But, listen, time waits for no one.  Sooner or later, you will find yourself with a closet full of out of fashion clothes, outdated gadgets, and toys that you have outgrown.  Worse still, you may still have credit card bills to pay for these things, and zero cash saved up for even your next vacation to Boracay.  This time will come, if you’re not careful.  And believe me, that time could just be around the corner.

If you’re smart, you should begin to plan for your retirement as soon as you receive your first pay check!  Here are ten reasons why you should prepare now:

1.  If you are employed, and your company is setting aside money for your SSS or GSIS or company retirement, guess what?  What your company is setting aside is not going to be enough. 

2. Time is in your favor.  Who has more time to save for retirement at age 60?  You, or your uncle who is 30 years older than you?

3.  Because of # 1, you don’t have to sacrifice a lot in order to save a lot.  If you and your uncle wanted to accumulate P1 Million by the time you’re both 60, you would have to save a smaller amount regularly, because you have more time to save.  Right?

4.  You can make more aggressive investments now but get rewarded with higher returns.  Usually, these higher risk investments  have a way of recovering very well over a longer period of time. 

5. Inflation is not in your favor.  You know it.  Don’t be in denial.  It will cost you more to retire than earlier generations ahead of you.  So, don’t think that it will be affordable enough for you by that time. 

6. You can start small and grow. Even setting aside a small portion of your paycheck each month will pay off in big pesos later.

7. It’s easier to develop the habit of saving while you are young and you have no major obligations.

8. As you accumulate savings over time, your money will starting working for you, rather than you working for money. 

9. No matter how much you love your parents, do you like the idea of supporting your parents because they failed to save for their retirement?  Well, don’t impose your failure to save on your children.  They deserve a life of their own.

10. It’s great to enjoy your savings!  Imagine the nice and easy life you can enjoy when you have saved enough.  If you want to keep working even when you’re old, you will go to work because you like to, not because you have to.  And – when you have saved enough to take care of a comfortable lifestyle – you can occupy yourself with work which probably won’t pay much, but which will be fun and self-fulfilling.

Whatever it is that you desire to save money for, if it’s “financial security” that you are looking for, then you need to look beyond affording that wedding, or that second-hand car.  You should also be looking at what kind of lifestyle you want to live by the time you are retired. 

It’s not that saving for a car, a house, a wedding, or education for your children are not important.  By all means, they are VERY important.  But so is saving for your retirement.  If you don’t appreciate what I mean, I dare you to find out exactly what it is that your company has set aside for your retirement (assuming you’re employed), or to find out exactly what your business is worth today and what it might be worth by the time you retire. 

Don’t be surprised that you’re probably like the great majority of employed and self-employed individuals.  After planning for your wedding, for your children’s education, for your car installment payments, and for your apartment rentals or home mortgages, you’ll find that you may not be ready for your retirement.  Oh, and did I mention that you might have to provide for your aging parents who, themselves, failed to prepare for their retirement?

It’s beginning to sound depressing that you may not even want to go through this very important step in planning for your future.  But, if you’re really serious, you CAN do something about it.  If, after you have defined your goal, you will discover that you have a problem because you don’t know how to ever achieve it, then be consoled in the old adage that says, a problem defined is a problem half solved.

As I said in an earlier post, there is good news!  You don’t have to be a genius to be financially prepared for your future, and you don’t have to be wealthy to begin with. 

The first step is to face the future squarely and define the challenge: decide what your goal is first and then make a plan.  Your goal will not happen just because you defined it.  But neither will an investment plan work, if you have no goal to begin with.  So, take the time to plan your goals.  Dream a dream, if you want to.  But do it.  Now.

Here is a general road map to your financial security.  Follow this road map, and you’ll be happy you did.  Better yet, subscribe to this website so you can continue getting updated on tips and strategies on the details of this road map.

Step 1 – Decide where you want to go.  What are you saving for?  What are you preparing for?

 Step 2 – Check and prepare your vehicle.  Assess your earnings and expense situation, including your existing obligations and investments if any.

 Step 3 – Load up with fuel, and learn to drive.  Develop and practice the right habits of setting aside funds to reach your goal.

Step 4 – Determine your path and speed of growth.   Know your investment choices, your risk levels, and decide and make your investments. 

 Step 5 – Evaluating your progress and making adjustments.   Monitor your investments and your earnings capability, and make adjustments if necessary.

There is only one road that leads to financial well-being and security.  It’s not an easy road to follow, because it requires making sacrifices today in exchange for security and happiness in the future.  All other roads that look attractive and easy for now will, however, lead to disaster, for yourself, or for your family in the long run.  A point will come in your life when you will certainly need funds, and unless you’ve been staying on the right course, you will fall short. 

