A Different View
June 13th, 2010
During the summer, I had a problem. It was really hot. Our house was made out of four-inch concrete and tiles for floor. I was like a pig in an oven. I canâ€™t sleep well. Two fans just wonâ€™t make it. The cost of an air conditioner is about Php 10,000. But Iâ€™m too cheap to buy one, because I think itâ€™s not just Php 10,000. Itâ€™s more!
When you buy an appliance, you also pay for its electricity. Electricity costs money. The estimated cost is about another Php 1,000 (at least) a month. In a year thatâ€™s Php 12,000. (Php 1,000 x 12 months). Thatâ€™s assuming no increase in electricity will happen— ever! Of course you know itâ€™s not true.
The total cost is about P22,000 and increasing. (Php 10,000 for the appliance, Php 12,000 a year for the electricity.)
How much would I need to invest to make Php 12,000 a year? Letâ€™s assume I could get an investment with a return of 6% a year. (Pause for a while and refresh your math operations to answer this.)
The answer is Php 200,000. Divide Php 12,000 by 6% to get this amount. (Now you know how powerful your fourth grade math is.) If Iâ€™ll have Php 200,000 and invest it at 6% return yearly, Iâ€™ll receive Php 12,000 every year to support my electricity expenses.
But what if electric rates increases again? How will we able to cover our expenses? (Some nose bleed terms of offsetting or covering or matching are: hedging, squaring, netting)
To answer this question, let us ask a simple question: Who gets the benefit when electric rates increase? (This is not a trick question. The answer is not Nobody.)
Answer: Power Producers.
How do we become an owner of power producers? Some companies are traded in the stock exchange. (A stock exchange is a place where stocks, which represents ownership rights of a corporation, are bought and sold.) We could buy the stocks at the right price. The increase in our electric bill expenses would mean an increase of the income of the power producer companies we would own which could then translate to an increase in its stock price and a profit for us. The profit would then be able to pay for the increased electric bill. Sounds simple. But the truth is that itâ€™s more complicated than that.
What did I do? I really canâ€™t take it anymore. Sooooo, on the late summer month of May, I bought the cheapest available air conditioner with the highest EER (A higher EER is supposed to mean more efficient use of energy and a lower electric bill.) Iâ€™m now forced to make at least P200,000 to support it passively (Iâ€™ll give myself until end of this year to make it) orâ€¦ I could become a Power Ranger and look for power producers to own.
(P.S. Two cheap air conditioners I saw are Korean brands. I wonâ€™t tell you the brands until they pay me advertising fees and I donâ€™t own the company who makes them.)
About the contributor:
The writer is a financial planner, investor, speaker and a self confessed cheapaholic. (Cheapaholic- a term he invented to mean someone who is addicted to being very cheap). Send in your questions. He will try to answer any questions you might have, preferably on finance and money matters. Although he does not object to questions on love and relationships, he never had one and due to his extreme cheapness, will probably never have one (In case youâ€™ll send it mistakenly, he promised to forward it to HeaRty).
Disclaimer: Advice posted in this portion is merely opinions and views of the writer. It does not constitute formal advice. The writer will not be responsible for any of your gains or losses. If symptoms persist, contact your trusted financial planner.