Well… today is a bit different.

First of all, FrugalPinoy’s 4-year anniversary is approaching.

To celebrate, I want to stop holding back and reveal some things that are a little more personal.

Here goes.

Last 2010 was one of the worst years for me. This goes for almost every aspect of my life – professionally, financially, and even personally. I had:

• Lost a high-paying client/project which accounted for 60% of my income
• Completely depleted my emergency fund because of some super expensive family emergencies
• Ended a 4-year relationship
• My very old house was falling apart and repairs were costly
• Felt like I had “plateaued” professionally – I had reached a very good level in my career and felt like there was nowhere else to go. This led to boredom and monotony.

This is why I look forward to New Year’s Day every year. While the date itself isn’t that important – it’s just like any day of the year, except there are celebrations – I think of it as a time of letting go, creating change in my life, and expanding my horizons.

Here are some examples of goals I used to set:

• Earn at least $2,000 per month for my freelance work (all my clients are foreign)
• Be fluent in Spanish (I wanted to start pitching my services to Argentinian businesses)
• Take up a new professional course each month
• Finish repairing my house
• Learn how to negotiate better
• Raise my hourly rate

As you can see, some of those goals are HUGE, while some are small. My main intention was to do something new with my life. Change things up.

This is why 2012 is important for me. If 2011 was my year of rebuilding, I see 2012 as the year where I’ll outdo everything I’ve ever done before. Even if this year doesn’t “feel” important, it feels hugely different.

How is it different?

Well, instead of focusing on myself…

This year is about YOU.

I’m serious.

As many of you may have noticed, I’m revamping the type of content we have here at Frugal Pinoy. I’ve started focusing on what YOU readers have told me over the years.

This is why I’ve covered topics on earning more money, creating an automatic financial plan, and changing your financial life without too much dependence on willpower.

There’s still more to come. I’m always interested in what you guys have to say, so keep the ideas coming!

But… (eto na)…

There is really ONE big request that you all have been asking me – through your emails, comments, and even your Facebook responses. I’ve been ignoring this for YEARS – even if you keep writing to me about it.

And, more importantly, it seems like you readers aren’t 100% aware that this is what you’ve been asking me to do.

So that’s what I’ll give you, especially since after thoroughly studying your emails and comments over the past 4 years – it’s what you’ve secretly been asking for all this time.

BUT (na naman) I am very, very, very nervous about this. Doing this means sharing more about myself and my business, even more than I have done in the past.

And I’m also going to need your help.

So I’m going to ask you guys to do something for me.

But that will have to wait until next time.

See you then,

Celine, founder of FrugalPinoy.com

P.S. I’ll update you with more details in the next few days. Until then, please email me at support@pinoy500.com and let me know your #1 most important, super priority goal for the rest of 2012. I read every email and will try to respond ASAP.

Here’s what happened in the previous lessons:

Lesson 1: How your inner soundtrack is holding you back – and what to do about it

We learned how we all have inner soundtracks playing in our heads. When this soundtrack is negative, it can hold us back from reaching our goals. This lesson taught us how to uncover the hidden assumptions in our inner soundtrack, and also how to challenge them so we can rewrite a new inner soundtrack that is more positive and can help us achieve more. (Click here to review it.)

Lesson 2: Change your life dramatically by asking this one question

Is it possible to make the right changes in your life just by asking a question? Our answer to that is, “not always” but asking The Miracle Question helps. Instead of wasting time on internal dramas and obsessing about the past and our hidden motivations, we learned the strategic question that can help us find that one small change we need to make to get everything started. (Click here to review it.)

Lesson 3: Stop depending on “willpower”. Shape your path, instead.

Lastly, we learned that willpower is limited and we can’t depend on it 100% if we really want to reach our goals. Instead, we have to make it easier to make good decisions and harder to make bad ones. (Click here to review it.)

Applying the things we’ve learned in these 3 simple lessons  is the first step to becoming above average and achieving your goals.

That’s what we’re trying for this 2012.

Our Rise Above Mediocrity

It doesn’t take much to be above average.

If you think about it, average means “what most people are/do”. And if we look at what most people do, it’s really not that impressive.

• According to a Nielsen survey last year, the average Filipino spends at least 13 hours per week watching TV.
• The average family income in 2009 is Php 206,000 (around Php 17, 166.00 per month). (Source: NSCB)
• Average annual savings in 2009 was Php 31,000 (around Php 2,583.00 per month). (Source: NSCB)
• Filipinos on average have only nine weeks of savings in reserve. (Source: Yahoo! Philippines)
• Only 4 out of 10 Filipinos have businesses (Source: GoNegosyo)

Photo by Flickr user jdhancock

I’ll do more.

Magiging masipag na ako.

Kaunting tiyaga lang yan.

Basta, kailangan ko lang ng disiplina.

Just do it!

Ever said these things to yourself? And, more importantly, ever failed to follow through on your goals even AFTER you’ve said these things?

Maybe you honestly thought if you were a bit stronger you could stick to that diet, or if you were more disciplined, you’d stop impulsive spending. With just a little bit more willpower, you could achieve your goals, get more done, and become superhuman.

Right?

Photo by Flickr user jdhancock

 Maybe. But your willpower is not enough.

Many studies show that willpower has its limits as a motivational tool. First, it depletes physical resources in our body. Here’s a discussion of various studies on the subject (emphasis mine):

The mind-body response of exerting willpower literally fatigues us (Tice et al. 2007). It depletes physical power, as shown in one study that looked at the effects of mental self-control on physical stamina (Bray et al. 2008). In this study, trying to control one’s thoughts decreased muscular endurance, as measured by performance and EMG activity.

In one recent set of studies (Gailliot et al. 2007), participants were required to control their thoughts, emotions or behavior. Immediately following each act of self-control, participants’ blood glucose levels dropped. Levels did not drop dur­ing similar tasks in which participants were not exerting self-control.

Source: “The Science of Willpower” by Kelly McGonigal, PhD

This is why dieting is so hard. You try to curb your cravings but, by by exerting self-control, you deplete the blood sugar in your body so you end up craving more. It’s tricky and ironic, isn’t it?