The good news is that you don’t have to be a genius to be financially prepared for your future.  And you don’t have to be wealthy to begin with.  You just need to know a few basics, draft a plan, and be ready to stick to it, and to stay on course.  There is no guarantee that you’ll make money from all the investments that you will make. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

Aside from being a tough road, not too many people know about this road.  And that’s why we built this blogsite.  Subscribe to this website and study the postings.  Here, you will know where you should begin, what paths you will have to take, what you have to bring with you on the journey, and what landmarks to follow, and what dangers you have to avoid.

Time after time, people of even modest means who begin the journey reach financial security and all that it promises: buying a home, educational opportunities for their children, and a comfortable retirement. If they can do it, so can you.

Go ahead.  Check out the roadmap to your financial security here.

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 The first one should be easy enough for you to solve, the second may be tougher, and the third might seem impossible to hurdle at the present time.  Nevertheless, if you put your mind to it, there is no reason why you can not hurdle all of them. 

Lack of Know-How

The fastest way around this problem is to read on the topic.  The internet is loaded with tons of information regarding all types of investment vehicles.  If you find the jargons difficult to understand, call a financial planner or advisor and they will be happy to help (sometimes for a fee though).

Lack of Discipline

Instilling discipline on your self is not an easy task.  When you are use to a certain type of spending habit changing it will take some time and a lot of will power.  The trick is to slowly develop that saving habit until it becomes second nature to you.  Keep in mind that INCOME less EXPENSES is not equal to savings.  Even if your income increases in the future, chances are your lifestyle will move up as well hence, depleting all the extra income.  The best approach is to pay yourself first by following the formula INCOME – SAVINGS = EXPENSES. 

If you are lucky enough to work for a company that promotes personal investing by providing their employees with a savings program through salary deduction, enroll in that program.  By simply authorizing your employer to deduct from your salary, you are instilling discipline on your self.  If your company does not have such a program, try suggesting it to the HR manager.  You can also join formal organizations or cooperatives that advocate savings.  Just make sure you choose trustworthy organizations.

Lack of Resources

Now this is a tough one! Following the formula that we stated earlier should give you some amount of savings regularly.  The real problem comes when you look for investment vehicles to invest in.  Most of these investment instruments require a certain minimum amount to start with and these amounts just might be out of your reach. Among the viable instruments available to investors, mutual funds probably have the lowest minimum requirements (P5,000 to start an account and P1,000 additional; for most  mutual funds in the Philippines).

If the P5,000 minimum is still a bit high for you there are ways to hurdle that problem.  A company sponsored savings program can be very helpful on this regard.  Some of these programs pool the resources of the employees on a mother account under the company’s name hence eliminating the initial investment requirement.  If something like this is not available to you, you can always open a joint account with friends, relatives and other people that you trust explicitly.  If you can get together with four other individuals that also want to save, you can meet the minimum requirement by putting up P1,000 each. You can actually do this every month or every so often as long as everyone agrees to it.  This is also a great solution for students who want to start saving at a very early stage; certainly something for the parents to push for.

You can probably come up with hundreds of other reasons not save. Certainly, spending is so much more fun than saving. Nevertheless, if you put your mind to it and slowly develop that saving habit there is no reason why you can not secure your financial future today even if you think you have nothing to save.

D.  Gift Money:

As you go higher in the hierarchy of needs, you develop a need to provide for people or causes that you care deeply for.  This could be some kind of charitable institution or foundation or some family member that you want to take care of.  But the most common use for gift money is to provide for education.  Saving for education early on through long-term vehicles like mutual funds, note and bonds, or trust products, will make it more efficient and easier on the pocket.  Another typical example for this type of financial need is the desire of parents to leave a reasonable amount of estate for their children.  Again, this can be accomplished through long-term instruments.  For people whose investment horizon is short or those who may not have enough resources to accumulate a substantial estate, the best way to create one instantly is to buy life insurance.  On the other hand, for rich individuals who are more concerned with the inheritance taxes that their heirs will need to pay for, a good solution is to get a life insurance coverage equivalent to the taxes that will be incurred by their heirs.

 E.  Dream Money:

Dream money pertains to funds that you need to have for all the things that you dream of being, having, or doing.  These goals can pertain to your retirement, or the kind of lifestyle you want before or after retirement.  Normally these are funds that you will need after you have gone beyond your peak income years.  Therefore, these types of needs will require large amounts of monies.  Long-term vehicles like mutual funds, note or bonds are the best instruments for establishing your nest eggs for this purpose.  While more and more people are becoming aware of the need to save for retirement, very few people realize that a big portion of their retirement funds will be spent on medical needs.  In this regard, it is prudent to set aside funds specifically for the purpose of funding for medical expenses after retirement.

Having a structured approach in prioritizing goals will enable you to build an investment portfolio that’s tailor-fit to your needs and your available resources as well.  The important thing to remember in using this approach is that you need to establish (and maintain) your lower-end targets before going for the higher goals. Having a strong base results to a stable portfolio and keeps you away from situations where you are force to liquidated long-term placements in order to meet an immediate financial obligation.

