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  Sooner or later, you will find yourself with a closet full of out of fashion clothes, outdated gadgets, and toys that you have outgrown.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.

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.

For example, buying garments on wholesale and then selling them retail at a good mark-up in your local neighborhood bazaar has its risks.  You may not be able to sell everything, and at the price you hoped to get.   But maybe the possible profits that you could make are worth the risks that you’re taking. That’s entrepreneurship for you.  Or you could be buying insurance from a reputable firm, then suddenly discover one day that that insurance firm itself is going bankrupt.

No investment is perfectly predictable.  Therefore, even good investments have a certain amount of risk involved.  If no one ever took any risks, then there would be no economic progress at all.  The key is to anticipate the risks, and manage the investment so that the risks are reasonable compared to the return that you expect to make. 

It’s all a matter of risk-return tradeoffs.  The higher the risk involved, the higher should you demand the returns/profits to be; otherwise you will not make the investment.

Some suggestions

Usually, when making an investment, you are attracted by the possible returns that you could make from that investment.  Most likely, you would compute potential profits, given realistic, but favorable conditions.  You could also compute potential profits should your luck really be good (assuming the return is not fixed).  Don’t get blinded by these computations, though, but seek another person’s opinion (someone whom you consider wise and unbiased), to make sure that your assumptions make sense.  Many people have been fooled by scams and swindlers who present seemingly realistic, easy-money promises, and who take advantage of an investor’s ignorance and greed.

But you shouldn’t stop there.  Before making any investment, it would be wise to anticipate and predict a “worse case” scenario to see how much you would lose, or how low your profits would go, in case something negative happens that you didn’t expect.  With a little calculation, you can determine your break-even points, and compute your remaining profits (or losses), given those worse-case situations.   Again, it helps to seek the counsel of a third-party, someone who has no stake in the investment, and certainly not the person who’s selling you the investment, to help you assess the various downside scenarios, and give you a reality check.

Then you should weigh the pros and cons of these various situations, and the likelihood of occurrence of each of these.  If the upside is likely, but the profits are not so fantastic, compared to the losses that you might incur if the downside occurs, then you would probably decide that “it’s not worth the risk.”  On the other hand, if the upside, though not so likely, is very attractive compared to the danger of losing in a downturn, then you will decide that “it’s a good investment.”

In a future blog, we will continue this discussion on risks to see lessons from the past.

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A mutual fund is a company whose capital is invested by a professional fund manager in investment-grade instruments like stocks, bonds, and so on.  If you invest in a mutual fund, you’re buying shares of that company, and your money is included in the pool of capital that is being invested by the fund manager.  The price of buying (or selling back) your shares is based on the market value of the investments of the company at that time.

The job of a fund manager is to maximize the value of the fund while taking into account the risks involved.  Your investment will go up (or down) in value, depending on how profitable those investments are which the fund manager is making on a day to day basis.  Everyday, the value of your capital is computed based on how much money the fund manager made, or how much worth the investments are in the market at the end of the day.

Your investment in a mutual fund does not earn a fixed interest; instead you earn money when you sell back your shares at a price, or value, that is higher than when you bought those shares. 

There are risks involved in investing in mutual funds.  The value of your funds could temporarily be down from the time you purchased it, depending on capital market situations, and depending on the kind of mutual fund it is.  A bond fund (invested in the bond market) does not fluctuate in value as quickly and as dramatically as an equity fund (invested in the stock market).  On the other hand, a bond fund does not increase in value as fast as an equity fund.

You may withdraw your investment, or sell back your shares, in a mutual fund anytime you wish or need the funds.  You may, however, end up losing money when you sell at a time when the values are declining.  In the long run, say, more than two to three years, the value of a mutual fund improves at a rate much higher than if you were investing in specific individual savings or investment instruments yourself.

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Education plan. The objective of this plan is to have a sufficient amount of fund during high school, college or perhaps graduate education of your children or members of your household. The amount to be earmarked on a regular basis is dependent on some factors like  the type of school that you intend your children to go to, and the projected increases in tuition fees.

 Retirement plan. From the desired level of lifestyle that you (and your spouse) want to have, you can set up a sinking fund fior it. This can be funded by regular contribution to this fund coupled with corresponding investment activities that aim to maximize the fund’s returns.

 Estate plan. Planning your estate involves questions like: Are you going to donate real properties to your children even before you “kick the bucket” or just let them inherit these properties when you leave this world? In other words, what’s the cost-effective way of transferring wealth. This may involve making a (testamentary) will and consulting with a good tax lawyer.

 Special needs plan. These take care of other needs such as a wedding, a vacation abroad with the whole family, buying a second house, setting up a fund for charity or foundation, etc. Just like the other concerns, these need preparation and planning.

 A Financial Plan may not be as comprehensive as outlined above or it may not  be in black and white at all. I strongly suggest, however, that if you decide to have one, you might as well do it properly by incorporating the above components. A Financial plan is nothing if you will delay its implementation. A good financial planner can help you a lot not only in the implementation itself but also later on when you review and monitor your plan.

 Visit this blog again if you want to learn how the above components of a financial plan are being done.

1.  Start Early

The only way you can make the most out of the limited time you have is to start early.  The sooner you invest, the more time your money will have for growth. If you delay, you will almost certainly have to invest much more to achieve a similar result.  Let the power of compounding work for you.

2. Keep Some Cash Aside

It is always a good idea to have some money set aside in case of emergencies. Maintaining three to six months worth of living expenses will insulate you from a sure fire formula for investment loss – distress selling. 

 3. Know Your Risk Profile

What is the point of investing in the stock market if you are going to lose sleep, if you don’t get a heart attack first, every time prices go through a rough patch. You need to be realistic about your risk appetite.  An investment advisor can help you determine your tolerance for risk.

 4. Never Forget About Inflation

Don’t fall into the false sense of security that very conservative investments might give you.  The returns may look respectable at the start but not after you deduct the effects of inflation.  Keep in mind that risk is not just about losing money.  It is also about not having enough in the end.

 5, Think Carefully About How Long You Can Stay Invested

If you plan to stay invested for a long period of time, say five years or more, then it is okay to go into the stock market and let your money work harder for you.  But if you will need your funds very soon, you are going to be better off with low risk investments.

 6. Spread Your Money Across Investments

Don’t put all your eggs in one basket.  Depending on your goals and attitude to risk, you will probably want to spread your money across different types of investment – equities, bonds and cash. You may also want to diversify within each of these categories. An equity fund, for example, will invest your money in a variety of companies but you may want to ensure you have a range of industry sectors too.

 7. Invest Regularly

Investing regularly can be a great way to build up a significant lump sum. You will also benefit from what is known as cost averaging. In this way you hardly feel the pain caused by delayed gratification since you are saving small amounts that you can easily afford. 

 8. Choose Your Funds Carefully

You should select investments based on your personal circumstances and goals. Don’t assume all funds investing in equities are the same – look at what a fund invests in and check if you are comfortable with its investment style and objectives.  Choosing the right fund manager is nearly as important as choosing the right fund.

 9. Remember That Time and Not Timing Is The Key To Successful Investing

Even the most experienced fund managers fail when it comes to timing the markets.  As an investor your concern should be to have as much time as possible to stay invested.  Take the long-term view and stay in a fund that you are comfortable with for as long as necessary.

 10. Review Your Investment Regularly

There are a number of reasons why you might need to change your investment portfolio.  Your goals might have changed over time or your resources might have changed significantly.  Whatever the reason may be, your life stage will play a vital role in determining the right investment mix for you.  It is prudent to review your investment once or twice a year at the very least to determine if you are still on track to hitting your goals.