Also, willpower is finite. It doesn’t come from the power of your “soul” or your “mind”, no matter what motivational speakers tell you. It’s very limited.

Our supply of self-control is limited. Studies show that our self-control is actually sapped each time we use it (Baumeister & Vohs, 2003). It’s also sapped, predictably, by alcohol, lack of sleep and stress.

Source: “Money and Self-Control: The Battle Between Thoughts and Emotions” from PsyBlog

Psychologists have discovered that self-control is an exhaustible resource. And I don’t mean self-control only in the sense of turning down cookies or alcohol, I mean a broader sense of self-supervision—any time you’re paying close attention to your actions, like when you’re having a tough conversation or trying to stay focused on a paper you’re writing. This helps to explain why, after a long hard day at the office, we’re more likely to snap at our spouses or have one drink too many—we’ve depleted our self-control.

Source: “Why Change is So Hard: Self-Control is Exhaustible” by Dan Heath

Since willpower is limited, you can’t depend on it alone to make drastic changes in your life.

You need to “Shape the Path”. This means: change your environment and situation to make it easier to reach your goals. So that when it’s time to call on your willpower, you don’t have to exert so much effort in walking the right path.

Photo by Flickr user dolmansaxlil

How do you do that?

We can break it down to two approaches:

# 1 – Make it easier to make good micro-decisions.

How exactly can you make life changes easier? Change your environment so that you don’t have to make a hard decision every single time. Most of us think that changing our lives requires ONE BIG DECISION (“From now on, I will avoid all artificial sugar treats!”), when the change actually happens in several micro-decisions over time (“Isang slice lang naman ng cake today…”, “I’ll just buy one can of coke this afternoon…”, and “Well I had that cake yesterday, but there’s no harm in having an ice cream today because I’m feeling sad…”)

So, ask yourself “What small changes can you make in your environment/situation that can make it easier to exert willpower when the micro-decisions come up?” 

Here are some examples:

Instead of saying “I’ll try harder to save more each month”, set up an automatic savings plan that automatically deducts a set amount from your paycheck account each month. It’s easy because you do not have to actively think about saving. It just happens.

Instead of saying “Just do it! Exercise regularly!” why not get all the extra barriers out of the way and prepare your gym bag the day before (just as Arvin said he did in the comments from last week’s post).

Key Takeaway:

Make it smoother and easier for you to make good decisions when you’re low on willpower.

# 2 – Make it harder to make bad micro-decisions.

This time, ask yourself, “What changes in my environment/situation can stop me from giving in to my bad habits/impulses?”

Again, some examples:

Instead of saying “I’ll exert more self-control and spend less money on going out,” only take a set amount of cash with you when you leave the house. No credit cards or debit cards – just enough cash for the basics and a little “wiggle room” for emergencies. (After all, for a REAL emergency, you can always text a friend or relative to help you out.) You may WANT to buy that gadget impulsively, but you can’t cause you don’t have enough cash.

Instead of saying “Basta here’s a list of food that’s allowed in my diet, and here’s a list of what’s not allowed. I’ll do my best to stick to it”, then just don’t buy the wrong food in the first place and stock up on healthy food! This means that when you’re hungry, all you have is healthy food. You may WANT to eat cake, but there’s no cake in the house so you snack up on fruits instead.

If you’re worried about impulsively spending your hard-earned emergency fund, then don’t put your emergency fund in an ATM account. Keep it in a passbook account, so it’s more of a hassle to go to the bank and get your money during non-emergencies.

Key Takeaway: 

Set up barriers to prevent yourself from doing the wrong thing when you’re low on willpower.

This Week’s Action Task:

Think of your #1 goal for the year and ask yourself these questions:

• How can I change my environment/situation, so that I can make reaching this goal easier – even when I’m low on willpower?
• What barriers can I set up so that I don’t abandon or forget this goal even when I’m low on willpower?

Also, therapy tends to be costly.

But this doesn’t mean that we can’t learn from some of the techniques that therapists use. I’m going to share with you a technique I learned from the book “Switch: How to Change Things When Change is Hard” by Chip and Dan Heath. Here’s what you can expect to learn:

• How to stop wasting time being emo and wasting energy/time on uncovering your feelings and emotional scars from the past
• What questions to ask yourself to start taking small steps to solve your problems, make behavioral changes, or accomplish your goals

Being Solutions-focused

In the book, the Bros. Heath discuss solutions-focused therapy. Unlike the type of psychological talk therapy and psychiatry we see on US TV shows, solutions-focused therapy does not dig around your past, explore your childhood, or unearth repressed memories about your parents. Solutions-focused therapists don’t care about your hidden reasons and motivations from childhood – they care about fixing the problem at hand.

How do they help you find solutions? First, they ask you what your problem is. Then, they ask you a very specific question to help you find a simple solution.

They call this “The Miracle Question.”

Luigi confronts Mario with a serious question

Here it is (quote from the book, emphasis mine):

“Can I ask you a sort of strange question? Suppose that you go to bed tonight and sleep well. Sometime, in the middle of the night, while you are sleeping, a miracle happens and all the troubles that brought you here are resolved. When you wake up in the morning, what’s the first small sign you’d see that would make you think, ‘Well, something must have happened—the problem is gone!’?”

Chip Heath; Dan Heath. Switch. Crown Business. Kindle Edition.

Or, in conversational Tagalog:

“Sabihin nating habang natutulog ka mamayang gabi, may milagrong mangyayari, ma-so-solve na yang problema mo. Pag gising mo, ano ang unang maliit na sign na makikita mo na mapapaisip ka na, ‘Uy, nasolve nga yung problema ko!’?“

How do we apply this?

For example, your problem is that you’ve been feeling too lazy to work. Or wala ka sa mood. Whatever it is, you’re just not performing like your usual self. Instead of spending hours, days, weeks obsessing about your mood, you can use The Miracle Question. Here’s an example of the internal dialogue you may have:

- Problem: I’m too lazy and distracted at work but don’t know why. My boss says I’ll be under probation if I don’t get back to my usual performance. 

