Financial literacy for Filipinos (1): How to become a millionaire for thirty (30) year olds

Source: Philippine Stock Exchange

By Chanda Shahani

Let's face it: You're not getting any younger, and you have to start thinking about your future. You know how difficult it is to retire alone, poor, and saddled with mounting health costs. Now is the time to start takinbg charge of your future, so that you can live a quality life that makes every day count.

If you save and invest money every month, you will inevitably become a millionaire. As Albert Einstein said, compound interest is the "eighth wonder of the world." But reaching this eighth wonder of the world largely depends on the amount of money you currently have, how much interest that money will earn (the tricky part), and how much you can save each month -- and, of course, how long you can wait. Another critical part of the equation is that you leave the interest earned alone so that it keeps earning interest.

For example, if you're 30 years old, have PhP 250,000.00 already saved up, you caqn then save up to PhP 5000 per month, and can earn 8 percent interest, you'll be worth PhP 50 million in a mere 51 years or at the ripe old age of 81.

How to become a Millionaire

There's no one one way to become a millionaire, However, here are some ways to adopt commonsensical strategies to become a millionaire.

Know your current net worth

In order to successfully travel anywhere you have to first know where you're starting out, right? So, the first thing you have to determine is your current net worth, because knowing your starting point will help you pinpoint that all important estimated time of arrival.

Set your goals

How soon do you want to be millionaire? In a year? In five years? Or are you just hoping to make it by the time you retire? Whether you want to make it in one year or 30, you need to have a written goal. If you're thinking about your retirement years, do you plan to downsize to a smaller and less expensive home? Do you plan to travel? Or are you content with a simple lifestyle? Whatever your goals are, you need to define them so that you know what kind of strategy you are going to employ to get it.

Determine your strategy

Now is the time to determine how you want to make that money. Most millionaires own their own businesses, but others have achieved millionaire status working for others. Many physicians, attorneys and corporate executives also earn incomes that enable them to achieve great wealth -- particularly if it's managed wisely. Obviously, if you want to make millions of pesos in a short amount of time, say 5 to 10 years, you're going to need a pretty aggressive plan in order to succeed, and that usually means you'll need to branch out on your own.

Set up an emergency fund

One of the first rules you hear about managing your finances is to always have accessible cash in the event you're are laid off, injured, or some other catastrophe takes away your ability to earn a living. Recommendations vary, but usually that amount should be three to six months living expenses.

Set a budget and manage your money wisely

Budgets are something most people don't worry about if they have enough money from month to month. They don't see the need. The problem is they also don't see how much money they are throwing away on things that don't really matter. How much money do you spend on things like fast food, lattes or movies? Do you shop because you're bored, buying things you really don't even care about?

Think about how much money you spend buying things on a whim. Keeping track of where your money goes is one of the best ways to increase your wealth. Spend your money only on things that are actually worth it. Using a financial management software program makes tracking where your money goes much easier.

Setting a budget also helps you save more money. At the end of each month, any money you haven't spent on necessities (or budgeted items) could be transferred into savings or invested.

Pay off your debt

Start with your smallest debt first and remove it slowly at it until it's gone. Then add the money you had been paying on the smallest debt toward your next smallest debt until it's paid off and so on until you're debt-free. Throw away your credit cars, or at least don't carry them around with you and just keep them at home for emergencies only. Also, pay off your credit card debt in full every month.

Invest in the stock market

U.P. College of Business Administration Professor Roy Ybañez once said in 2001 that he studied the the ups and downs of the Philippine stock market index and found out that when it came to blue chip stocks (that is, the stocks of the very best Philippine companies such as PLDT, BPI, Ayala Corp., etc), the performances of these stocks averaged 10% a year all through the assassination of former Senator Benigno S. Aquino, the turbulent elections between Ferdinand Marcos and Corazon C. Aquino and several coup attempts as well as the economic resurgence under former President Fidel V. Ramos.

Th bottom-line is that blue chip stocks while grow in terms of value because these giant companies will continue to do well in turbulent times.

The savvy investor will, therefore put away a modest amount of P 5,000 every month and buy only the blue chip stocks or high value stocks which will grow in value over the ensuing years.