B.  Safety Money:

These are funds needed to meet life’s unexpected turns.  Normally, safety monies protect whatever real assets you have accumulated in the past like your home for instance.  In this regard, fire insurance will be the best investment option to protect this type of asset.  General liability insurances can protect your business from unexpected developments.  However, while there is a need to protect your assets, it is even more important to protect the person that generates these assets.  This is where life insurance comes in. 

 C.  Freedom Money:

While it is important to save and invest for your future, it is equally important to have funds that you can use for your non-basic needs.  These are funds for activities that give you enjoyment and fulfillment.  After all, life does not start after retirement.  It started on the day that you were borne.  Certain activities like having dinner with old friends or going to the mall with your kids, or that all-important annual family vacation should not be disregarded in order to save for long-term needs.  We need to keep in mind that God did not put in this world to make a living but rather to make a life.  However, these activities will have substantial price tags attached to them and therefore it is important to actually prepare for them.  For this purpose, short term instruments like savings and checking accounts, treasury bills and money market funds will be your be your best options.

 Another life goal that gives you fulfillment and a high sense of security is home ownership.  This is probably one of the biggest single expense that you will incur in your lifetime.  Home mortgages can play a vital role for this purpose.  However, you need to keep in mind that borrowing money from the bank will require you to put up approximately 20% of the value of the property and this not going to be a small amount.  Therefore, it is an excellent idea to plan for this activity several years in advance so you can save for the banks equity requirement.  Medium to long-term instruments like mutual funds, government or corporate bonds will be the best option to maximize on this type of savings.

To be continued . . .

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One approach that you can take is to use the concept of Maslow’s Hierarchy of Needs.  Abraham Maslow has set up a hierarchy of five levels of basic needs (Physiological, Safety, Social, Esteem, Self Actualization). Beyond these needs, higher levels of needs exist. These include needs for understanding, esthetic appreciation and purely spiritual needs. In the levels of the five basic needs, the person does not feel the second need until the demands of the first have been satisfied, nor the third until the second has been satisfied, and so on.

Using the same concept, and translating the levels of basic needs into financial terms, we can come up with the Hierarchy of Financial Needs (Survival Money, Safety Money, Freedom Money, Gift Money, Dream Money) that can be a basis for prioritizing which of your many goals you should work on first.

                        Maslow’s Hierarchy of Needs                                                      Hierarchy of Financial Needs

A.  Survival Money: 

These are funds that you need to make ends meet.  The most basic type of survival money is the amount that your household needs for food, clothing and shelter.  Typically these funds should be in very liquid instruments for easy access.  Therefore savings or checking accounts are the best vehicles for this purpose.  A household that may have extra funds can go to short-term deposit placements in order to generate some return from these funds.

Another type of survival money is one you need for emergency situations.  A leaky pipe, the car engine unexpectedly conks out, or some minor home repair that needs to be undertaken immediately are examples of minor emergencies that you need to prepare for.  A good size emergency fund is around six to nine months worth of expenses.  Typically these funds will be in short-term instruments like, savings, checking, treasury bills, or money market mutual funds.  A stand-by loan facility from a bank might be used as part of your emergency funds.  Accident, health, and auto insurances can greatly reduce the need for liquid emergency funds.

So how do you differentiate yourself from a fund manager? – Basically you come up with answers to the same three questions (what . . . , when . . . ., and how much . . .) using different means.

What to Buy or Sell

In answering the question “what to buy or sell”, most fund managers use fundamental factors, technical indicators and mathematical tools.  As an investor all you need to do to answer this question is to set your goals (retirement, college funding, capital for business, etc.) and to know your risk appetite (aggressive, moderate, conservative). 

When to Buy or Sell

To answer the question “when”, a fund manager again uses many tools (mathematical, cyclical, trend followers, etc.).  To accomplish the same feat as an investor, what you need to do is to determine how much time you have to invest (this is almost automatically determined once the goals are set) and what resources you have available for investing (how much of your monthly salary can you set aside for investing?).  For an investor like you there is only on answer to this question – NOW.  Your success as an investor will not be a matter of timing but of how much time you have to invest.  So start early!

How Much to Risk

Finally in order to manage risk effectively as an investor, you don’t need all those ratios, alphas, betas, audits and what have you that fund managers use to evaluate risk. All you need to do is to choose the right fund and the right fund manager.  Nowadays with all the scams going around choosing the right fund manager is almost as important as choosing the right fund.  Once you have accomplished the first two steps you will realize that choosing the type of fund is best for you will be easy enough because you already know what type of returns (professional financial planners can help you determine this)  to look for in order to meet a specific goal. 

So, to develop that winning investor’s mindset just remember these four simple phrases:

1. You are not a FUND MANAGER! Think Like an INVESTOR
2. Know your GOALS (put them on paper) and RISK APPETITE.
3. Determine how much TIME you have to invest for each goal (the longer the better so start early).
4. Choose the RIGHT FUND, and the RIGHT FUND MANAGER.