6 Things You Have to Know about Dividends and Capital Gains

PERSONAL FINANCE 101

Investors earn from investing in the stock market in two ways: first, by receiving periodic cash payments called dividends; second, by selling stock at a price higher than the purchase price, with the price difference being referred to as capital gain.

Here are some important things that you have to remember about dividends and capital gains.

1. Dividends tend to be more reliable than capital gains. If a firm has been paying 1 peso per share dividend per year in the last 10 years, it's highly likely that it will continue to pay this amount (or higher) in the foreseeable future. Capital gains, on the other hand, are highly unpredictable because of the inherent volatility of stock prices.

2. Dividend payments are announced several weeks before they are due. You can ask your broker to send you notices of dividend declarations, or check out the PSE website for such announcements (here is the last dividend declaration from Meralco (MER)).

3. To be entitled to dividend payments, you should own the stock on or before the ex-date. In the case of Meralco above, you should have owned the MER stock on December 22, 2010 at the latest to receive the 1.30 peso per share dividend. And yes, it's possible to own the stock for only one day and still receive the dividend.

4. In computing for the total percentage return, or proportional increase in value, of your investment, consider both dividends and capital gains, and all relevant taxes and fees. To illustrate how this computation works, here's an example of a recent stock transaction I made here in Hong Kong.

I bought 100 shares of the Hang Seng Index ETF (stock code 2833) at 233.20 HKD on October 29, 2010, and sold the shares at 243.60 HKD on January 14 of this year.

As you see, total buying and selling costs can be quite considerable, in this case around 1.2% of my investment.

A dividend of 2.60 HKD per share was announced a few weeks after the purchase, with an ex-date of December 17, 2010. Since I owned the stock up to the ex-date, I was entitled to receive dividends for my shares.

We can compute for the total return of my investment (total % return) using the following approach:

So I earned 4.34% or 1,017.18 HKD (230 HKD in dividends and 787.18 HKD in capital gains) on my 77-day investment. It may not be good enough for some of you, but it's definitely good enough for me.

5. Total % return = dividend yield + capital gains yield, where

I'll let you work out the math for the example above. You should get a dividend yield of 0.98% and a capital gains yield of 3.36%.

Unlike in the example, in practice, dividend yields are quoted on a per-year basis and excludes taxes and transaction costs. Since dividends are usually paid twice a year, the dividend yield quotes you see on websites like Google Finance and Bloomberg include both payments. 

6. In most cases, especially if your investment is not big enough, dividends won't be enough to cover taxes and transaction costs (in the example, 1.2% in costs vs. a 0.98% dividend yield), so in deciding when to sell your shares, you have to make sure that you have enough capital gains to provide you the return that you're aiming for, net of all costs.

Are Women Better Investors than Men?

Hilary Kramer, the lady in the video (whose main purpose obviously is to promote her website together with this "contentious" idea), starts with the following statements:

1. Women who are in the stock market outperform men.
2. The reason why there aren't many famous women investors (despite their investing edge) is that not enough women invest in stocks because they are fearful of the stock market and they don't understand how it works.

The statements are easy enough to believe, especially since Ms. Kramer keeps on talking about how research supports these claims. What I find hard to swallow is how these two contingent statements lead to an all-encompassing generalization that "women make better investors that men," with the most obvious point of confusion for me being how women can be better at something they are fearful of and don't understand (her words, not mine).

Anyway, Ms. Kramer supports her claim with these reasons:

1. Women know how to do their homework; they take a look at the macro picture. They are able to multi-task. Thus, they are more capable of coming up with a "deductive-reasoning choice."

In other words, women are more capable of looking at all available alternatives than men, leading to a "deductive-reasoning choice" which, I take, just means "more informed decision." I could agree with this point. We all know how a lot of women take ages to shop for one item, how they would not stop until they see "the one." Men, on the other hand, go straight to specific store in the mall to buy what they want; it's all really very simple if you go online first to look at the alternatives, then decide what you want to buy and where you want to buy it before you even step out of the house.

2. Women are very inquisitive; they will ask questions of others. They do not rely on their ego, unlike men who are egotistical.

Is she saying that women nag and men are so full of themselves? I won't argue against that...

