The Smart Filipino's Guide to Financial Planning

By Josh L. Domantay, CIS®


Our society views investing as an intriguing and neglected activity because of lack of education and of a culture that fails to be provident. Moreover, when it comes to insurances, due to being morbid in nature, most fail to understand it and realize its real worth. We have thereon become skeptic to these terms—topped with the rise of consumerism, which lives for the desire to want more, acquire more, but not save more and prepare more. More commonly, our generation, which should be the most educated, insofar suffers on bad practices with money management and the naiveness with financial jargons and financial intricacies in the government. These all become root cause of our failure to upgrade our money habits and to jumpstart activities that will take care of our financial life throughout the decades. Even to a minimum wage employee, it’s not difficult to foresee, prepare for, and save for—foundational learning and planning are all it takes.

If we go through the roots, financial literacy’s not in our academic curriculum; hence, we enter the workforce with minimal knowledge on such topic. Because of such insufficiency, we develop a poverty mindset that consequently hinders our long-term thinking and preparatory measures for our should-be financial commitments. For a typical employee, major financial milestones are not even taken care and thought of until the dawn of early 30s. This failure of preparation leads to financial setbacks that can cost you bankruptcy/massive loss of funds. Each day that passes without knowing much about your financial life is detrimental simply because of two reasons: investment becomes pricier as we get older and we are missing out on the financial rewards on certain stocks’ performances.

In order to guarantee financial success, we must know how to plan for the following: retirement, investment, and estate. These are all milestones on your life journey and are facets of a healthy financial planning. Financial planning can be consulted for with a financial expert. These experts typically hold such professional titles:

  • Licensed Financial Planner
  • Certified Investment Consultant (CIS)
  • Registered Financial Planner (RFP)
  • Lawyer
  • Accountant

Preparation for financial milestones should start on the day you receive your first paycheck. However how small that amount is, you must be able to properly allocate how much goes to your financial funnels. We usually put our savings on bank. A bank is a good reservoir if you want security and minimal risk toward losing your money’s value (the bank’s annual return is around 0.25%). Your money’s basically sleeping there. 

First, get an overview of all your finances. This is represented through your two most important financial statements: Income Statement and Net Worth.

Your Income Statement consists of your Income Stream or Cash Flow (e.g. Business, Salary) and Expenses (e.g. Condominium Amortisation, Transportation). Your Expenses can either be Fixed Expenses (Condominium Amortisation, Postpaid Subscription) or Variable Expenses (Water and Electricity Bill, Transportation Costs). If you subtract your monthly Expenses from the Income Stream, you’ll get your Monthly Net Income.

Your Net Worth is computed by subtracting the values of your Liabilities (Loans, Accounts Payable or Debts, Mortgages) and your Assets. Your Assets can either be Fixed Assets (Land, Building, Equipment, Building, Furniture, Vehicle) or Current Assets (Cash, Accounts Receivable, Insurance Claims, Investments). 

Now that we’re clear and have a breakdown of our finances, it’s imperative to apply the smart money management principles:

  • 50% goes to your primary expenses
  • 30% goes to your secondary expenses
  • 20% goes to your emergency fund/savings/investments

Before we tackle financial planning, you should know and plan your financially-dependent goals. These can be going to graduate school, traveling abroad, buying a house, etc. Afterward, know how much you’ll need and how long it’ll take for you to get them 

  • Short-term = < 5 years
  • Medium-term = 6-10 years
  • Long-term = > 10 years

These will help you strategize and properly properly allocate funds for your financial plans. Financial plans are contracts with a financial company (e.g. insurance, mutual fund, individual stock) that will keep your investments in the hope of growing it.

Now that we’re all set with our plans, let’s put them to work.

Investing acknowledges the concept of compounding interest. This is the heart and soul of investing. Compounding interest, as evident in its name, is an interest in money that accumulates over time (because your money is invested in securities such as government bonds and companies, in which you become a shareholder/stockholder = whenever these companies earn, your money also earns), which you should take advantage of, so that your money can earn more, while you still live your life.

