Who needs pre-need?

The pre-need industry has taken a beating recently, with primarily giant education plan providers like CAP and Pacific Plans getting into trouble. With all that's happening, are pre-need products still a wise and safe investment?

My answer: a qualified yes [full disclosure: I am connected with two pre-need companies, both not on the SEC watchlist by the way].

Keep in mind that pre-need products are really just savings plans. Pre-need companies make different variations of basically the same thing: you invest a fixed amount of money for a number of years, usually five, and after a determined number of years, you will get an amount over and above your total investment.

What got some pre-need companies into trouble was the amount promised. I'm sure you all know what went wrong: traditional educational plans promised to pay whatever the tuition was when it was time your kid enters college. Before, tuition was regulated -- it cannot increase beyond 10%. Then, the industry became deregulated, and it became a free for all. The obvious result: pre-need companies, particularly those selling traditional educational plans, could not keep up.

So, should you stay away from pre-need products? Not necessarily. Remember: other pre-need products such as pension and memorial are not affected, because they promise a fixed, pre-determined amount, not an open-ended one.

But what about those selling educational plans? Businessworld has this excellent article that enumerates what you need to watch out for. You can also read the Money Minute primer on pre-need products.

1. Make sure the company is really authorized to sell pre-need plans.

"...the initial step for a prospective client is to ask the Securities and Exchange Commission (SEC) whether or not the company has a dealer's license."

That's easy enough. You can go to the SEC website and check the directory of pre-need companies.

2. Check if the company is financially healthy, if its directors and officers are well-qualified, and if it has a good track record.

"You have to look at the financial statement of the company."

Specifically, look at profitability, capitalization, and liquidity. The pre-need company should be able to provide you with its financial statements. And your trusty old accounting textbook will help you with the formulas for financial ratios.

3. Compute the ratio of its trust fund to actuarial reserve liability (ARL).

"Ideally, the ratio of trust fund to ARL should be 1:1. This indicates a pre-need's ability to pay the benefits expected by each and every plan holder."

The trust fund, which is actually managed by a third-party trust department of a commercial bank, is invested in various instruments that will allow it to increase in value in order to cover the pre-need company's future obligations to its planholders. The ARL represents the company's obligations.

The trust fund, then, should be more than 1, meaning it should be able to more that cover the ARL. But it's also important to check where the trust fund is invested. How much is invested in equities? In real estate? In fixed-income securities?

Now, back to my answer: a qualified yes. Why qualified? I have some reservations about educational plans.

• They are quite expensive for one thing, especially if it's for grade school and high school, because those plans need a shorter period of time for your investment to grow. I think the cost of open-ended college plans, on the other hand, are more reasonable. So you may want to go with a college pre-need plan but consider other ways to fund your kid's early education.

• On the other hand, you may also want to rethink paying for college through an educational plan. While the cost is significantly lower compared to plans for grade school and high school, I am a bit skeptical nevertheless. That's because you can set aside a much smaller amount to come up with the guaranteed annual payouts that these plans offer. What makes them more expensive (in this case relative to a do-it-yourself savings plan) is that they promise a hefty graduation gift at the end of the plan. You pay for that gift. It's not a freebie generously promised by the pre-need company. They're also expensive because they include commissions to the agent who sold the plan to you and a portion that will help pay for the company's overhead expenses, and then some. Sure, you pay commissions or fees for other investments, but commissions for pre-need plans are much more generous.

But they're not all that bad.

• What's good about these plans is that they force you to save. The disincentive to miss a payment is strong (you don't get anything). So if you have trouble setting aside savings diligently, this is one way to go.
  

• They may not be able to pay for all the future costs of a college education (the plan you chose may not be worth as much when you see the actual tuition bill, plus there are other expenses like dorm fees, textbooks, supplies, and junior's weekly allowance to pay for), but at least, a guaranteed payout assures you that you'll get something (I know, you might be too cynical to believe you will get anything at all, but that's where doing your homework instead of relying on an agent's rosy promises comes in).

