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| 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).