- Miracle Question: While I’m sleeping tonight, a miracle will happen and my laziness/distraction problem will be fixed. When I wake up in the morning, what’s the first, concrete sign I’ll see as proof that my problem was fixed?

- I’ll be feeling excited to go to work.

- But that’s not good enough. It has to be concrete. How will I know that I’m excited? What physically happens when I’m excited to go to work?

- Well, when I used to be eager to work I would get up early, exercise for around 15 minutes, have breakfast, then commute before the morning rush. I usually left the house by 6 am.

- That’s the solution then: the “sign” is getting up early with enough time to exercise and leave before 6am.

- Yehey, gets ko na! From now on, I’ll wake up at 5 am!

See how it’s not about unearthing your deepest feelings about why you may be unmotivated at work. It’s not about pursuing an endless quest whether you should leave your employer or pursue a Master’s Degree in something else. It’s about finding that one small change that would make a large impact. No wasting time on emo nonsense.

And you know what? The above example ACTUALLY HAPPENED. Because I just did it this month (except for the commuting and “boss” part since I work from home, but I threw those in because that’s what most people do). I started waking up at 5am during weekdays – no matter how late I slept the night before. And I ended up crossing out every. single. task. on my calendar. It also improved my mood and motivation.

Here’s another example, from the book (emphasis mine):

Here’s how one couple in marital therapy answered the Miracle Question posed by their therapist, Brian Cade of Sydney, Australia:

WIFE: I’d be happy, feeling at ease at last. I’d be more pleasant to Bob, not jumping down his throat all the time.

CADE: What will you do instead?

WIFE: Well, there would be more understanding between us. We’d listen to what each other was saying.

HUSBAND: Yes. At the moment, we don’t really listen to each other. We just can’t wait to get our own point in.

CADE: How could you tell that the other was really listening?

WIFE: In the face, I think. We’d perhaps make more eye contact. (Pauses, then laughs.) We’d nod in the right places. Yes. We’d both respond to what the other was saying rather than just attacking or ignoring it.

Chip Heath; Dan Heath. Switch. Crown Business. Kindle Edition.

Notice how the therapist kept prodding on about specifics. What will they do differently. How can they tell that the problem was solved. These concrete questions are not about feelings, the past, or pag-e-emo. It’s about actual, physical signs you can see.

Let’s try another internal dialogue example, something more common than the above examples:

- Problem: I don’t have enough money.

- Miracle Question: While I’m sleeping tonight, a miracle will happen and my money problem will be fixed. When I wake up in the morning, what’s the first, concrete sign I’ll see as proof that my problem was fixed?

- I’ll be feeling rich, like I know I’m wealthy.

- But that’s not good enough. It has to be concrete. What does “wealthy” mean? What would have to physically happen for me to feel wealthy?

- I guess I won’t feel so stressed. I’ll be a bit more relaxed about money – not even worrying about it.

- What would make you stop feeling worried or stressed about money?

- If I felt secure about my finances.

- How could you tell that your finances are secure?

- If I know that whatever happens to me, my family can still maintain their current lifestyle or better from the money I’ve saved for them.

- That’s the solution then: the “sign” is having enough savings to support your family even if you can’t earn. The solution is that you need an emergency fund.

While The Miracle Question is not the be-all and end-all of problem-solving and behavioral change, it’s an important step that will help make your problems or challenges seem easier to handle.

Now’s the time to stop reading and nodding your head like those puppy figurines on a FX/jeepney dashboard. Let’s start taking action:

This Week’s Action Task

1) Think about the #1 problem or challenge that’s been holding you back. Choose the largest, most seemingly difficult problem you have.

2) Then, ask yourself The Miracle Question: If, as you slept tonight, your problem was resolved, what would be the first  small, concrete sign you’ll see in the morning as proof that your problem was completely resolved?

*NOTE: If you need help with this, just click here to start a dialogue at the comments section. I and the other Frugal Pinoy readers would be glad to help you out step-by-step to answer your Miracle Question.

3) Act to make that sign true. If it’s waking up at 5am in the morning, then wake up at 5am. If it’s smiling at your parents, then smile at them. No matter how seemingly unimportant or small, these “sign” actions can be the first tiny step in breaking down your biggest obstacles.

Here’s my answer and progress report for the assignment:

Inner Statement: “I’m not a people-person. It takes me years before I get comfortable with other people.”

Hidden Assumptions:
- That being a “people-person” is a natural talent that we are born with.
- That my personality is fixed/set, and it does not include starting conversations with acquaintances, strangers, and people I just met.

Challenges:
- Spend 1 hour this week reading up on building rapport
- Make initial eye contact with everyone I interact with, and hold it for 2 seconds. This includes cashiers, clerks, drivers, etc.
- Come up with 3 replies to the question “What do you do?”/”Saan ka nagtratrabaho?”. It’s a common question people ask me upon meeting, and my typical LAME reply is “writer” and “sa bahay lang” – and the conversation almost always stops there. I’ll come up with 3 replies to “test” in actual conversation, and see which replies get the most engaging dialogue.

Results:

- I listened to the following courses/resources on building rapport:

• Andrew Warner’s course on How to Interview. I want to learn how to interview, which is why I’m learning to build rapport in the first place.
• Neil Strauss’ interview on Mixergy. He’s a journalist who has interviewed celebrities like Madonna, Eric Clapton, and Lady Gaga. Learned a lot of tips from this interview, as well as another interview he did on Rise to the Top.

- It’s very hard for me to “switch off my programming” that automatically avoids eye contact, but I made a conscious effort this week. I may have missed a few people, but I was mostly successful.

- Since I work from home, I don’t have many opportunities to test the 3rd challenge, answering the question  “What do you do?”/”Saan ka nagtratrabaho?”. I was only able to test ONE response this week, “I’m a freelance writer, I work from home” – which again ended the discussion abruptly. Here are some other replies I’ll try next time:

• I help internet companies promote their products. (Which is what I do via Tailored Creative.)
• I teach other freelancers about how to run their business more smoothly and how to improve their client relationships. (via my articles at FreelanceSwitch, Pinoy500, and the upcoming LoveYourClients.net)

- – - – -

Inner Statement: “I’m not a programmer, I don’t need to learn programming languages.”