So, you don't have to rule out educational plans altogether. It might be a good idea to augment one with a do-it-yourself savings plan. But if you're very disciplined with savings, and you invest them wisely, it's very possible you will end up earning more just by doing your own thing.

One of these days, I'll come up with actual numbers to demostrate this (and hopefully prove my point more convincingly). In the meantime, think about it. The days when securing your child's future meant paying off a traditional educational plan are over. ¶ 9:32 PM

Saving

Many people do not save because the amount they can save seems so small that it is not worthwhile. Others believe that God is not pleased with saving.

1. Scripture encourages saving.
We are encouraged to save to prepare for future needs. Saving means not spending today so you will have something to spend in the future. Joseph is an example of a person who saved. In Genesis 4l , Joseph saved during the seven years of plenty so that there would be enough to live on during the seven years of famine. Proverbs 21:20 (TLB) reads, "The wise man saves for the future, but the foolish man spends whatever he gets. "

Save only if also giving.
The only time we should be saving is when we are giving so that our hearts will remain focused on the Lord.

Jesus told this parable. "The ground of a certain rich man produced a good crop. He thought to himself, `What shall I do? 1 have no place to store my crops.' Then he said, `This is what I'll ~do. I will tear down my barns and build larger ones, and there I will store all my grain and my goods. And I'll say to myself, "You have plenty of good things laid up for many years. Take life easy; eat, drink and be merry. "' But God said to him, `You fool! This very night your life will be demanded from you...This is how it will be for anyone who stores up things for himself but is not rich toward God (Luke 12:16-21).

Jesus called the rich man a fool because he saved all of his goods and was not giving generously.

Save regularly.
The fundamental principle you need to practice to become a successful saver is to spend less than you earn. Then save and invest the difference over a long period of time. "Steady plodding brings prosperity; hasty speculation brings poverty" (Proverbs 21:5 TLS).

You do not have to earn a lot of money; rather, save consistently. "Go to the ant, you sluggard; consider its ways and he wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest" (Proverbs 6:6-8). Ants are small creatures incapable of saving a great quantity, yet they are called wise because they save for future needs.

How much should we save?
There is only one example of saving a particular amount in the Bible. Joseph saved 20 percent per year during seven years of plenty so that the nation would have enough food for the following seven years of famine. "Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance" (Genesis 41:34). In our opinion, it is wise to attempt to save ten percent of our income.

2. Investments
People place some of their savings in investments with the expectation of receiving an income or growth in value. Investments vary in different cultures and economies. Farms, animals, food, real estate, precious metals, stocks and bonds are all examples of investments.

Scripture also encourages us to avoid risky investments. "There is another serious problem 1 have seen everywhere-savings are put into risky investments that turn sour, and soon there is nothing left to pass on to one's son. The man who speculates is soon back to where he began-with nothing. This, as I said, is a very serious problem, for all his hard work has been for nothing; he has been working for the wind. It is all swept away " (Ecclesiastes 5:13 TLB).

3. Gambling
The Bible does not specifically prohibit gambling; however, many who gamble do so to get rich quickly. This is a violation of Scripture. "A faithful man will be richly blessed, but one eager to get rich will not go unpunished" (Proverbs 28:20).

Make a commitment never to gamble, even for entertainment. We should not expose ourselves to the risk of becoming compulsive gamblers, nor should we support an industry that enslaves so many.

[The text is from "Principles of Financial Success", a seminar presented by Crown Financial Ministries.] ¶ 1:18 PM

10 ways to save on gas

One of the things that worries me nowadays is the ever-increasing cost of gas. With spiralling world crude prices and the impending effect of the expanded VAT, we'll be spending a bigger chunk of our budget on gas.

Already, our gas consumption has practically doubled. My P500 used to go a long way, now it just buys me about half the mileage. So if you're a motorist like me, what can you do to save on gas? Here are 10 ways experts say can cut your gas consumption and stretch your money farther:

1. Don't be idle.
I admit, I often let the engine run, with the airconditioning on, while waiting for my wife to get down from her office. Well, that's bad. It's actually more wasteful than restarting the engine. So, if you have to wait more than a minute, open the car windows and turn the engine off. In the same way, make your warm-ups short. Half a minute is long enough, so drive off.

