Rolling Payroll

WHAT IF: Today, you lost the ability to earn income? Do you have enough means to sustain your needs and/or your family’s needs in the years to come?

If your answer to this question is YES, Congratulations! You no longer need to continue reading. If your answer is NO, you don’t have any excuse not to read my mail!

Case Study: Juan dela Cruz (not his real name) is 35 years old, he’s a team supervisor of an I.T. company that he has been working for 5 years, and earns P50,000 net monthly income. He’s married with two kids, wife is a fulltime home-maker. They live in a mortgaged condo unit which they are paying 12,000 a month, with utility bills amounting to 5,000 (electricity, water, telephone, internet, and cable TV). Their groceries for the month is 12,000 (3,000/week). The kid’s education and other expenses are budgeted for 10,000 per month. Transportation allowance (gas, parking fees, toll fees, etc.) is 6,000. The family’s total overhead expense every month is P45,000 or more. After paying for the expenses, Juan saves whatever that is left (if there is any). What happens if today, Juan lost the ability to earn an income due to an accident or a debilitating disease? Here’s what can happen:

1. If Juan’s employer provides for an accident/health benefit coverage, Juan can get away with the hospital bills. For generous employers, Juan can receive some financial assistance which is usually equivalent to one-month salary for every year of service. This is already his separation package from his company (P250,000).

2. Let’s say that Juan’s employers are extremely generous and they doubled his separation package making it a total of P500,000 net. How long can P500,000 take him? Eleven months! (500,000/45,000 = 11.11months)

3. How do you propose to manage the P500,000?

a. Put it on Time Deposits? If Juan is lucky, he can get 6% annual interest on time deposits. But this will only give him 30,000 returns every year or 2,500 per month. Certainly, not enough to cover his expenses.

b. Streamline the monthly expenses? Renegotiate the mortgage so that it becomes as low as 6,000 but the years of payment are extended? Cut 20% from the groceries and 50% on kid’s education? Let’s say we are able to reduce the expenses to as low as 22,500 (50%), how long can P500,000 take Juan’s family? 22 months! (500,000/22,500 = 22.22 months). But after 22 months, what happens next?

c. The wife goes out to find employment? Possible, but she has to do some “sharpening of the saw”. Will she be able to find a gainful employment? How will she manage to be physically and emotionally strong at the same time?

d. Sell whatever properties they have and move to the province where the cost of living is at a minimum? Sure, why not, this would extend their monthly expenses to 50 months! (500,000/10,000 monthly expenses = 50 months). Juan’s family can live on a diminished budget for at least 4 years. But what happens next?

Unless you would want to go through the dilemmas of Juan yourself by managing the “After” and neglecting the “Before”, a typical Filipino attribute, here’s a better approach: An INCOME INSURANCE.

1. Since Juan is earning 50,000 per month, his total annual net income is P600,000.

2. To replace a P600,000 annual income, Juan needs to put a capital of P10,000,000 in time deposits earning at 6% interest rate so that he and his family can live from the interest earnings alone and keep the capital intact for future use.

3. But how can an average income earner employee create a 10Million capital?

4. You’d be surprised to know that there are a number of financial instruments that can provide a 10 Million-peso capital! For as low as P137.50 per day, Juan can get a lease of P10 Million!

Below is the Income Insurance chart. You can find how much capital you need and how much is your daily participation:




Note: The chart is computed for a 35-year-old male, non-smoker.

As you have observed from the chart, for as cheap as a cup of an instant coffee or a parking ticket, one can already insure his income! If Juan has only listened to me yesterday, he would not be having dilemmas on what to do today.

Let your financial consultant assist you in creating a Rolling Payroll for you today!

From Chris L.