Consider investing in a time deposit for higher interest. The secret to earning in a time deposit is to hold it for a long term at an interest rate higher than the inflation rate. You can also have investment in foreign currency to take advantage of higher rates depending on the market.

2. GOVERNMENT SECURITIES

Pros: They are relatively reliable since these are guaranteed by the Philippine government. They also provide steady income. You can easily access them and sell them through the money market as handled by banks.

Cons: Interest may be lower as compared to other investments.

What to do: Hold some government securities as part of your portfolio. You may want to invest directly in Treasury bills or join a mutual fund or unit investment trust fund investing in fixed income instruments like government securities.

3. BONDS

Pros: As fixed income instruments, they give fixed interest income for a specified number of years. This rate is usually higher than that offered by government securities or bank deposits.

Cons: Bonds come with a risk. They are not guaranteed by an insurance company like PDIC. The higher the interest offered, the higher the risk that the company will default on payments.

What to do: Put some money in bonds depending on your financial goal to let you realize more returns. Hold it for the long term. Choose only bonds with good rating. You may want to join a mutual fund or unit investment trust fund directly investing in bonds to save you the trouble of identifying the best performing bonds in the market.

4. STOCKS

Pros: When there is a bull run in the market, stocks perform well. You also gain a lot when you get good stocks during the initial public offering. In the long run, stocks may outperform bonds in terms of yield.

Cons: There is a big risk of losing your capital as market prices change daily.

What to do: Invest only what you can afford to lose. Hold your stock investment for the long term to ride out market price fluctuations. You may also invest in stocks via a mutual fund or a unit investment trust fund.

5. REAL ESTATE

Pros: You may earn a lot as the price of property appreciates over time.

Cons: Sometimes the real estate market is down and you may not get a good market value for your property. It is also not very accessible since you need time to sell it off should you need the funds. Maintenance costs may also be high.

What to do: When buying real estate, time it right when you can get a good price for your property. If you can rent it out, you can use the money to invest elsewhere.

So have you decided where to invest?