3. Women in general tend to be less risky and they understand things like asset allocation and diversification. 

Yes, I am aware of some studies that show how women are more risk averse than men. But there's more to the diversification issue than risk aversion. She can't generalize that men would more likely be stock pickers than women, and that women would tend to hold more diversified portfolios than men. One cannot generalize based on gender, and even risk aversion, because ultimately, investment strategy is a matter of personal belief. Even practitioners, regardless of gender, don't agree as to which strategy is better: active portfolio management (stock picking) or passive investing (something you all know I'm quite biased for). 

4. Women will cut their losses. Women understand the longer term horizon.

I've lumped these two together because they contradict each other. A woman who has a long-term investment horizon would not care about short-term ups and downs, and would thus not "cut her losses" when the price of her stock goes down. 

In any case, selling when stock prices are down is one of the most critical mistakes investors often make; we all know that the only way to make money in the stock market is to buy low and sell high, not the other way around. The testicular fortitude, the guts to make a counterintuitive decision, like sell when everyone else is buying and buy when everyone else is selling, is what separates the rich from the poor, regardless of gender.

Enough about what I think. What do you think? Do women make better investors than men?

Financing Your Business Part 2: Debt

DEAR INVESTOR JUAN

Perhaps the most important reason why you, as a business owner, would want to (partly) finance a venture with debt is that you want to maintain majority or sole ownership and control of the business, which may be significantly diluted if you instead use additional equity financing, as was discussed in Part 1. Also, as I already mentioned in that post, while the business entity would have to be formed first (and in many cases, be in operation for a number of years) before a business loan gets approved, the entrepreneur can always use personal debt to supplement the initial equity raised.

Having said that, here are the most common sources of debt financing for budding entrepreneurs.

1. Credit card debt. Yes, I'm not joking: you can use your credit card to finance some of your business's capital needs. Not only that, it can be your cheapest source of financing if you play your cards right. Remember, you only get charged if you don't pay the entire balance on or before the due date; so the key is to use your credit card to buy some of your business needs, like say, your monthly inventory if you're running a sari-sari store, and pay the entire balance on the due date. Doing this is like getting a one-month loan at zero interest rate every month; as a deal, nothing can be sweeter.

Of course, paying beyond the due date comes at a terribly high price: credit card financial charges in the Philippines run at around 3.5% per month, or 42% per year (annual percentage rate or APR). So don't even bother using your card if you know you won't be able to wipe out the balance every month.

2. Cooperative/payday loans. If you're currently working, ask your more seasoned officemates the going rate for payday loans or for loans offered by your office credit cooperative, and you'll hear that it's anywhere from 1 to 5% per month (by the way, this is add-on interest, which is applied differently than the monthly compounded interest rate of credit cards); while not as high as the infamous "five-six" rates offered by loan sharks, 5% per month is still quite expensive. Still, you might find these loans useful because they are readily available and the application is usually hassle-free.

3. Loans from government offices (SSS, GSIS, Pag-ibig). Not a lot of people know this, but you can actually use all of those deductions you see on your paychecks to your benefit as early as two years after the start of your employment. For example, you can get a two-year, 24,000 peso loan from SSS at only 10% per year. Also, apart from housing loans (best rates in town if you're going to borrow 1 million pesos or less, by the way), Pag-ibig also offers multi-purpose loans and calamity loans to its members. Far from being worthless, these government agencies can boost your debt capacity and strengthen the capital base of your business.

4. Bank loan (personal). Sometimes banks offer really low interest rates for personal loans, like less than 1% per month, add-on, with borrowed amounts that can range from 10,000 to 500,000 pesos. The problem is, the application period may take some time, and there's no certainty that your application will get approved (I know a couple of people who have already been turned down even if they're capable of paying back the loans).

5. Bank loan (business). If your business is already up and running, and you need additional financing for expansion purposes, for example, you can get either a line of credit or a business loan from a bank. With a line of credit, an amount you apply for will be made available to you for a specified period of time; when you need the money, you can borrow or draw funds from this line at a predetermined interest rate, and you don't have to submit an application every time you borrow. SME business loans, like the ones offered by BPI and DBP, generally requires collateral.

In getting a bank loan for your business, it would help immensely if you already have a long and meaningful relationship with the bank, even just by maintaining a considerable deposit balance. With this kind of relationship with your bank, there's a higher chance of getting your loans approved, getting lower interest rates, and even securing a business loan for your new business.

