Sometimes, it’s easier when it’s all laid out for you… like taxes. You have to pay it. There’s no this or that about it. However, life throws you fuzzy, complicated questions all the time such as: Where do you invest your money? Or what’s a better way to pay for your child’s education? Below are a series of top financial questions couples are usually faced with, and what our finance experts have to say about them.
Should you pay off your debt or start an emergency fund? “First of all, what kind of debt are we talking about?” asks Mayang Sison-Pascual, a personal and family financial consultant of Manulife Philippines. “There is good debt and bad debt.” • Good debt—builds your assets like a real estate loan or a business loan. • Bad debts—usually credit card bills for liabilities like unplanned travel, appliances, or a new cell phone
If you have “good” debt, Sison-Pascual recommends you proceed. However, you should still try setting aside some money for an emergency fund. If you are mired in “bad” debt, she recommends immediate reduction of debt first. Cut your credit card in half if you really can’t manage your debt.
Reynold Gan, unit head of RGAN Financial Planning Group, affiliated with Philamlife and Philam Asset Management Company recommends the following formula for paying off debt while still putting in some money for emergencies: • 10 percent of your income should go to emergencies • 20 percent to debt servicing (prioritizing the highest interest and lowest term first) • Live on the remaining 70 percent
Should you purchase an educational plan or just set aside the money in a bank? Gan explains the history behind the stigma of educational plans. “These plans were designed to provide the actual tuition of the child upon enrollment in a university. This spelled trouble for pre-need companies since tuition deregulation allowed schools to increase rates by leaps and bounds, an action that pre-need companies did not account for.” However, today, educational plans are now “close-ended,” meaning the amount that the child receives upon entering college is already predetermined by the insurance or pre-need company. This type of plan allows for minimum risk on both parties.
Sison-Pascual gives a shortlist of advantages for an educational plan: • Immediately creates and guarantees in full the total amount needed for your child’s education upon first payment of your educational plan and for as long as you keep your promise to pay the premiums. • Ensures that whatever happens to the parent, the child is guaranteed an education. • Funds are never misdirected to other immediate concerns. • A lot of these plans have built-in insurance benefits such as credit, term life, accidental death and disability, aside from premium waivers. • Usually, the dividends from these plans are able to offset inflation so it maintains its value and earns. • It’s a systematic way of saving for your child’s future.
A typical bank product, according to Gan, may not carry all the built-in structures of an education plan and are subject to varying interest rates and economic changes.
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