2. Don't be fast and furious.
Don't rev up your engine, even if you think you're Vin Diesel. And be gentle. However, with the kind of traffic -- and crazy bus, jeepney, and cab drivers -- we have, we end up slamming the brakes and accelerating too fast to catch up for lost time. But hard stops and fast starts waste fuel. So keep enough distance and don't tailgate, and keep your cool. Think of your gas and brake pedals like you're stepping on eggs -- accelerate and brake gently. Drive at a steady speed, fast enough but not too fast (I'm sure you can sense if you're working your engine too hard). But don't drive too slow either. And if you're driving an automatic, switch to overdrive when driving fast. If you're driving a manual shift car, switch to high gear when driving fast. And place the gear on neutral when at a stand still (instead of just stepping on your brake pedal). Driving right can improve fuel consumption by 5 to 10 percent.

3. Gas up properly.
For one, be more conscious which gas station to patronize. The difference maybe just a few centavos per liter, but it adds up. I like Petron because pump prices are usually a bit lower than the Shell and Caltex. And this is new to me: buy gas at cooler hours, like early morning or at night, to reduce gas evaporation. Also, avoid buying higher octane gas than necessary. And try to fill 'er up to avoid water condensation (though some advise against this, as it adds to the weight). But don't overfill the tank to prevent evaporation.

4. Don't be a drag.
If you're like me, your car can sometimes look like a trailer, with all sorts of stuff dumped in the backseat or trunk. Take out stuff you don't need. Every extra 100 pounds of excess weight reduces fuel economy by 1 to 2 percent. A joke: lose weight.

5. Use the A/C wisely.
If you're driving in the countryside or the highway, you're not saving gas by shutting down the air condition and rolling down the windows for fresh air (if you're in Tagaytay, not EDSA). You're actually using up as much as 10 percent more gas due to air drag. But if traffic is stop-and-go, you can do that to save money. On second thought, you don't want to die from pollution or heat stroke. But early morning or at night, when it's cooler, and if traffic is light, you can switch it off and roll down your windows just a bit to let outside air in, without causing too much drag. Consider switching it off also when you're quite near your destination. And when you park, find a shaded area or get a windshield shade. That way, you don't have to turn the A/C at full blast. And if it's too hot inside, a greater amount of evaporative emissions take place.

6. Take care of your tires.
Make sure your tires are properly inflated, otherwise it will take your engine more effort and energy to run. It's costly too, adding six percent to fuel consumption for every pound the tire is underinflated. And make sure they're properly aligned. When you have to replace your tires, consider steel-belted tires radial tires, which can increase gas mileage up to 10%.

7. Tune up.
Get a regular tune-up (especially if your car is not exactly spanking brand new), as recommended by your car manufacturer (check the manual). That includes changing your oil and filters regularly, to keep the engine running smoothly. Poorly tuned engines increase fuel consumption by 10 to 20 percent.

8. Plan your trips.
It's obvious, but you have to start planning your trips and your routes better. The less often you have to drive and the shorter the distance, the better. If you can join a car pool, do so. If the distance is just short, try walking. And if you can, avoid rush hour traffic by leaving earlier or later. You save gas, you save time, and it will keep you from going insane. And if your work allows you to telecommute a few days a week, that would be perfect.

9. Consider a more fuel-efficient car next time.
If you're buying a new car, remember that automatic transmissions burn more fuel than manual ones. SUVs are obviously gas-guzzlers. Larger enginesburn more gas.

10. Reconsider buying energy-saving devices.
You've probably been tempted like me to buy energy-saving devices you've seen or read about, like the Khaos Super Turbo Charger. But do a little more research or ask from people who've bought devices like this. This blog entry makes a convincing case against it.

Keeping these tips in mind should go a long way in saving you money and cutting your gas consumption. ¶ 12:47 PM