6. SME business loans from other financial institutions. Like the ones offered by Small Business Corporation (SBC) and SSS. SBC even offers debt financing for startups, so just make sure that you have a sound business model and a well-prepared business plan for your new business. You can probably even get lower rates from these institutions than what most banks provide.

To end, just remember two important things before you borrow money for your business. One, by borrowing, you will be committing your business to a fairly large business expense (interest plus principal repayments), so make sure that you can generate enough cash flow (not profits, mind you) to meet these future needs, or your business falls to ruin. Two, even if you organize your business as a corporation or a limited liability company (each of which provides owners with limited liability for business debt, meaning creditors can only run after the assets of the business), almost all commercial lenders will require you, as the owner of a new or small business, to personally guarantee the loan with your personal assets through what is called a surety, a guarantee which essentially wipes out your limited liability. In other words, before you borrow any amount for your business, be ready to lose your shirt (and maybe your underwear too) if you're unable to repay your debt.

4 Investing Insights from Burton Malkiel that Simply Make Sense

A few months back, I featured a helpful investment guide from Burton Malkiel's pioneering book, A Random Walk Down Wall Street. Here are a few more words of investing wisdom from the man who arguably started the field of personal finance, from this recent interview with Yahoo! Finance.

1. On the predictability of stock prices: “It is not that stock prices are capricious in any sense, it is quite the contrary. [Prices are] essentially unpredictable, not capricious, but unpredictable because true news is unpredictable."

2. On the efficient market hypothesis: “The efficient market hypothesis does not mean that prices are always right. We don’t know at any one time whether [they are] too high or too low.”

3. On the intrinsic value of stocks: “[A] stock ought to be worth the discounted present value of the whole stream of cash flows, future cash flows. Who knows what the future is going to be?”

4. On the difficulty of convincing people that it's practically impossible to beat the market: “Telling someone that you can’t beat the market, is like telling a six-year old that Santa Claus doesn’t exist.”

Financing Your Business Part 1: Equity

DEAR INVESTOR JUAN

Dear Investor Juan,

Many aspiring entrepreneurs fail to put their business ideas into reality because there's almost no way for them to access external financing, like through banks, for example. Most financial institutions have very strict requirements: banks, for example, require at least three years of operations; and even if the individual has real property that may be used as collateral for a business loan, it does not guarantee approval.

Based on my research and personal experience, banks charge an annual interest rate of 14 to 17%. Individual lenders (loan sharks), on the other hand, charge as much as 8% a month, which is equivalent to 96% annual interest. I guess this is the reality in the Philippines, where wealth distribution and access to capital are dismal.

What's the best way to finance a business startup? I fear that my personal funds won't be enough for the business that I have in mind, so I may have to turn to other sources.

Thanks!

Anonymous


Dear Anonymous,

Raising the necessary capital is the second most important challenge would-be entrepreneurs would have to face in founding a new business (coming up with a sound business model, of course, should be the most important concern for entrepreneurs, but that's a matter for another post). In forming your business, you would need to have enough cash for machinery and equipment, the purchase or lease of real property for your office and/or production facilities, investment in raw materials or merchandise, buffer or contingency funds, and registration costs, among others. And even if you're able to successfully form your business, eventually you'll need to expand, and your profits may not be enough to finance this growth.

Entrepreneurs turn to two main financing sources at the onset of the business: equity and debt (which are both considered external sources; internal financing comes from the business's earnings). Equity represents ownership in a business, and the consequent claims of owners on the earnings and assets of the firm; in other words, equity is money that comes from the owners and investors of a business. Debt is debt, money that comes with an obligation to repay the borrowed amount, plus interest, in future periods. Naturally, startups would have to turn to equity financing first as the business entity would have to first exist before it can borrow money, although entrepreneurs can also avail of personal loans to finance their businesses (something that will be discussed in Part 2).

Here are some obvious and not-so-obvious sources of equity financing.

1. Your own money. As an entrepreneur, staking some of your own money is something you cannot avoid (although in some cases, certain skills and non-economic assets can buy you a stake in a business as an industrial partner); in any case, risking your own money shows other potential investors and creditors that you are confident of the soundness and prospects of your business, so it becomes easier to convince them to take the plunge with you. But since most of the time you what you have won't be enough for your business (like in your case), you have to turn to other sources like...

