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Top personal finance lessons for '08

By Ma. Salve Duplito

2008, the year that bathed Wall Street with doubt and fear and caused financial systems across the globe to stop dead in their tracks, is about to come to an end.

It was a year of chaos and confusion.

It was a year when people wondered whether some of what they have long-assumed about financial markets were way off the mark after all.
Remember Alan Greenspan?

It was a year when that age-old phrase "the first shall be the last, and the last shall be the first" seemed strangely apt.

Isn't it true that in this crisis, the rich and the greedy are feeling the bigger brunt of the financial meltdown? Yet the ones who are at the bottom rungs of society will still feel the pinch from the crisis moving forward, even if they had nothing to do with it.

So, what are the top personal finance lessons that can be learned this year?

Ethel Bondoc, owner of Storytellers Inc., a company that cranks out creative videos for corporate clients, weddings and other events, tied the knot this year and became Ethel Bondoc-Nolasco.

Her personal financial planning, sans the crisis, would have been fairly straightforward with broad strokes she has learned from personal research and observation.

But the events of 2008 are making her extra watchful and careful about how to save for her first child, her first home and her first forays into investment and retirement planning, among others.

"I am more conscious about savings because it is really scary now. On one hand, we are thinking that the crisis might be more advantageous for us because corporations will be budget-conscious and will think about more affordable alternatives, which we offer. But we might also lose clients because of the crisis, so we are thinking about whether to expand or not," she says.

Despite the shaky financial picture, the top personal finance lessons for 2008 are back-to-basics principles that even the worst crisis since the Great Depression hasn't changed.

1. Crisis-proof your finances. A lot of us put everything we have into a hot tip, a popular investment, a moneymaking scheme, especially if we think it is an insider's scoop. We like the idea of striking it rich in one fell swoop and so we withdraw all our money from the bank and even borrow from relatives. The tenets of financial planning say this is a slippery slope to penury and regret. Remember never to bet the house and never to bet everything on one investment. Divide the money you don't need immediately and put them in different investments. Invest only what you can afford to lose.

Joelle Ona-Horca, a 35-year-old credit analyst at a foreign bank, says she realized she was too reliant on American International Group/Philamlife for her family's nonlife insurance plans. She says she is now diversifying.

"Diversify assets, not just the nature of the assets like money markets, stocks or bonds, but also the underlying issuer," she says.

2. Plan for the long term, but revisit your goals regularly. People make more mistakes when they panic in a down market.

Losing everything can drive anyone nuts, so we make the worst decisions especially when we are emotional. A long-term perspective allows us to sit back and watch the market first before jumping into the fray.

However, a biannual or annual revisiting of goals should also recalibrate our financial plans.

Joelle adds that bargains can be found not just in the malls and tiangge sales this season but also in the financial sector. "I'm letting the law of cost-averaging work in my favor by setting aside a set amount of money each month to invest--the bulk of which goes to a PSE index Fund," Joelle says.

3. Before you invest, make sure you have an emergency fund.

Warren Matutino, a 32-year-old government employee who lives in Iloilo City, says for him, having three to six months of untouchable funds is the first step in constructing any serious financial plan. "Without this financial cushion, any unexpected expense can derail your long-term plans," he says.

Mutual funds' net asset value per share has this year dropped more than 40 percent at one point. Having to withdraw at that kind of loss because of an emergency can take a lot of the wind out of investment sails.

4. Don't be too greedy. When we're talking about money for our children's education or for healthcare in our old age, for example, prudence is key. Never chase after returns and put money in an investment that is too good to be true. Know what you're getting into. If you don't understand something, ask for plain English explanation and if that doesn't work, just walk away from any investments being offered.

The recent $50-billion Ponzi scam on Wall Street perpetrated by former Nasdaq chair Bernard Madoff fooled people in banks like Banco Santander and HSBC, as well as charities. Be prudent and ask yourself first if you are falling for a scam or not.

5. Live within your means. Joelle says her mantra during these turbulent times is "distinguish between a need and a want." "Establishing a buying habit based on needs versus wants requires us to be brutally honest with ourselves. We must constantly evaluate what we see, hear and even what we think. Do we really need the latest iPhone? The 50-inch flatscreen?" she shares.

She adds that learning to say "no" is hard to do especially when we are bombarded left and right by clever marketing campaigns. But she warns that people need to prepare for a financial drought.

"This is still a work in progress, but I'm trying to curb my inclination to be an impulse buyer. I have become an obsessive list maker with a notebook in my bag listing all necessary purchases to keep me on track. I'm teaching my (5-year-old) kid to distinguish between a need and a want. He no longer goes on a "pointing spree" when in a toy store and is learning to read price labels to know if his wants fit the prescribed budget," he says.

6. Money is not everything. Family, community, health, emotional and spiritual well-being are more important than the lucre of money. While money is an important tool in keeping our families happy, we end up slaves to it when it becomes the main reason for most of the things that we do.