Hidden Assumptions:
- I don’t have the “talent” for programming, and can never have that skill.
- I will never use programming in my work/life.

Challenges:
- Finish at least 2 lessons from http://www.codecademy.com/
- Create a simple program that runs/works, even if it’s just based on a simple if/then function.

Results:

- You can check out my progress at codecademy here. As of this writing, I’ve completed the “Getting Started With Programming” course, and 36% through the JavaScript Quick Start Guide.

- I created a simple program – not super impressive – just something that asks for your name, and returns a different result/greeting for specific names.

- – - – -

How about you? What’s your progress?

Click here to let me know in the comments.

Also, get ready. Tomorrow I’ll publish Part 2 of our Best Year Ever series, about asking The Miracle Question.

“I’ll never be rich.”

“I’m not smart or good enough for that promotion/raket/challenge.”

“I’m not as successful as [someone].”

Sometimes, our inner dialogue isn’t so blatantly negative. It can also be subtle, like the following:

“I’d like to start my own business, but I don’t have an idea what would work.”

“I’m an introvert, so it’s not my style to negotiate.”

“The economy makes it so hard for me to get a job.”

“I don’t have the time to earn money on the side.”

These thoughts aren’t necessarily destructive, but the hidden assumptions embedded in these thoughts hold you back. Let’s peel the layers a bit:

"What's playing?" wonders the Stormtrooper

Statement #1: “I’d like to start my own business, but I don’t have an idea what would work.”

Hidden Assumption: The success of a business depends on the idea.

Reality: This assumption is somewhat true, but your success depends more on the process of finding out which ideas work and which don’t, not the ideas themselves. Most entrepreneurs succeed because they test business ideas and abandon those that won’t work. They probably throw away more business ideas than they pursue.

…

Statement#2: ”I’m an introvert, so it’s not my style to negotiate.”

Hidden Assumption: Only extroverts can negotiate. You are not an extrovert.

Reality: The truth is, negotiation is learnable – just like any other skill. You used to be an illiterate when you were a toddler. Now you’re not. Your ability to learn how to read had nothing to do with your personality or love of reading – it was a skill you picked up.

…

Statement#3: “The economy makes it so hard for me to get a job.”

Hidden Assumption: The first assumption is that there’s nothing you can do to change your situation. That’s a very helpless position that you created for yourself. The second assumption is that you need a job in the first place.

Reality: Odds are, there’s something you’ve overlooked. First of all, how do you apply to jobs? Do you just submit your resume to hundreds of unrelated companies in the hopes that “sana swertehin”? Or do you get to the point where you’re actually interviewed, but you still don’t get hired? By reviewing your application style, making some changes, and testing those changes, you’re more likely to get hired.

As for the second assumption, you don’t necessarily need a job to earn money. For example, I’ve never had a regular job (I’ve only been freelancing). Other people start businesses.

…

Statement #4: “I don’t have the time to earn money on the side.”

Assumption: Two assumptions here: (1) that it takes soooo much time to earn decent money on the side and (2) that you don’t have any free time.

Reality: Since it’s earning money on the side, you don’t need to spend full-time office hours on them. As long as you charge enough for your products or services, and provide something of high value to others, you can add to your income just by working 2 to 4 hours per week.

Also, if you spend a few minutes to review every hour of your day, you’ll find some extra time that you can reallocate for your side raket. (As I mentioned in the previous post, if you spend 13 hours  a week watching TV, just reallocating 2 of those hours to something more productive can make a huge difference.)

…

So, if it were possible to record the inner soundtrack in your mind, what would be the result? What statements would come up?

More importantly, what hidden assumptions are embedded?

No matter how positive, optimistic, or confident you are, it’s likely that you still have some negative thoughts holding you back – and some assumptions underneath all of them.

The key is to poke holes into those assumptions and challenge them. Odds are, your hidden assumptions are not as logical or as true as you thought.

This Week’s Action Task:

This week, we’re going to uncover the assumptions underlying our inner soundtrack. Then, we’re going to challenge them.

1) List 2 negative inner statements you say to yourself. These can be about anything. It could be about your finances, your career, your personal life, etc. As long as it’s something that repeats enough in your mind. Chose the ones that seem to hinder your progress the most.

2) For each statement, look for the hidden assumptions. The hidden assumptions are the things that must be true about yourself and your situation/environment for the inner statement to be true. (If you need help with this, just review the examples above or ask for help in the comments.)

3) List 1 to 3 simple ways to challenge each assumption. How are you going to challenge the assumptions you listed? For each assumption, list 1 to 3 actionable things you can do to determine if they are true or false. The challenge should be simple, easy, and take very little effort (just a few minutes). That way, you’re most likely to do them.

4) Do the challenges you listed in #3 above. Do them within one week of reading this article. Otherwise, I (and your inner self) will think that you’re one of those people who just reads tips, nods in agreement, and moves on with their lives without changing anything. Trust me, you don’t want to be that person.

Please write your answers to items #1 to #3 in the comments section below. It’s okay to be anonymous or use a codename, but I’d still love to see your answers. If there are some parts you can’t answer, or if you’re having a hard time, just say so. Me and the other Frugal Pinoy readers would be willing to help! I’ll also be including my own as an example.

Click here to add your own answers now.

Stormtroopers listening to a positive soundtrack for a change.

Photos by Flickr user jdhancock

I’m one of those people. Odds are, if you’re reading this, so are you.

During this time, have you ever looked back and wondered “What could I have done better?”

Did you stop working on an exercise program?

Did you procrastinate on starting that new business you always wanted?

Did you spend less time on the things you loved and more times on the things that don’t contribute much to your life (like, say TV or Facebook)?

Do you still have a lot of unpaid debts?

Did you leave any unfinished goals or unachieved dreams?