2. Your family and friends. If you can't convince the people closest to you that you have a winning formula, how can you convince anyone else? But even if you are able to wow your family and friends with your business plan, unless you come from a clan of hacienderos or politicians, available funds will still most probably be limited. Also, before you ask your loved ones to be your business partners, remember that money can fray even the strongest ties, so try your best to convince everyone that it's not personal, just business.

3. Angel investors. These are individuals who have excess capital earmarked for investment in new new and existing firms. Since these investors are presumably very wealthy, they are likely to have more available capital than your family and friends.

Angel investors will likely just be interested in businesses that they are familiar with and industries with which they have extensive experience. Also, with their extensive experience, they can provide helpful advice and connections to you and your business.

I don't know any angel investor personally, but I'm sure we all know the type. The best example I can think of is the character "S.R. Hadden" of Hadden Industries in the 1997 film Contact starring Jodie Foster (it's a great film, you should see it).

4. Venture capitalists. These are organizations whose business it is to invest in startups; by investing early in a business's life, venture capital firms or VCs bet that phenomenal growth will follow if the business becomes successful. Like in the U.S. where the VC industry is much more developed, in the Philippines local VCs are also partial towards businesses that have a high-technology base, so if your just thinking of a kariton food business, forget it. But if you do get VC funding, you get to benefit from value-added services like management and technical assistance, strategic guidance, and network of contacts.

There are active VCs operating in the Philippines: perhaps the most notable of these are Narra Venture Capital and ICCP Venture Partners. For smaller scale businesses, there's the Small Business Corporation, a government-owned and -controlled entity that provided financing (both equity and debt) to small and medium businesses.

If you're considering approaching an angel investor or venture capitalist for additional financing, the most important issue you need to think of is having to give up partial control of your business to strangers. If you want to maintain absolute control, or at least keep it within your circle, you might want to just borrow your capital shortfall, which is something we'll discuss in Part 2.

10 Reasons Why Small Businesses Fail

IN THE NEWS from The New York Times

There's this myth that the one thing successful "technopreneurs" in Silicon Valley have in common is that they all have failed at least once. If it's true, then it's reason to rejoice for someone like me who has already tasted bitter failure in founding and running a business; at least, I already have that one little detail taken care of in my quest for billions. If not, then let's all try our darndest to benefit from the mistakes of those who have come before us and avoid needing to learn this most expensive lesson first-hand.

1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company. Diligent market research is key in avoiding this mistake.

2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse -- meaning they need to be liked by everyone. They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. The biggest problem may have is yourself.

3. Out-of-control growth. This one might be the saddest of all reasons for failure -- a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.

4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind. If you have no idea how accounting works, learn it (you can start with this post and this post), or get a partner who is familiar with it; you can't rely on your external accountant to do the important things like financial planning for you.

5. Lack of a cash cushion. If we have learned anything from the financial crisis two years ago, it’s that business is cyclical and that bad things can and will happen over time -- the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.

6. Operational mediocrity. No business owner will describe his or her operation as mediocre, but we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).

7. Operational inefficiencies. Paying too much for rent, labor, and materials (something I have unfortunately learned the hard and expensive way). Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.

9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads -- all reasons many family businesses do not make it to the next generation.

10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition that will most probably render them obsolete in the next few years. In short: don't enter a dying industry.

The Ins and Outs of Bonds

DEAR INVESTOR JUAN
PERSONAL FINANCE 101

Click image to enlarge

Dear Investor Juan,

I'm thinking of investing in one of the listed bonds in the table above, say $50,000 in ROP 13. How much annual interest would I get? Can you please help me understand what the COUPON %, INDICATIVE OFFER PRICE, and INDICATIVE OFFER YIELD % mean?

I would really appreciate it if you can help me out on this.

Thanks,
Harris

Dear Harris,

While in the table you provided we only see US-dollar denominated bonds issued by the Philippine government (ROP = Republic of the Philippines) and a Philippine government-owned and -controlled corporation (GOCC) like PSALM, all of the terms we'll discuss in this post are also applicable to peso-denominated bonds and corporate bonds.

Here are the important terms and features that you need to know about if you're thinking of investing in bonds.

1. Par or face value

• The amount paid by the bond issuer (borrower) to the bond holder (lender or investor) on the bond's maturity date, when the bond expires or is redeemed
• You can think of it as the principal of the debt issue

2. Coupon rate (COUPON %)

• The percentage of the par value that is annually paid by the issuer to the bond holder as interest
• A COUPON FREQUENCY of SA (semi-annual) means coupon payments are made every six months.