Retirement and Investment Planning

Retirement and investment can both go hand in hand, as both are rooted from one concept: growing your money. Whatever your investment’s future value, you can use that for sustaining your living throughout retirement and/or funding your goals. The intrinsic concept of investment is surrendering a portion of your money to a company and letting it grow over time. One is encouraged to have 2 investment plans1 for retirement (long term, no withdrawals) and 1 for investment (medium term, allowable withdrawals). The latter one can be used for business capital, fund for future goal, or emergency fund. This plan’s supposedly your bank savings plan; however, the bank only yields less than 1% annual growth, hence you’re missing out on your money’s real earning potential. Why let your money sleep if it can grow while you live?

Why have retirement plan? Simply to outperform the inflation rate during your retirement years. The inflation rate is roughly 2% every year, so that’s around 2% of price increase on commodities/goods you buy. Imagine how much goods will cost/standard of living on your retirement years. Your SSS/GSIS pension plan, generally will roughly not be enough to sustain your living come retirement years, although it’s good resource to have, but insufficient to stand on its own. Which reminds me, have you even already computed your pension plan? If not yet, I encourage you to do so. 

For investment plan, once you have sufficient funds, you can invest in single stocks, mutual funds/unit investment trust fundslife insurance companiesreal estate, or business. Since real estate and business are widely known, I’ll just discuss the former four. Single stocks are for those who are well-educated on managing their own investments—having developed throughout practices strong patterns in knowing when to buy and sell specific stocks so that investments end up with more gains than losses. To invest directly in companies, you can hire a licensed stockbroker or open an account at online brokerages like Col FinancialMutual funds are for those who don’t have the luxury of time and, to most, knowledge in managing stocks—a professional fund manager will be investing your money in diversified stocks, bonds, securities, money markets, and other mutual funds and trust funds, in order to minimize risk of losses. Mutual funds are offered by companies, wherein you're buying shares of investments. Unit investment trust funds are similar with mutual funds, but are offered by banks, wherein you're buying units of investments. Life insurance companies, similar to mutual fund companies, also have their designated asset management/mutual fund companies, but they come with guaranteed life insurance coverage. They originated as just a pure insurance company that guarsantees lump sum cash on the event of one’s death. We’ll talk about life insurance in a while. To make it clearer:

Philam Life’s (life insurance and investment) mutual fund company is Philam Asset Management, Inc. abbreviated as "PAMI" (investment), which has a historical performance of 15.1% annual growth at an average since 2003 (PAMI Equity Index Fund). You can check for mutual funds companies’ performances. 

Now, for your mutual fund investments, there are generally 3 types of funds to choose from, which all depend on your risk appetite. These funds are where your money will be invested.

  • Low risk (Bond Funds) invested in fixed income securities e.g. government securities (lowest potential return, average of 1-5% annual growth—historical performance since 2003)
  • Medium risk (Balanced Funds) invested in a mix of fixed income securities and top performing companies in the Philippine Stock Exchange (medium potential return, average of 6-10% annual growth—historical performance since 2003)
  • High risk (Equity Index Funds) invested in the/reflection of the performance of Philippine Stock Exchange (highest potential return, average of 9-21% annual growth—historical performance since 2003)

In choosing a mutual fund company/life insurance company to invest in, the options are quite identical when it comes to growth of your investment and plan inclusions. So the secondary basis must be the company's ability to generate an investment plan with the lowest annual payment possible, without compromising its life insurance coverage and included benefits (a.k.a. add-ons, if there are any e.g. critical illness coverage).

Table below illustrates the comparison of putting your money in a Bank vs. in a Mutual Fund or Variable Unit Linked Plan (VUL)

See that your P100K investment this year could've grown to P404K in just 10 years, assuming there is positive performance in the stock market economy at 15% yearly growth.

Key Takeaway: Both retirement and investment plans (a.k.a. VULs—these are packaged life insurance with mutual funds investment) are generally costlier as one grows older. Each year that you prolong it, the more expensive it'll get. Hence, it's better to start an investment and retirement plan when you're still young. Just start with the minimum to be safe!


