Is It Possible to Have Savings?

2011-08-16T05:32:00.005+08:00

If there’s a will, there’s a way! Savings is always possible. There are people who earn just minimum wage but able to open a bank account and save part of their salary for future funds. Others invest it to their sari-sari store (a.k.a. “mini-grocery” store) and earn profit.

Sadly, there are others who earn Php20,000 and above, (and also those who earn PhpXXX,000!), who are single and having the prime of their lives, but are buried in debt and never even get to save even just an insy-bitsy-weeny-portion of their monthly salary.

Often, it is not how much money you earn (I’m speaking here in terms of monthly salary), but how much you keep and save, then invest. ;)

Poor Versus Rich Mindset
I have learned from my mentor, Bo Sanchez, that the mindset of the poor is just summarized in a simple equation:

Income – Expenses = Savings

Poor people, (yes, even those who are earning PhpXXX,000 a month), who have the habit of spending their monthly income to unnecessary expenses and other stuffs that do not generate income, are most likely to end up in debts later on. Poor mindset are commonly known as people who are “One-Day-Millionaires”.

On the other hand, the rich mindset is just a twist of the equation:

Income – Savings = Expenses

People who know how to properly manage their finances have the habit of paying themselves first. When they receive their monthly salary, they invest 20% of it to different kinds of “funds”: children fund, family fund, retirement fund, freedom fund, contingency fund, or you-can-call-it-whatever-you-like fund. Rich mindset people put their savings in investment vehicles that provide them with passive income. I discussed one investment vehicle in detail on my post: How to Make Your Php500 into Php500,000.

How I Started My Savings
Like you, it was not a “hey-I-HAVE-TO-save-my-first-salary” mental thinking when I started my career and get on my first job. I also want to spluuuurge. I enjoy the money that I received, and whenever my life’s financial equation goes like this: EXPENSES > INCOME, I blame my company for not giving me enough salary which leads me not to save a single centavo. I had a very poor mindset.

My first job as a licensed professional offered me Php14,000 per month. Earning this amount was already big for me. Why? Because I feel that this is more than enough for me to survive. However, due to financial ignorance, I mismanaged my salary and ended up with zero savings.

A few months before my anniversary with my company arrived, I learned to keep track of my cash flows, did budgeting and was able to recover, bit by bit. With my monthly salary of Php14,000 less tax, SSS contributions, Pag-ibig payments and PhilHealth, I take a net home pay of Php12,500. Being aware of how much we earn and how much we spend is the first key to properly manage our finances. This is just basic mathematics: addition and subtraction. :)

This is how my “financial awareness” started:

The big savings I got was my revised transportation budget. I moved to a place which is near my workplace and also offered the same rental rate. ^__^ I also saved on my spendings for food, groceries and electricity. You can save food spendings, but make it a point that you are still living a healthy lifestyle. Never save your food spendings and end up starving yourself to death!

PS: My Php2,500 monthly savings was started when I was 23 years old. I am now 25, and this savings is now Php60k++ (because I continually save Php2,500 every month). This savings, however, is not in a bank account. Banks only offer a small percentage of interest income, less income tax withheld! My first month of Php2,500 savings was invested in an investment vehicle, and I continually add on to it until now. Bits by bits, little by little... As I always say, even the snail was able to make it to Noah's ark. *winks*

For list of investment vehicles, you can refer to my Helpful Links page located on top.

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Dear Friends,

We can always start with small amount. In the process, we also develop our spending habit and increase our financial knowledge. With little that we have, we discipline ourselves to continue to strive harder to make what we have big.

Just always remember that when we are blessed, we are used as instruments to also bless others. Let us make this world a better place! ^__^

Keep learning and keep moving forward!

Cheers!
Lyn-Lyn \(“,)/

How to Make Your Php500 into Php500,000

2011-08-13T09:29:00.005+08:00

Let me speak to you using a language that I dearly love: Mathematics. Promise! This will just be an easy one. This blog post will just involve basic numerical computations which we know by heart.

*winks*

For the past week, I have learned about different investment vehicles and one of them is mutual fund investment. I also stumbled on what Albert Einstein referred to as the greatest magic in the world. Janjaraaaan…. *drum roll please* It is called compound interest.

Sounds familiar? We have studied about compound interest during our elementary/high school days and if you guys have credit cards, you must know (and this is a FACT) that credit card companies use compound interest in computing for our monthly outstanding balance. Ouch! This will be discussed in another topic.

Make Your Php500 into Php500,000
Back to mutual fund investments, I have learned that while we are at the early season of our working lives, we have to discipline ourselves not just to save, but to invest, a portion of our hard-earned income that can provide us with passive income¹which we can enjoy later on.

Then, how can we make our monthly savings of Php500 into half a million? [WoW!!!] And how long will we be able to achieve this? Warning: Grab your calculator! Computations will soon follow.

The Straight-Line Method Disclaimer: “Straight-line” is my own term for this kind of computation and was not obtained in any other source. Other sources may use a different “code name”. ;)

Using the straight-line method:
If we have monthly savings of Php500 for 12 months = Php6,000 per year
Our target amount is Php500,000.
Hence, Php500,000 divide by Php6,000 = 83.33 years!!! <---- This will be the time when we get to achieve our half a million with Php500 monthly savings. Whooaaaaa! If we are lucky enough to live for more than 100 years old, then we will be able to enjoy this. Yay!

The Compound Interest Method
Let me introduce to you this method using the following illustration:

Most mutual fund investments require Php5,000 as an initial investment.
If we start our investment on August 2011, our Php500 monthly savings will total to Php2,500 from August to December 2011. (Php500 multiply by 5 months)
The performance of mutual fund investments in our country averaged 12 percent² a year. Let’s assume this percentage for our illustration.

Based on our illustration above, with our Php500 monthly savings for the next 15 years, we can achieve our half a million financial goal within 20 years (way better compare to 83.33 years! Right?) and we achieved this with just a total of Php97,500 total savings!!! Plus in the year 2031, the total value of our earnings is 421% greater than our total savings! Whooopieee! \(",)/

Want more? In approximately just 6 years after that we achieved our target of Php500,000, we are able to achieve our first million! Amazing, isn’t it?! This is the magic power of compound interest. =)

The Php500 Monthly Savings
Given that we work for 20 days in a month, this would just be equivalent to Php25 per day.!!! I believe that we can achieve to save Php500 amount monthly, and even MORE than that. Right?! Right?! Dbah? Dbah?

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Footnotes:
¹Passive income is an income received on a regular basis, with little effort required to maintain it. [Wikipedia]
²If you want to check on the top performing mutual fund companies in the Philippines, please refer to this site: http://pifa.com.ph/factsfignavps.asp

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Did the numbers speak for themselves? If you would like to have a copy of the formula we used, feel free to leave a comment and let us know. We would be glad to provide you with the soft copy of this computation.

Happy investing everyone! Enjoy your weekend.

Cheers! \(“,)/
Lyn-Lyn
30 July 2011

QUOTE: “Start to save as much as you can as soon as you can.” – PSE

The Trio: AbundantPinoy.blogspot.com

Is It Possible to Have Savings?

How to Make Your Php500 into Php500,000