If you’ve ever started a year hopeful and ended it feeling like you could’ve done better, you’re not alone.

I know I could’ve done better. At everything. From making money to enjoying leisure time, and even updating FrugalPinoy. In fact, I feel like I’ve actually failed a lot in 2011. And I thought 2010 was terrible!

How does that happen? Why do we start out the year feeling optimistic about our high goals, but often end up falling short of our own expectations?

That’s because it’s easy to write down goals and resolutions. It’s also easy to plan and write down how we’ll accomplish these things step by step.

But, we tend to fail during execution. The actual doing.

So if we really want to make 2012 extraordinary, we have to be willing to do extraordinary things to get there. Because it’s clear that whatever we were trying before wasn’t working. It’s time to take ACTION.

And it’s not just about taking action, it’s about TAKING ACTION ON THE RIGHT THINGS.

To do that, we don’t necessarily have to work harder. But we have to work deeper. We need to start accepting our weaknesses and outsmart ourselves in a way that works around those weaknesses. Because trying to change yourself completely is hard. It’s like pushing a large boulder up a mountain. You are going against your own nature – and this means you are trying to beat forces that are more primal, more instinctive, and faster than your rational brain.

Ever tried keeping a budget for a few days only to give up midweek because it was too hard?

How about signing up for a gym membership only to visit the gym once every two months?

Ever started a healthier diet and slowly phased out of it just because you had to have “just one slice of cake” or “just one cheeseburger”?

If these scenarios seem familiar, you are not alone. Everyone, even those who seem so strong and determined, experienced their willpower faltering at one point or another. Because you can’t rely on willpower alone. There are a lot of strong psychological forces at work whenever you try to change something in your life.

So, to make any successful changes, to accomplish extraordinary goals this year, we need to think deeper about HOW we think and how we decide.

The next four weeks of FrugalPinoy will be exclusively devoted to that.

Here are the upcoming posts:

Lesson#1: Rewriting Your Inner Soundtrack

We all have an inner soundtrack, which can be constructive or destructive. It’s that little voice in your head that criticizes you and predicts failure, or reassures you that everything will be okay. How do you make sure that the voice stays constructive and keeps you going? In this lesson, we’ll evaluate the negative inner soundtrack that’s holding your back and challenge it head on.

Lesson#2: The Miracle Question

Instead of digging into the emotional or historical reasons why you’re not reaching your goals (you lacked role models, did not feel love as a young child, and other touchy feely stuff like that), there’s a more proactive approach you can take – and it’s just about asking ONE SINGLE QUESTION. This lesson will explore that question.

(Note: I promise you, it is not something cheesy or lame. It’s a concrete question to help you make small changes to achieve your goals this year.)

Lesson#3: Shape the Path

Since you can’t depend on your willpower alone to make drastic changes in your life, you need to start “shaping the path”. This means changing your environment and situation to make it easier to reach your goals and make it harder to give up. I’ll show you how to do that in this lesson.

Lesson#4: Rise Above Mediocrity

 It doesn’t take much to be above average. According to a Nielsen survey last year, the average Filipino spends at least 13 hours per week watching TV. Now, imagine what would happen if one of those “average” people who watch TV 13 hours per week, reallocate 2 hours of that to any of the following:

• studying and practicing negotiation techniques,
• learning or reading about business concepts,
• doing online “raket” on the side,
• or maybe even learning a new language.

If the above materials sound good to you, stay tuned. You’re going to love what’s coming next. Sign up for the email newsletter below, if you haven’t yet, so you can receive the upcoming lessons in your email inbox:

Photo by Flickr user ogimogi

“Savers are losers,” warns best-selling author Robert Kiyosaki. Though not all of his investment advice is sound advice for everyone, he’s right on this point. Savers are losers.

But “loser” here doesn’t mean our typical connotation of a person who is a loser – someone who is unsuccessful, misfit, walang kwenta.

“Loser” here means someone who has taken a loss. This is because if you keep a large bulk of your money in savings, you are actually losing that money. You are losing it in bank fees, you are losing its earning potential, and you are losing it to inflation.

For example, typical savings accounts in the Philippines have an interest rate of 0.50% to 1.75%. If you have more than Php 500,000 in your savings account, this can go up to 3%. (Per annum)

Interest from time deposit accounts usually range from 1.75% to 3%. If you can deposit more than Php 500,000, then this can go as high as 5%. (Per annum)

This sounds like your money is just sitting there, multiplying by itself right?

The Stormtroopers just got their investment earnings

Unfortunately, that’s not the case, especially when it comes to inflation. Basically, inflation is the rise of the cost of commodities. As inflation rises, the purchasing power of your money decreases.

When I was a kid in the 1980′s, we still had coins for “isang centavo” (square, with Lapu-lapu’s face on one side). Now, it makes no sense for the government to make those coins, because the cost of manufacturing them is definitely more than one centavo each. Also, even if we had these coins, anong mabibili mo sa kanila?

Another example where we experience inflation in our daily lives is the cost of transportation. In 2001, the minimum fare for jeepneys was 4 pesos. Now, it’s twice that.

Check out our Philippine inflation rate numbers for the past 5 years (courtesy of Wolfram Alpha):

Basically, this means that if you had your money sitting in savings accounts for the past 5 years, unless your account’s interest rate was more than the average inflation rate, you were actually losing money. And it’s highly unlikely to find an account here that earns above inflation.

So keeping the bulk of your assets in these bank accounts and time deposits doesn’t mean you earn more money. It means you’re just losing less than if you kept your cash hidden in a jar somewhere.

This is why everyone should consider investing their savings if they won’t need it soon, or if they don’t need easy access to it. Examples of savings that you might not need to invest are emergency funds (which you’ll need easy access to) and savings that you’ll be spending within a year (like savings to buy gadgets, vacations, etc.)

Investing 101

Investing your money is a faster way of making it grow, since most investments give you bigger returns than interest earned through bank deposits, and can help you beat inflation.

