If you will ponder and think about it, many people will make over a million pesos in their lifetime. If you were to earn an average income of P25,000 a month (P300,000 a year) over 40 years (age 25-65), then you would have a total of P12 million (P300,000 x 40 years) that flew through your hands.
If you were like most people who love instant gratification and spend all they earn, you will end up with almost nothing after 40 years. But what if you were to just save 10% of that income every month and invest it in stocks and mutual funds that earn you a 15% return a year and let your money compound year after year? How much would you have after 40 years?
Using a financial calculator or your Microsoft Excel, you can easily compute that you would have an accumulated P123 million fund after 40 years. What? Is that true? Is it right? Is there something wrong with my calculator? No. Through the power of compounding interest as discovered by Albert Einstein which he said is the greatest invention of all time and the most powerful force in the earth, just saving P2,500 a month accumulates to over P61.5 million in 40 years. That is the power of consistent saving and investing. But now I can hear you saying, Laurent, I can only save P1,000 a month or P33 a day. Fine, you will have 12.25 million in 40 years!!! Now, my question, is that your best? You spend P50 a day on your cellphone load, P100 on coffee, P50 on cigarettes and many more. Why not for your future?
Most people feel that they do not have enough income to invest so they procrastinate by saying, ‘I will start when I earn more.’ Trust me, this is impossible. If you cannot save ten cents out of a peso, you will not save P100,000 out of a million. If you cannot start with a small income, forget it when you have a bigger income. Money is a reflection of who you are.
Remember that if you do not start the habit of saving and investing, you will end up with a lot more expenses when you earn more. Again, we, humans, are creatures of habit. Regardless of the amount, the important thing is that you create a habit of saving and investing. As Dave Ramsey says, success in personal finance is 80% discipline and 20% knowledge.
Stop procrastinating. Start right away! Every day you delay is costing you hundreds of thousands of lost pesos in your future. Let’s look at the impact of postponement….
If you were to save P2,500 a month for 25 years at a 15% annual return, you will have P7.5 million in the end.
If you were to start just one year later and save P2,500 a month for 24 years at the same 15% return, you will end up with P6.25 million. That’s P1.25 million less. In other words, waiting one year will cost you P1.25 million in future peso. This is equivalent to losing P3,400 (P1.25 million divided by 365 days) of future wealth every single day you procrastinate! P104,000 a month! Can you afford to do that?
So get ready to start increasing your monthly savings right away!
For the next issues, I will show you some of the investment vehicles that yield 12%-15% annual return.
If you have questions, leave in the comment below. =)
Laurent Dionisio, CPA, RFP
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