Table below compares investment types to Philippine Stock Exchange


Estate Planning

Now, let’s talk about death. Sounds unattractive, isn't it? Well death happens when you least expect it, and that's what makes it so critical; therefore, we have to be financially prepared when it occurs to one of our family members. This is what estate planning or inheritance planning is all about—the management and preparation of all your estate/assets for inheritance purposes. So what does life life insurance has to do with death? Life insurance is the heart of estate planning. Contrary to its popularized futile connotation, life insurance is for your loved ones’ benefits. Technically, we refer them as your heirs/beneficiaries. They can be your spouse, your children, or your parents, or a mix of those. These heirs/beneficiaries will receive your life insurance coverage (in the form of a lump sum money) and all your assets when you die. Though this wouldn’t be for you, they can be used for highly significant purposes, which are for:

  • Payment of burial expenses
  • Payment of your current debts
  • Payment of estate tax (primarily used for)
  • Livelihood income (useful if you have people depending on you for finance)

Here are examples of your assets:

  • House and lot (duly registered under your name)
  • Car (duly registered under your name)
  • Jewelries
  • Cash on hand, cash on bank, cash/earnings on investments

Determining your life insurance coverage is based on either your income (if you don't have any heirs for your assets) or your assets’ value (include to-be-inherited assets from your parents and/or spouse):

If Income = 10x your annual income

If Assets = Certain % of total value/value if liquidated (this is referred to as estate tax - we have a computation table as basis)

Have you ever thought about where will all your assets/wealth will go when you die? Upon your death, all financial institutions like banks, brokerage houses, mutual fund companies and the like are mandated to immediately freeze all your accounts.  So in effect, they immediately become off-limits to your spouse, your kids, and your family. You cannot make special contingency arrangements with these institutions as they will be held criminally liable if they are caught by the Bureau of Internal Revenue (BIR). Now unless your heirs pay estate tax, all your assets will be under the government's ownership. The estate tax, based on Philippine law, is a mandatory requirement needed to be paid to government in order for your assets (including wealth—current cash, cash on banks, cash on investments) to be transferred to your beneficiaries upon your death. Otherwise, the estate/government will take ownership. That’s going to be a sad and hurtful reality if you allow that to happen. Furthermore, did you know that your loved ones and heirs need to pay these estate tax within 6 months from your death or else a hefty surcharge plus 20% yearly interest will be imposed on these assets if the estate taxes remain unpaid. This aspect in finance is where most Filipinos are largely not educated on. Although there are other options for transferring your assets, like through wills and testaments and donor's tax (transfer of your assets while you're still alive), paying estate tax is the overall easiest, most convenient, and cheapest. Remember, your life insurance coverage will be given to your beneficiaries as cash tax-free when you die, hence will be used to pay for the estate tax. How amazing is that?

Table below is the current computation table for your estate tax based on the total value of your assets (values on Over and But Not Over refer to your assets):


Is your current life insurance amount already sufficient to pay for your estate tax?

The modern investment plan comes with life insurance coverage. This is called Variable Unit Linked Plan, which you can avail from life insurance companies. On your scout for this kind of plan, these are the two important metrics to look for in the life insurance company where you’ll invest your money:

  • Historical performance of funds (How successful was the company in yielding high returns for their investments? Can we draw significance in growth? How does it compare with the performance of its competitors?) Check out and click here for Philam Funds' performances.
  • Latest ranking in the Insurance Commission’s Annual Report (How does it compare with its competitors in terms of Assets - Indicator of Wealth, Net Income - Indicator of Profitability, and Net Worth - Indicator of Stability?) Check out

Table below is the Life Insurance Companies Comparative Ranking based on the 2016 Annual Ranking for Life Insurance Companies in the Philippines released by the Insurance Commission of the Philippines, Department of Finance


Now that you’re aware of the value, most especially the time value, of investment and life insurance, you may contact a Licensed Financial Planner of a life insurance company to start your Variable Unit Linked Plan. Click here to connect to a financial planner and receive a free quotation.

To see testimonies of people who invested in a Variable Unit Linked Plan, click here.

If you want to explore the answers to frequently asked questions about investments and insurances, click here.


Josh Domantay