However, investing also entails some risks, which is why most of us are hesitant to start investing in the first place. You need to know the basics of investing, the instruments you can invest in,  and assess your own financial situation before making any investment decisions.

While it’s almost impossible to predict the future of investments, there are certain “rules” that apply when you look at investment history over decades:

Risk vs. reward. The relationship between risk and reward is almost unbreakable. This means that investors are rewarded based on the amount of risk they expose themselves to. The higher the returns promised, the higher the risk. If you want a low-risk investment, then expect lower returns.

You can’t predict your investment’s returns, and neither can “experts”.  You can spend days or weeks charting the history of your investment, but there is no way to foresee its future. Past performance does not guarantee future performance.

Take note of those ads that tell you something like “Our mutual fund earned 14% in the past year.” So what? This just means that anyone who bought the fund last year and sells his shares now made some money.

You can’t rely on so-called “expert advisers”, either. This article from Get Rich Slowly explains why.

It’s important to know investing history.  While you don’t need to know all the details of the world’s investing history, it’s best to know the important points – especially the parts where most investors made or lost a lot of money. Some examples are the dotcom bubble or the Great Depression. (Google these, it’s worth it.)

Do proper asset allocation. An investment strategy is based on time frame, risk tolerance, and goals. This must change over time, since your life situation changes. For example, an investor in her 20′s can afford to have around 70% of her retirement investments in stocks, since they are riskier and she won’t be needing them within the next 3 decades. But someone who is expecting to retire in 5 years should have most of their investments in safer vehicles like time deposits or bonds.

Diversify. Sure, wealthy Filipinos who have a lot of daily inside knowledge on publicly traded companies can get rich handpicking their investments one by one. But the average Filipino does not have the time, resources, or skill to risk most of their funds into a handful of investments. This is why most of us should diversify and own a wide variety of investments, depending on our needs.

Don’t invest in what you don’t understand. Before you choose an investment instrument, you need to understand it enough that you’d be able to explain your investment to a five-year old. This means that you truly know what you’re getting into.

Avoid ALL hidden costs. Almost all investments have associated costs, and you need to know about them. This includes the tax you have to pay, the investment manager’s fees, transaction costs, etc. Don’t be caught by surprise with fees that you didn’t expect.

Investing Psychology

One aspect of investing that is often overlooked is psychology. No one is above this, no matter how smart you think you are. We are all prone to irrationality and various biases. The best thing you can do is to acknowledge these and keep yourself in check so that you can tell when you’re experiencing it. Here are some examples:

• Loss aversion – When faced with a decision that has the possibility of higher gains, we would rather avoid losses instead. For example, many investors sell low – despite the common sense “buy low sell high” rule.

• Sunk costs — Sunk costs are irrecoverable money already spent in an investment. Even if you already spent a lot in the past, it should not influence future decisions. This is why people keep making monthly payments for cars that they realize are too expensive to keep, and why we pay for gym memberships we don’t use - “Sayang naman pakawalan eh, binabayaran ko na.“

• Following the herd (herd behavior) — This is a tendency to follow stock market trends and hearsay regardless of common sense. It is said to be a factor in market crashes and financial bubbles.

• Following “experts” – Our decision-making abilities seem to shut off when presented with expert advice. We stop deciding for ourselves and weighing the risks.

Now that you’re aware of your psychological flaws and biases, it’s time to evaluate your financial goals and situation so you can choose your investments wisely.

Ask Yourself These Questions…

1) Why am I investing?

There are 2 reasons why you invest: either for income or for capital growth.

The main goal of income investing is focusing on a constant stream of cash, rather than bigger returns. When you do this, you want to use your investment income NOW rather than waiting to use it later.

The second reason is investing for growth. As mentioned earlier, young investors whose goal is capital growth can be more aggressive and take riskier investments than older investors whose main goal is the preservation of capital.

It’s also possible that you’re investing for something specific that’s tied to your life goals. These include investing for retirement, for a college fund, to buy a home, or to fund a vacation. These goals are about how you want to spend your money at some future date.

It is important to know your goals before you start looking through the confusing array of investment choices. It helps you to determine your own investment style and stay focused on your objectives.

2) When do I need it?

You can have short term (1 to 2 years), medium term (3 to 5 years), and long term (more than 5 years) investment goals. You need to know if your investment goals are short-term, medium-term, or long-term, so that you can make more accurate estimates of the capital you’ll need and how much risk you are willing to take on. Here are some examples:

• People typically invest for retirement, which is a long term investment goal. The further away you are from retirement, the more risk you can take on.
• If you want to invest your emergency fund, this should be considered a short-term investment, since you need it to be accessible. You can put it in time deposits or low-risk funds.
• Investing to buy a home is an example of a medium-term goal. You need to find stable investments that can give you good returns if you keep your money in there for 3 to 5 years.

3) How much will I need?

Once you have identified your reasons for investing and your time-bound goals, it is easier to answer the question of how much. You’ll need to calculate your target amount as accurately as you can.

If you are investing for retirement, estimate the monthly income you will be comfortable with. If you are investing for your children’s education, find out the current tuition fees and estimate how much they’ll cost by the time they’ll need it.

Just don’t forget to factor in inflation when you’re doing your computations.

Now that all these crucial questions have been answered, you can look at all investment possibilities and decide with these goals in mind. 

What can you invest in?

Here are some examples of investment instruments:

• Business - We already discussed this in previous parts of this series, under “Selling Products” and “Selling Services”, so we’ll elaborate on the other investment instruments instead.

• Stocks or equities — when you buy stocks you are entitled to a share of a company’s assets and its profits. Your investment is dependent on market forces. The risk is greater but the returns could be substantial as well.

• Bonds — if stocks are equities (capital), then bonds are debts (loans). When buying bonds, you are essentially lending your money. You get paid interest at regular intervals and then the principal amount at the maturity date. Bonds are fixed-income securities.

• Certificates of Deposit—a CD is a savings certificate issued by a commercial bank when you make a time deposit. It specifies a fixed interest rate and a maturity date. Rates rise in proportion to the length of time you choose before maturity date.

