SAVING GRACE - the art of saving

I knew a lot of people who doesn’t have a savings account to their name. They live payday per payday. They have either blown their hard earned bucks by partying all night, or amassing clothes from the latest mall sale, or indulging into anything that grabs their fancy. In just a blink, the money is gone and worse, they don’t know were it all went. Hey, I am not complaining, anybody has the right to do whatever they want. They have their reasons. And I am certain that these are valid. But really, the reasons not to save far outweigh the reasons why we have to. Wouldn’t it be nice to enjoy retirement? Or have a ready stash of cash in case of emergency?
Or have purchased something that you’ve only dreamed about? Wouldn’t it be liberating to know that you’re financially independent? That you have not burdened or bothered anyone for money? That you kept your dignity intact by not having the need to ask allowance from ma and pa, or borrow from friends or even pawn your ATM card to loan sharks so that you can live through the next payday.

People procrastinate. It’s human nature. It’s normal. But it is costly. When you delay, the more you need to catch up. Let me explain. I got this from Francisco Colayco’s book, Pera mo, Palaguin Mo and it makes total sense. Let’s say you’re aiming for a million bucks when you’re 60, and you’re just 28 years old. If you start saving now, you would need P31,250 every year until age 60, that’s just P2,605 per month or P1,302.50 per payday. Not bad for someone who’s living on a 15,000 salary. But if you delay, if you started saving 5 years later, you would need P37,038 every year, that’s 5,787 more. The other grain of wisdom here is - the younger you are, the more potential you have to earn more. When you’re younger, there’s greater possibility for salary increases especially since there’s more time to move up the corporate ladder. If this happens the more you wouldn’t feel the amount you need to save.

Now, are you willing to set aside that itsy bitsy part of your income to give you you’re million? There are ways to save and institutions to help you out.

BANKS. The most logical and obvious choice. You just open an account and you’re ready to go. I suggest you shun from the ATM account, especially if you’re easy to fall into temptation. Having only a bank book would make it more difficult for you to withdraw your cash.

LIFE INSURANCE COMPANIES. Life insurance is often misconstrued as something morbid. It’s money for loved one when somebody dies. Although it’s true, there’s more to insurance than this. A lot of people don’t know that life insurance can be beneficial even when you’re still alive. There are insurance products that can give you cash values, dividends and endowments. There are also available options so you can tailor-fit it according to your needs and priorities. I have encountered people who feel that they don’t need insurance because they are still young. I think otherwise. Since the amount of insurance is dependent on age, the younger you avail of it, the cheaper it would cost and the earlier you would finish paying. There are some who feel that they don’t have the money for it. I have purchased my first insurance when I was just 23, and I know for a fact that there’s a way to compute for the amount of insurance your budget can buy. It isn’t the agent’s call. You can discuss with your agent about your budget and your needs and from there, she can draw up an affordable proposal for you. I also believe that the family’s principal breadwinner should be insured first. Insurance, first and foremost, exist to protect income earners and their families. It’s really a tool for breadwinners to cushion the financial impact of their lost to their family’s dreams. It’s usually belong on the least priority list but when the unfortunate thing happens, it’s the insurance that will pay everything that is on the priority list like food, rent, education, medical expenses, etc. Scout for reputable companies. It’s your hard-earned money. It’s better to invest it with companies that have very good track record. Please visit http://www.insurance.gov.ph/htm/_statistics.asp for the rankings of insurance companies in the Philippines as of December 31, 2006.

PRE-NEED COMPANIES. Pension and Education are example of pre-need products. It’s called pre-need because you’re actually buying something that would finance future needs – probably the education of your children or retirement. I read somewhere that it’s only here in the Philippines that pre-need products exist because Filipinos, generally, don’t have the discipline to save for the education of their children or for their retirement. So a pre-need company is essential to help us do the saving. Again, the same advise in looking for a pre-need company. Scout for reputable companies. We don’t want another CAP incident. Have these companies make proposals for you. Then compare them and decide which one is best suited for your need and budget.

MUTUAL FUND COMPANIES. This is another way to grow your money. Put your money in mutual fund companies and they’ll manage your money for you. Meaning, the mutual companies would invest your money so it can earn the highest possible interest it can earn. If you’re going to invest your money in mutual funds, the company would ask you to choose from, commonly, 3 fund types. Bond fund – low risk, low return. Your money is basically invested in government bonds. Relatively safe. Equity fund – high risk, high return. Investments are made in stocks. Highly volatile. Balanced/Managed fund – medium risk, medium return. This fund type is basically a combination of both bond and equity. According to research, there’s a potential for gain if you’ll invest in mutual funds for a long period of time – 5 year holding period at the very least. I sound like a broken record, but it pays to be extra cautious. So I’ll repeat this for the third time, scout for a reputable company to entrust your money. Visit http://www.pinoymoneytalk.com/2008/01/15/best-mutual-funds-philippines/#more-769 for an article on the best mutual funds of 2007.

As for me, I believe in putting your eggs in various baskets. Put some in the bank - for liquidity purposes, some in insurance – to protect your income, some in mutual funds – for capital gain. But more than any of this, start with something, SAVE. This would save you – in more ways than one.