Inflation
With the average 4-6% inflation rate, your Mackers value meal that cost around Php 100 today in your 30's, will be
Php 800 by the time you retire.
So if you stop earning by this time, will your savings be enough to get you a decent meal everyday?
(Unbelievable? ask your mother how much is a bottle of coke 30 years ago)
It's not enough that you save. You have to invest. Now how do you do it without losing it all?
SAVE FIRST.
Then divide your savings into three - coverage, investments and luxury.
On Saving
The moment you get hold of your paycheck, keep 10% (or more) of your money and
DON'T TOUCH IT until you finished reading everything from this article.
No matter how tempting it is to buy that branded shirt or dine in an expensive restaurant which you feel you can still afford if only you will allow yourself to spend that remaining 10% of your salary which you set aside before you went to the grocery for your everyday needs and paid your rent,
DON'T.
You may not believe now but you badly need that money in the future. We are not even sure if all of that accumulated savings will be enough. So DON'T TOUCH IT.
If you feel your sense of style and appetite is being compromised, then budget your money wisely.
Do you really need to turn on the aircon? Or you feel you will rather spend the extra 3,000 you pay for electricity on fashion and dining?
If you want both then WORK HARDER TO EARN MORE MONEY.
But don't forget to increase also your savings when you earn more.
Low Risk Investments and Financial Coverage
Now why do we need that effin 10% of your income which I don't want you to touch?
We are not saving it to buy you a new car, hell no!
Times are hard. You'll never know when you or a family member might get sick. If you're not careful, you could even get a girl pregnant so you will need that money on these more important things. But will your savings be enough?
You're money in the bank will never be enough.
This is where pre need products like health card, educational plans and memorial plans come in handy. You don't want all your savings to be wasted on hospital bills when someone in the family gets sick.
The good news is some employers provide these.
But if you are unlucky not to get this benefit, you should get one for yourself.
But watch out for bogus fly by night insurance companies and always check the news which financial institutions have less to zero chances of going bankrupt.
Whatever happened with Lehman Brothers and AIG should not stop you from getting an affordable insurance because you need to secure the future if you love your family.
If you're a single parent, you don't want your seven year old daughter to be sent in Manila to work for an aunt as a housekeeper and be bullied by cousins because you did not leave her anything before you died in that car accident.
But remember to get only a financial product you can afford. Do not over do it.
Don't get a one million pre need insurance plan which your savings cannot afford to pay.
Do not use your grocery money to pay for insurance.
Remember to use only half of the 10% you saved here as you will need the other half to increase your wealth.
But don't let your money sleep in the bank.
If you're 20 years old and you left 100,000 in the bank –
It will take 72 years before it doubles at 1% interest.
Invest in low risk financial products like time deposits, government bonds and mutual funds. They offer guaranteed return of investment.
At 4% time deposit interest, your 100,000 will be 200,000 after eighteen years.
By the time your 66, it will be 400,000.
(4% interest)
age - money
30 - 100,000
48 - 200,000
66 - 400,000
At 12% interest, your 100,000 will be 200,000 in six years.
By the time you're 66, you'll have 6,400,000
(12% interest)
age – money
30 - 100,000
36 - 200,000
42 - 400,000
48 - 800,000
54 - 1,600,000
60 - 3,200,000
66 - 6,400,000
How did this happen?
Your bank actually invests your money in a financial institution, gives you 400,000 at 4% interest as promised, and runs away with 6,000,000 million which should have been yours if you only went straight in the financial market yourself.
My personal advice for long term investments, forget banks.
Save it somewhere else but again, watch out for bogus wealth managers.
There.
Now with insurance coverage on all aspects and low risk investments, your future will be somewhat secured.
But with the inflation rate, even if you have savings, upon retirement you may not be able to afford the things you enjoy now. So you need to work double time to save more.
High Risk Investments
Now that your short term and long term needs are secured, it's about time you think out of the box to double your money really fast because you need to maximize time left before retirement where you will not be physically capable of working and thus earning the same way you are doing now.
You may now gamble and explore all possibilities.
Invest in the stock market or put up a business.
Chances of not getting your money back is very high so once you gain something back from these ventures, again divide into three:
first chunk - business expansion
second chunk - savings
You need to set aside a portion of your profit. This is different from your personal savings as this amount you set aside should be taken solely from the mark up you earned from your new business, not your previous source of income.
It’s very important that you do this so there will be money ready to use to continue operations should unfortunate incidents happen (like fire, theft or simply not getting enough income back);
Also, make sure your location has fire insurance and ask your financial planner about car insurance for your delivery vans (if you have any)
Never use the personal savings you set aside for family emergencies.
If the income you earn from your business is not even enough to continue operations at an extended period of time, shut it down and invest somewhere else.
third chunk - Enjoy.
A lot of people waste their money purely on this when they are young.
When they get their first million, they buy a house or a car and more houses and more cars.
By the time they retire, they just sell it one by one to pay for tuition fee, hospital bills or worse, loan and credit card debt because they could not live within their means.
If you will be using the money you’re supposed to save for health care and education, then that housing loan or car you are paying by installment is not yet for you.
And don’t get me started on that credit card.
At 3.2 % monthly interest rate multiplied by twelve months, that’s 38.4% annual interest.
If your Php 50,000 bill remains unpaid, in two years it will be about Php 100,000 and will be very difficult to pay.
If you will not live within your means, time will come when all the money you worked hard for will only be used to pay off loans and debts.
So use your credit card wisely. Never purchase anything you cannot pay at the end of the month.
Most people in the know never change their lifestyle for at least five years while they are still in the saving period
Make sure all potential dangers and expenses in your life are covered before you spend more.
No matter how tempting it is to move to a bigger apartment the moment you get your first salary increase, DON’T.
You haven’t saved enough yet.
It's very important that you only use one third of your income in luxury.
The Micer
Believe it or not while most people throw all their money away, there are some few who are too stingy and won't spend a dime for a decent pair of shoes.
Never make the big mistake of watching your money grow while you live a miserable life.
Life is short. Learn to reward yourself generously for all the work you've done because that is why we are all working in the first place - to enjoy.
All this talk about saving is only to avoid being miserable in the future, like not being able to get hold of things you really wanted because you need to spend the money somewhere else, like your son's school project.
Once you have earned the right to spend, (savings, insurance and investments already set aside)
SPLURGE!
but not in excess, okay?
Remember, one third only.
Don't touch that time deposit
(A lot of my friends don't know i used to be a licensed financial planner so when i talk about money, they shut me out. So I just wrote here everything I want to say. Thank you for reading. -yvette )
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