Coupon payments and the par value constitute the cash flows received by the bond holder in return for buying (or investing in) a bond and holding on to it until maturity. If you buy ROP 13 bonds with a total par value of $50,000, you'll receive coupon payments worth $50,000 x 0.09 x 0.5 = $2,250 every six months until the bond matures in February 15, 2013 (that's four payments) and one payment of $50,000 on that date. In the Philippines, coupon interest is taxed at 20%, so you'll actually just get to take home $2,250 x 0.80 = $1,800 in interest every six months.

3. Price (INDICATIVE OFFER PRICE)

• How much a bond sells for
• Different from the par value

Just like other assets or investments, the price or market value of bonds fluctuate depending on market and macroeconomic forces. Of course, the higher the demand for a particular bond, the more expensive it becomes. Also, changes in interest rates directly affect the price of bonds: increases in interest rates (not to be confused with the coupon rate discussed above, which is fixed) result in lower bond prices, and vice versa.

The bond price is quoted as a percentage of the par value. This means that an ROP 13 bond with a par value of $1,000 and a price of 116.125 is currently selling at $1,000 x 1.16125 = $1,161.25; or, if you plan to buy bonds with a total par value of $50,000, you would have to pay $58,062.50. Because ROP 13 is selling for more than its par value, it is said to be selling at a premium; bonds selling at below par are selling at a discount.

4. Yield to maturity (INDICATIVE OFFER YIELD %)

• The percentage return an investor would earn every year if he or she holds on to the bond up to maturity

Because you would have to pay a higher price than par to invest in the ROP 13 bond, you would only earn around 1.3% per year on your investment (excluding taxes) up to maturity, way lower than the coupon rate of 9% per year. Of course if you're lucky and the bond further increases in price before maturity, you can always sell it at that higher price and earn a higher return, possibly even higher than the coupon.

To illustrate how yield to maturity or YTM is computed, let's take a look at a better example, one whose remaining years to maturity is more whole: say, ROP 17, which has a coupon rate of 9.375% and remaining years to maturity of 6.06 ~ 6 years. An ROP 17 bond with a $1,000 par value would cost $1,345 today (since it has a price of 134.50), and you will get 12 payments of $1,000 x 0.09375 x 0.5 = $46.875 each every six months and the par of $1,000 on the maturity date six years from now.

The negative cash flow in Period 0 (now) indicates a cash outflow from the perspective of the bond holder (you). All future cash flows are inflows.

To get the YTM of the bond, you can use the IRR function of Excel (we multiply by 2 to annualize the YTM). 

We see that if you invest in ROP 17 today and you plan to hold on to it until maturity, you will just earn  around 3.041% per year (excluding taxes), which is very close to 3.085% quoted in the table (the difference is due to the fact that the bond still has 6.06 years to maturity and not exactly 6 years).

So, that's it. I hope now you have a better idea of how to evaluate bonds. If there's one thing we learned from this, it's that ROP 13 bonds are quite unattractive with a yield of only 1.3% per year, and that, in general, bonds with more years to maturity offer better yields (although historically, that is not always the case).

By the way, before I forget, at issue, bonds are sold at par (price = 100) and the coupon rate equals the YTM. It means the ROP 13 bonds were actually quite attractive when they were issued in 2002, but the price has since increased because of decreasing interest rates.

In a future post, I'll talk about the different risks associated with bonds. I'll keep you posted.

6 Enduring Investing Insights from Jack Bogle

Jack Bogle is the pioneering founder of the Vanguard 500 fund, the granddaddy of all modern passive index funds. Here are some excerpts from his recent interview with Money Magazine.

1. "In 2008 we had one of the largest cuts in dividends in the history of the S&P 500. Now the dividends don't seem to be coming back, even though the earnings have. What are the corporations trying to tell us? I don't know. Maybe they're trying to tell you that these earnings are phony, and we don't have money to pay you dividends."

Dividends are an important source of information for investors: a reliable, constant stream of dividends reflects the stability of a firm's earnings, while falling dividends may signal bad prospects for the firm. When dividends fail to go up when earnings do, it's a sign that the rise in earnings may just be "phony," or a product of "creative accounting."