• Mutual Funds—this is a diversified type of investment that you can make even with limited capital, since money is pooled in with other investors. Here are examples of some subtypes of mutual funds:

• Equity funds — also called a stock fund. Get this if you wish to invest primarily in stocks. This is the most popular; with the highest risk but giving the most in possible returns.
• Fixed-income funds— also known as bond funds. They let you have a long term, fixed regular income investment in governments and corporations. Not so risky, but they have a lower return than an equity fund.
• Money market funds— your investment is on short term debt securities of one year or less. Short term, less risk, less returns; but higher yield than a savings account.

• UITFs—Unit Investment Trust Funds are similar to mutual funds except that these are managed by banks and not investment companies.

• Properties (real estate)—a well-known form of real estate investing in the Philippines is in housing or condo units which you could buy & sell or put up for rent. It requires a bigger capital but if you make informed decisions and manage your properties well, you may get high returns.

Unlike saving, most of your investments are risky because the preservation of your funds isn’t insured by the PDIC. Even then, investing is a great way to increase your income and make your money work for you. To alleviate the risks somewhat, it is better if you are well-informed and focused on your investment goals before you dive in.

Do you invest your money? If so, how do you make your investment decisions?

Photo by Flickr user jdhancock

Now we’re at my favorite part – selling services.

Selling services or freelancing is probably my super #1 all-time favorite way to make money. It must be, if I’ve been doing it for 8 years. And I’ve never, ever been tempted to attempt formal employment. That’s how much I love it.

Why am I mentioning this? Why should you care that I’ve always been a freelancer? Well, it just means that I’ve got my game face on, I won’t hold anything back, and I’ll be throwing everything I’ve got to make sure that you’ll have an actionable, realistic, and tactical guide – something I never had when I started out.

Ready? Here we go…

Deanna Troi providing psychiatric services to Charlie Brown

What is freelancing?

Freelancing is selling your skills or expertise to clients who need them. Unlike employees, freelancers are not committed to any single company or client. They don’t have a long-term contract, and often don’t have the benefits that come with full-time employment (such as medical benefits, paid leaves, and social security). They can also choose the projects they work on, as well as set their own rates and work hours. This is why starting a freelancing career, even if it’s part-time, can be very exciting.

Some common freelancing careers:

• Data Entry
• Writing and Editing. This includes article writing, web content writing, copywriting, technical writing, proofreading, and blogging for hire.
• Web Development. Programming, developing websites, creating website themes, creating online apps.
• Design. Graphics, logos, website, software interface design.
• Internet Marketing. SEO Copywriting, SEM, PPC, Linkbuilding, Email Marketing
• Virtual assistance
• Teaching. Includes tutoring, coaching, and mentoring.
• Consultancy
• Solo accountants, lawyers, etc.

Pros and Cons of Freelancing

Here are the top 4 things I love about freelancing:

• Everyone has a marketable skill. That includes you. No matter how seemingly mababaw it is, you have a skill that you can sell.
• Almost no ceiling to what you can earn. Because you can set your own rates and work your own hours, you’re only limited by the highest price your customers are willing to bear and the number of hours you can work – and we often underestimate how much it is. The highest I was able to earn in my freelance writing career is around Php 78,000 in one month, and I didn’t have to work at it full-time.
• Autonomy. You can work anywhere, any way, and anytime you want. You can choose your projects and clients. No one will tell you how to do your job.
• Work = income. Unlike selling products or investing, freelancing is a less risky way to make more money. As long as you work, you get paid, and you don’t even have to put any money down to start freelancing.

Still, freelancing has more than its fair share of challenges:

• You are responsible. “With great power comes great responsibility.” Sure, you can work on anything anywhere in any way you want – but you’re 100% responsible for your output. You’re also 100% responsible for your health insurance, social security, retirement funds, and coffee.
• Finding paying clients can be difficult. This is especially true when you’re starting out. You’re gonna have to learn how to sell, negotiate, and network.
• It’s hard to tell which of your skills and talents can be used to build a profitable freelance career. As mentioned earlier, everyone has a marketable skill, but among your hundreds of skills, which one will be The One?
• It can get lonely. Even if you have dozens of friends, you’ll find that very few – or none – of them will be available for a spontaneous lunch on Thursdays. And even if you do meet your friends regularly, there are still few freelancers here in the Philippines that you’ll often find your friends and family giving you strange looks when you talk about work. Plus, if you freelance full-time, you don’t have the same amount of human interaction as you would if you worked in a company office.

How do you know if freelancing is right for you?

I’m going to go against what most people say and tell you what I believe to be the truth:

Freelancing is not for everybody!

Sure, I mentioned earlier that everyone has a marketable skill, but just because you have a skill you can sell it doesn’t mean that you’re going to be a happy freelancer who earns a bucket of money everyday. Freelancing is for people who are (or are working towards becoming):

• Independent.They take their own initiative. Don’t need a boss babysitting them and telling them what to do.
• Driven. Freelancers have to do whatever it takes to land clients and make sure they are satisfied, even if it’s a bit out of their comfort zone. Freelancers should MAKE time to do the work rather than just finding snatches of free time.
• Great listeners. Contrary to popular belief, consultants aren’t people who just come into your life or your business and tell you what you’re doing wrong. You don’t have to be an extrovert or talkative to become a successful freelancer. BUT you need to be a good listener. Listening helps you become a better negotiator, you can identify your clients’ needs more easily. It’s a relationship-focused line of work, and when it comes to relationships, listening is key.
• Love learning. You will be learning about a variety of clients, industries, etc. You’ll need to make a strong effort to improve your skills over time as your clients’ needs become more sophisticated (and more profitable).

Learn how to freelance

Freelancing is a subject that I’d love to delve into – especially when it comes to making more money on the side. Because of this, I thought it would be a good idea to create deeper, more tactical content for the readers who want to know how to start freelancing – even if they don’t know which of their skills they could monetize.

So if you want to learn how to do this, you can join the Pinoy500 private list. This is different from the “Frugal Pinoy Insider List”, which many of you already subscribe to. The Pinoy500 list is exclusively for Filipinos who want to freelance. Click here if you’re interested.