(The author has a Master's in Entrepreneurship degree from the Asian Institute of Management and is a former business reporter from the Philippine STAR. He is also a licensed real estate broker. He graduated A.B. Comparative Literature from U.P. Diliman).

Book Review: My Maid Invests in the Stock Market ... And Why You Should, Too!

By Chanda Shahani

This morning I successfully bought about PhP 4000.00 of Jollibee and Manila Water Company shares via my online broker (Philstocks.ph) using this nifty little book by Bo Sanchez entitled, “My Maid Invests in the Stock Market … And Why You Should, Too!” as a guide. Like other small time traders who have long wanted a structured guide to trading under Philippine conditions, I have long felt that there has been no good local guide for individual traders that bridged the gap beyond brochures on the Philippine Stock Exchange (PSE) and heavy books on high finance written by theoretician professors from the U.P. College of Business Administration.

Until now.

With Philippine Stock Exchange (PSE) officials lamenting that in a nation with a population of 110 million, there are only 60,000 persons actively trading in this country while in Asian financial markets as diverse as Thailand, Hong Kong and India, even taxi drivers and barbers are financially literate and play the stock market everyday, one is compelled to ask, what went wrong here? Given that out of 132 stock brokerage firms in the Philippines, there are already eight that offer online services, some with a minimum opening balance from zero to PhP 5,000, why does the average Pinoy regard playing the stock market as a white collar version of gambling or jueteng? Given that approximately eight million overseas foreign workers (OFWs) are remitting billions of dollars every year to the Philippines, it's clearly a failure of communication on the part of our financial educators and authorities rather than a lack of capital per se that has let the Philippines stock market languish as one of the under performers in the region and consequently become a victim of “hot money,” where foreign speculators jump in and out of our stock market for fast profits.

Without revealing the innermost secrets of this book (and thus spoiling it for you), “My Maid Invests in the Stock Market … And Why You Should, Too!” makes the point to the reader that even a “maid” or somebody without too much income can put aside even two thousand pesos a month by undertaking simple budgeting and invest them in blue chip companies through online traders recommended by Bo Sanchez. Mr. Sanchez says that if this can be maintained for twenty years, anybody can become a millionaire. All it takes id discipline, he says.

The greatest merit of this book is that it says that in stock trading, technical trading or a reliance on fancy charts and graphs is unnecessary for the average investor and that it is better for them to rely on choosing solid blue chip companies while ignoring the wild swings in their prices. Rather, as U.P. College of Business Administration Professor Roy Banez once pointed out, the Philippine stock market index has consistently averaged about 10% in improved performance a year (the index only comprises the very best companies), despite the EDSA I, II, and III revolutions, the assassination of Benigno “Ninoy” S. Aquino in 1983 and assorted coup-d-etats in the interim.

However, the problem I have with this book is that it effectively says that a “maid” or even the reader should subscribe to Mr. Sanchez's newsletter and enroll with Citiseconline in order to let him pick the stocks for you, and for you to transact with Citiseconline (where they will of course get a fee). One cannot but help think that Mr. Sanchez and Citiseconline have some kind of commercial relationship in pushing fro this particular recommendation.

But despite all its flaws, this book is still an easy read as well as an introduction to stock market trading, with the author even recommending ten stock picks (I agreed with two of them, which is why I made my online purchase today). However, the reader should adopt a cafeteria-style approach and just pick the aspects that work for him. I personally think that if stock market investing education can be simplified, more people will suffer less from total information overload regarding this topic, and consequently more individuals will be willing to research individual companies (this information is free from the PSE website at (http://www.pse.com.ph) make their own choices. My Maid Invests in the Stock Market … And Why You Should, Too! Is definitely a good beginning source book and deserves to be on the shelf of any aspiring small or large stock market investor.

My Maid Invests in the Stock Market … And Why You Should, Too!

National Book Store

PhP 175.00

(Chanda Shahani is  the editor of the Diliman Diary. He has a Master's in Entrepreneurship from the Asian Institute of Management and is a former business reporter for the Philippine STAR).