Dream House Turned into a Nightmare

Are we not dreaming of acquiring a house of our own? Not just an ordinary house, but a house that stands out in your hometown. Or one that is situated in a posh subdivision, complete with modern facilities.

I believe that every Overseas Filipino Worker (OFW) is putting this as one of the priorities in their bucket list. There are a number of reasons why is this so. Few of them follows:

• A house is a good investment. Its value will never decline, but always on the rise.
• That the fruit of their labor abroad will not be spent on something else, but on a worthy investment, their dream house.
• So that their family will somehow experience a more decent dwelling place than what they were used to.
• As and when they retire and go back home, they have a place to spend their retirement life in their hometown.
  
• To show off their success in working abroad. Having a nice house is a concrete evidence to the whole town of how successful they are in their field of work outside their country.

There are a dozen more reasons and justifications that one can come up with. Let us just stick to the five above. For those who are have the last reason as their main motivator, they are surely on their way to their disaster.

The first four reasons are valid motivators. However, have you asked yourself if you could afford with how much you are currently earning? Have you reviewed all items on your spending?

This is what happened some few years back, when the economic climate was still a sunny day. Banks in the United Arab Emirates (UAE) were offering loans 20 to 35 times ones salary. Obviously, the banks are lending to all salaried expatriates in this part of the world more than they could afford to pay. And a lot of fellow Filipinos borrowed from through these offers in order to acquire a multi-million real estate.

Even before the gloomy economic situation progressed to what it is now, some of them were terminated from work. The logical thing that happened next is that they were not able to pay off their loan. Their multi-million dream house just disappears like a bubble, that they were not even had the chance to enjoy it.

How then could they enjoy the appreciating value of their investment, or a decent house when they retire if they could no longer maintain it?

Truly, nothing is permanent or secure that this world offers. The ultimate priceless investments are those that will be enjoyed in eternity.

I personally knew at least five fellow Filipinos who are victims of this dream houses, yet turned out to become their most dreaded nightmare. Month after month, they are always on the look of sources for paying their increasing debts.

In order to avoid falling into this trap, you may find these simple practical tips useful:

• Do not acquire that dream house impulsively. Think it over and over. Plan. Pray for guidance. How will you enjoy it when you or your family are staying abroad. How long will you enjoy it every year. If your child or some family members are in the Philppines, why not acquire at least a three-door apartment, your family stays on the first door, while you rent out the other two.
• Save up under your dream house account rather than resorting to bank loans. Saving up while waiting for the proper time when you are ready to retire or some of the members of your family is returning home for good is the best alternative than incurring loans and paying its cost. Buying your dream house while no one is residing, the faster mother nature will take its toll, hence you will be paying higher maintenance cost.
• What you may have saved up, after having accumulated enough of it, might be used to invest in some high yielding assets. Or you may venture into a business. In this way, these assets you have invested in may be the one to purchase your dream house.

Aiming for that dream house is not bad at all. In fact, our dreams are the main motivators for us to focus on our professional endeavors. However, enough planning, thinking, and prayers should also be resorted to so that your dreams may not turn to a nightmare.

Lastly, there are a lot of professional financial planners whom you can ask help. Also, books that you can learn some practical tips are very much available. The Holy Bible contains every practical tip one should need, so seek from its pages regularly.

Cost of Ignorance

Nine out of 10 people that I know as of late do not exactly know how interest and other financial charges of credit cards are computed. How and to what extent these charges will eat them alive by taking the bait of paying the minimum amount.

There is a legal maxim which states that "ignorance of the law excuses no one." This maxim holds true to these rules that are made and implemented by banks or financial institutions issuing the plastic money called credit cards.

Majority of these ignorant holders of this plastic money, especially the defaulters always complain of hidden charges. Are there really hidden charges? I do not think so. You may just refer these as hidden as these were not elaborately explain, in case there was an explanation by the credit card agent. All they present are the supposed benefits and convenience they have to offer.

But, truth is all the finance charges and the mode of computing interest are all written on the application form, the package that goes with the credit card, and on the statement of accounts. They are just there, but we consumers failed to read them. Agents do not discuss this elaborately either, for more reasons than one.

For the sake of the readers of this article, here are some of the salient information regarding the interest and other finance charges that goes with your credit cards, especially when you are paying only the minimum amount.

• Interest rate charged is from 2% to 3% per month. As long as you are not paying the full amount due, interest will be compounded monthly. To illustrate, suppose you have an outstanding balance of $1000, but you pay only the minimum of say $100, you will be charged interest based on the $1000. The following month, if you are doing the same pattern of paying the minimum, and suppose your balance increased to $1200 after interest and usage of your card, the interest will be computed based on the $1200 balance. It will go on and on until you pay off your balance.

• There is also what you call as over the limit charge, usually a fixed amount. This amount will be charged once your bill exceeds the maximum limit of your credit card. How could that be? It may happen if by continues interest charges are being piled up, chances are the billed amount will exceed the limit. Mind you, this fixed amount will be added to your balance, and again computed with the interest.