2. "Don't reach for more than the market return (which he estimates at around 8% per year). You could try leverage (borrowing money for investment), or buying commodities and gold. And maybe you'll do well -- but who really knows? Those alternative investments have no internal return. They are 100% speculation. You are speculating you can sell to someone for more than you paid. They're like stocks that pay you no dividends and offer no earnings growth."

Here, Bogle refers to the Greater Fool Theory of Speculative Investing: you buy something for 100 pesos only because you believe you can later sell it for 150 to a "greater fool"; unfortunately, sometimes you'll find that there's no fool greater than you.

3. "I don't rely on the efficient-markets hypothesis. I go by the 'cost matters' hypothesis: Whatever the market returns, on average you will beat your rivals if you lower your costs. And that's what index funds do."

Investing is like playing poker in a casino in that even if you bet against other players, everyone loses since the house skims a little something off the top. Minimizing costs -- by not paying fund managers and investing in index funds -- increases your probability of winning.

4. "If you're not indexing, you've got problems. First, a stock selection problem -- maybe you'll pick good stocks, maybe you won't. Then a market sector problem -- will growth do better than value? Finally a manager selection problem, which is the worst because the only way people have found to pick good managers is to look at past performance. That's not a reliable gauge."

You can try doing it yourself, but what makes you so sure that you can do better than the next guy? Okay, you can pay someone to do it for you, but what makes him or her so great? Well, you can take a look at how his or her fund has performed in the past. But what does past performance tell us, really?

5. "We're all buy-and-hold investors because collectively we all own the market. So, as a group, investors are buying and holding. The only question is: Can I out-trade the other guy? Am I really smarter than the guy I'm selling Microsoft to or planning to buy it from? Well, one of you is going to prove to be smarter. And I'd say that was a flip of the coin -- except for the cost of trading."

Active buying and selling of stocks is really a zero-sum game: if you gain 100 pesos by selling a share of stock, then the buying party is set to lose the same amount; of course it could go the other way and you find yourself at the losing end of the transaction. But with trading costs, management fees, and taxes, the game becomes less than zero-sum and everyone loses. Therefore, the best long-term strategy is to pay as little in fees and costs as you can.

6. Stock-picking pros aren't stupid. They're just expensive.

I couldn't have said it any better.

5 Resolutions for a More Prosperous 2011

Photo courtesy of Nolan Espenilla

1. Concentrate on needs rather than wants. Thinking of buying an iPad or an iPhone 4, or maybe even both? Thinking of replacing your five-year old Honda City with a brand new Accord? Think again. Spending on big-ticket items that you don't really need is the surest way to deflate your savings and maybe even get you neck-deep in debt. Two things are key: prudence--question the rationale behind every major purchase until every bit of doubt is resolved; and self control--spending on more “important” things in the future (e.g., a house, top-notch education for your kids, your own business) should provide more lasting rewards than succumbing to short-term temptations.

2. Only buy things you can pay for with cash... then pay with your credit card. It almost always does not make sense to borrow money to buy stuff since debt interest rates are almost always higher than what you can consistently earn from any investment. But if ever you decide to buy something big that you have enough cash to pay for, charge it to your credit card if you can, earn reward points and get the instant freebies, and pay your entire credit card balance on the due date.

3. Start with a clean slate--wipe out your credit card debt, NOW. It’s something you’ve been putting off in the last couple of years, so by now all that cheap talk should have already cost you tens of thousands of pesos in interest rates. It’s time to stop the bleeding now--not tomorrow, not next month, not next year, but NOW. And don’t tell me you don’t have the dough to pay off your credit card debt when you seem to be loaded enough for regular night outs, expensive dates, and extravagant holidays. Scrimp and tighten your belt for a couple of months and reap the rewards of being debt-free forever.

4. Time is gold--don’t waste it. It is probably the most valuable but also most overlooked scarce resource that we have: there's never enough of it to do all the things that we need and want to do, yet we spend and waste it like we'll live forever. I’m not saying we should all work our collective asses off and exhaust ourselves to death, but rather find joy in being more productive. Spend less time with your iPad consuming, and more on your laptop creating. Better yet, get your hands and feet dirty and do something worthwhile irl.

5. Make your money work for you--invest. Worst thing you can do with you money: spend every cent. Second worst thing: keep everything under your mattress. Third worst thing: keep everything in the bank. In the past 11 months, we have learned the whys and hows of investing; this new year, it’s time to put our money where our mouth is, take the plunge, and actually invest.