Photo by Flickr user jdhancock

If you’ve read the first part of this series, “Make the decision to move forward”, then you probably already have set income goals for making more money. Perhaps one way you decide to reach these goals is by selling products.

Types of Products You Can Sell

The types of products you sell can fall under two categories:

• Tangible. These are physical products, things you can touch. These could be pastries, a house, chairs, computers, books, etc.
• Intangible. These are products that can’t be touched. Examples include e-books, downloadable movies or music, gym memberships, and insurance policies.

Whether you’re making tangible or intangible products, you’d still have to go through a particular process before you can get your product out there and successfully sell it.

Pros and Cons of Selling Products

Just like any venture, selling products has its own advantages and disadvantages.

Pros

• Scalable. Selling products can easily scale, all you have to do is manufacture more products when the demand becomes greater. For digital products such as ebooks, supply is virtually unlimited.
• Rapid testing. You can test prices in batches to see the ideal pricing for your product. After a few tests, you can see the most profitable pricing that your customers can bear.
• Independence. Unless you personally manufacture your products, you’ll usually have the freedom and independence to sell whenever and wherever you want.

Cons

• You need to manage inventory. When dealing with physical products, dealing with inventory is especially important. Overestimate the demand and you’ll end up with too many unbought goods on your hands – and possibly even losing money.
• Promoting your product can be difficult, especially in saturated markets or when you’re competing with larger, more established brands.
• It’s hard to make a good product. Even if you make an “ok” product, this might not be good enough if you have many competitors whose products are better or more established than yours. Also, it takes a bit of research and testing to tell if your product is good enough, and if people will want to buy it. Which leads us to the following question:

How do you know your product will sell?

The answer is, you won’t know – unless you do market research.

“Market research? Kailangan pa ba nun? Di ba pwedeng magbenta na lang ako ng brownies?” - Frugal Pinoy’s Internal Devil’s Advocate

Usually, when coming up with business ideas, we think of a simple random business idea like, say, selling brownies in your workplace. You can just bake brownies and “go with it”.

Still, that’s never going to be enough. What if walang bumili? What if ayaw nila yung presyo? What if wala naman pala sa kanila ang mahilig sa brownies? 

One thing you can probably do is test your brownie-selling idea by baking brownies and giving them away at the office. Don’t say you’re planning on selling them, wait for someone to say “Gawa ka pa!” or “Pwedeng ibenta!”, or get more concrete feedback about the taste and how much other people like it.

That may sound like a crude way to do it, but it’s still market research. It’s certainly better than, say, wasting time making an extensive brownie menu, buying cardboard boxes, and giving your officemates a pricelist without even testing whether they actually want to try your product and let alone pay for it.

To delve deeper here are some things you should know about your potential customers when conducting market research:

• Possible desires/goals. What do they want? For the brownie example, this could be an affordable yet nourishing snack that they can get without having to leave the office, or they want to take home a treat that they can eat as a midnight snack, or they want something to go with their morning coffee.
• Possible barriers/obstacles. What could possibly stop them from buying your product? This could be that they have no ready cash, they’re on a diet, or di lang talaga sila mahilig sa brownies.

How do you use this information? Still using the brownie example, if you work at a gym and want to sell brownies at work, you probably won’t have much luck. After all, the trainers at the gym need to maintain a lean physique to convince their clients that their programs and equipment work. It’d be hard to sell your brownies to this crowd.

BUT if you decide to make gluten-free low-fat brownies then you can stand a chance or even be very successful. It might not be long before you can sell your healthier brownies to the gym’s clientele.

Also, consider these subtle differences: will most of your customers eat the brownies during their coffee breaks or will they prefer to eat it at home? It doesn’t seem like an important difference until you think about the packaging.

If they’ll be eating the brownies on the spot, odds are you just need one large box – maybe even a nice reusable plastic container -and just make your rounds or wait for your colleagues to approach you.

On the other hand, if they prefer to take the brownies home as pasalubong to their family, then you need to find a source/supplier for small gift boxes.

Another alternative result of your informal research is that people in the office may not like brownies at all – and that’s okay. You probably only spent an afternoon baking your “test brownies” and a day getting feedback from your potential customers. That’s a small price to pay for learning what works and what doesn’t.

It’s certainly better than spending your money stocking up on ingredients and packaging, and wasting weeks planning a product that nobody apparently wants. Market research, no matter how informal, will save you a lot of headaches – and even money – in the long run.

By understanding what goes on in your customers’ minds, you’ll be much more savvy when it comes to tweaking your products, marketing them, and making your business more profitable.

Action Steps:

Now that you have a better idea how to start selling products, here are the initial steps you can take:

• What products can you sell? Start with a simple brainstorm – you can eliminate the bad ideas later. More concrete ways to ask this question include:
• What strengths/skills do you have that can be turned into products?
• Do you have a ready source of cheap materials/ingredients? What kinds of things do they provide?
• Are there any available products that are sold cheaply in bulk that you can resell for a profit?
• What’s a common problem people have? Is there a product you can provide that can solve that?
• What’s desire/want that people have? Is there a product you can provide that can address that?
• Even better, you can think of a specific subgroup of people (for example, stay-at-home moms in the suburbs, 20-something professionals in Makati, etc.) and go through the last 2 questions thinking only of their possible problems/wants.
• Pick the best 3 to 5 of the listed ideas and ask yourself this question for each idea:
• Who is my potential customer for this product? (Be as specific as possible. Think of gender, location, age, etc.)
• Do they have the means to buy this product? Can they pay for it?
• WILL they pay for it? Is this something they want?
• Once you’ve evaluated your top ideas, you can pick one that you can start with. You can now do more specific market research and testing. (This is the part where you bring the brownies to the office and give them away to your colleagues, in the example given earlier.) If it seems like this product will be profitable, go for it and tweak your system as you go along. If it doesn’t seem to work, pick another of your viable ideas and start testing that instead.

Photo by Flickr user jdhancock