• Another charge is called late payment charged, also a fixed amount pegged by the financial institution. As the name suggest, if the cardholder failed to pay on or before the maturity date as indicated in the statement of account a fixed amount is charged as penalty. Even a day late, the amount is charged. Again, if full balance and this late payment charge is not paid, interest will be computed on the full balance including all interest and other charges.

Onerous? yes, it is. But, this is the fact of the matter about credit cards.

If you can not keep up the payment of the full amount due to your credit card bills, it is advisable to stop using this plastic money. If you do not want to be eaten alive by the onerous interest and charges, think twice on continuing with a lifestyle dependent on that plastic cards.

"For Emergency Use"

Ever heard of this phrase: "for emergency use"?

No, I am not referring to that red signage posted on building walls and in most cases situated beside a fire extinguisher. Let me help you refresh your memories. We always hear this phrase uttered by some friends, acquaintances, relative, or even yourself. Can you now relate on somebody relies on their credit cards as emergency funds?

In some instances this beautiful phrase is also used as a sales pitch by an agent offering credit cards. Just like a couple of weeks ago, an agent of one of the international banks here in the UAE called me up and informed me that I am privileged enough to have a pre-approved credit card. As I declined the offer, he uttered this sweet phrase and further added that nothing will be lost with me and everything is to my advantage. I countered him by asking: (a) what type of emergency are you referring to?; (b) why and how in the world could a credit card be the best source for emergency funds?; and (c) cite a real life scenario where a person who is in an emergency situation is being saved by his credit card.

Having failed to satisfy my rebuttal questions, he rested his case. That sales pitch did not produce any sales at all.

For those cardholders who believe that their credit card(s) are a great help in times of emergency situations, I am warning you, that you are in a very dangerous situation. You are no different from a suicide bomber. You are in the belief that what you are carrying is for a noble cause, not counting that your life is more precious than that alleged noble cause. No matter how noble you may think it seems, you will still be killed alive by the usurious interests and charges associated with your credit card, especially when you are paying the minimum amount due.

Reliance on the credit card as an emergency fund is a serious mistake. There really is no substitute for setting aside some actual emergency funds out of your income--be it from slary or from any other source--to answer any emergency needs one might have in the future.

How to do this? You may avail the services of a professional or you can do it your own. You can purchase an insurance or any other instrument from reputable insurance companies or do some self-insurance, by setting aside funds just for emergency purposes. Either way is incomparable to reliance on credit cards.

N.B. after having received an overwhelming response from my personal contacts and some visitors of this site with thier comments and pm's sent, i am encouraged to write a personal finance article on a weekly basis, instead of the planned fortnightly publication. i will try my best to publish this one weekly (every sunday or monday of the week.) personal thanks to Randel, one of my online buddies, whose blog also inspired me and my WIN - Al Ain family for the support. If you find my personal finance articles useful, please share this to your friends or let them visit this site regularly. God bless.

On Credit Card Debts

A couple of months or so, I personally know of several people arrested by police due to unpaid credit card debts. And several more people who are in danger of having arrested if they still fail to pay the skyrocketing arrears on their credit card debts.

By the way, in this part of the world, the UAE (United Arab Emirates), non payment of your debt is a crime, not just a simple civil case. You could be imprisoned for non payment of your debt.

Banks are resorting to aggressive measures as a result of this depressed economic situations. For during those heydays several years back, they were reaping huge profits from the consuming public, who happens to be you and me.

The credit card system can be likened to a one-on-one game. A game played by the financial institution issuing the credit card and the credit card holder. All rules of the game is obviously created by the issuing institution. Majority of these rules (take note, I said majority and not everything) are to their advantage. The cardholder then is left with a minute part of the set of rules that are to his advantage.

Does it mean that credit card is bad? No it is not. But, incurring credit card debts is. If you just know the rules that are to your advantage, you can avoid credit card debts. And if you are trapped by the rules set to the advantage of the credit card issuer, then you are in big trouble.

You may incur credit card debts if and when: (a) you purchase on installment using your credit card; (b) you pay less than the total amount due reflected on your bill as it matures; or (c) a combination of (a) and (b).

The obvious solutions not to incur credit card debt are: (a) spend within your means; (b) pay the full amount reflected on your credit card bill before it matures; and (c) do not acquire one, if you do not have any.

Now, if credit card is not bad after all, so what good does it give you?

p.s. this will be the first in a series of articles that i may write about personal finance. i hope and pray that i could produce an article about personal finance every other week. so if this article is helpful in anyway to you, my contacts, pls feel free to write your comments, suggestions, or any reactions.

What Went Wrong?

The photo was said to be published in one of the local dailies in the Philippines. It is said to be taken during that burial day of former President Cory Aquino.

Note the caption under the picture, especially the red underline. I was thinking about how did this oversight took place. I could hardly figure out how this vital information could be missed out by the team of this national daily?

Was this mistake brought about by the fact that all the people behind this national daily is so greatly affected by the loss of Cory? Or, was this a reflection of how greatly dismayed the people of this national daily to the incumbent president?

Judge for yourself.