After training yourself with the concept of “paying yourself first”, the problem now that you encounter is “where do I place my savings to obtain maximum returns?”
In this article I would like to set the outlook of where you should place your savings from paying yourself first. My next articles will focus more on the technical part of having excess money: whether to invest in a bank or whatsoever investment vehicles.
Just to refresh your mind: At least 10% or 20% of your income should be “paid to yourself first” without regard to your financial status. You should think that this is required by a law to oblige yourself. Absence of decisive #Balls, savings is impossible! *Note1
Where can I place my savings to maximize returns?
Just to summarize: you can place your savings in the following sequence*
- Invest in yourself first;
- Invest in life insurance; (Sunlife: VUL; Kaizer; Pru-Life UK; Insular Life)**
- Make an Emergency Fund;
- Pursue your short- term goals;
- Pursue your medium term and long term goals.
*Note: This is the priority list, follow the sequence.
** Note: I can refer you to someone if you want to get life insurance. Just message me here or on facebook.
- Invest in yourself first
I believe that if you will continue saving at least 10% or 20% per cut-off, time will come that you will have too much money at your disposal. I suggest that before you invest your money at anything: life insurance, mutual funds, Unit Investment Trust Fund (UITF), Variable Life Insurance (VUL), bonds, time deposits, money market placements, foreign exchanges, real estates, income generating units and even in the stock market, you should invest in yourself first. Again, what do I mean? Again, I will be discussing this investment vehicles in future articles.
I believe in investing to one’s self before investing in other investing vehicles. Investing in one’s self is the best way to increase cash flows. Example, I am a Certified Public Accountant (CPA), being a CPA alone, due to stiff competition and market saturation of qualified CPAs, does not make me significantly different with other CPAs (here in Metro Manila) unless I got something that others do not have. These could either be additional title like Master’s in Business Administration (MBA) or becoming a lawyer and other certifications: Board of Accountancy (BOA) accreditation, Bureau of Internal Revenue (BIR) accreditation, Registered Financial Planner (RFP), Certified Fraud Auditors (CFA), Certified Internal Auditors (CIA) and others.
Another example is that, you can learn whatever it is under the sun that you desire to learn. You should follow your passion, you should follow your heart. That is what you called, “living”. If you were forced to go to education focusing on a different path other than what you desire, then persevere and pursue what you want to do, but remember, “cost-benefit analysis”. In everything that you pursue, remember that the benefit that you derive out of what you do should and must exceed the cost of doing the same. Otherwise, you should have not done it in the first place, unless you wanted to burn your hard earned money. Consider also other circumstances such as age, environment, political atmosphere and others.
If however, you have no inclination to learn new about anything that will give you more in this life, then, go look for something to learn. I believe that there really is something that will excite your senses that you yourself is so interested. Hindi pwedeng wala.
The rationale of investing in one’s self is:
- By investing on your own further education, you are preparing yourself to a higher responsibility. Heavier weight of responsibility comes in tandem with greater compensation package, if employed, and greater market share or market coverage, if doing a business; and
- It is better to increase your value to receive more income than trying to squeeze your already tight budget (you know what I mean).
- Life Insurance
If the amount you save exceeds the cost of your personal improvement thru investing in yourself (further education, training, certifications and seminars), then the excess money should be used to purchase life insurance. See my article about “how do we end?”.
As mentioned in my article (How do we end?): treat everyday as bonus, be thankful not in your 40th birthday, not in your retirement but be thankful from day one (1), from the time you wake up in bed and the up to this time that you are breathing air to live.
Life insurance is a tool that will aid you and your loved ones to recoup with your (knock on wood) unexpected and untimely perish. Well, no one can predict his/her own death. It is better that we insure ourselves for the protection of our dependents. You may not have a dependent now, but sooner or later you will have one, not to mention your immediate family, they are already part of your dependents.
- Emergency Fund
Do not underestimate the power of having an emergency fund. In a world where the only constant as they say is “change”, you need to have protection. Like our life insurances, emergency funds serve as your buffer for any unforeseen events that may come.
I’m serious about having an emergency fund. With all of the negative news in our country, the only protection we can afford is to have at least six months of your savings to counter any vulnerabilities: automation of jobs, reorganization of corporations, accidents, typhoons, and any other fortuitous events that you think are far from actually affecting you and your family but there is a possibility of its occurrence. Since, there may be a possibility, then, the only way is to equip yourself with such fund.
Emergency funds, may be put in the bank or even under your bed, whichever is most convenient to you, as long as it can be withdrawn at anytime. Having an emergency fund is better than seeking financial help from other people or worst, seeking loan from banking institutions where interests are being charged not to mention the long processing time and strict documentary requirements for approval.
- Short-term goals
“I am perfectly aware that as of this period, you may not have a sufficient income to cover both your investment to yourself and to cover the amortization of the life insurance because you are just starting with your career or maybe you are being affected by economic downturn. *Note 2
Don’t worry, do not push yourself too hard. The important thing about this practice is that you already know your direction. You perceive the necessity of it and that you are willing to work for it, to allot money for it and to be able to execute it someday.
However, if you still have money left out of your 10% or 20% payment to yourself, you can still allocate some money for your short-term goals.
I leave to you your personal classifications of your goals in life. I know that we have different and distinct goals in life which is affected by our disposition in this society, age, sex, religion, and other circumstances.
For me, I am saving for the following short term goals:
- Car; and
- Medium Term and Long-Term Goals
It includes acquiring house and lot (family home), investing in long term investment vehicles, funding educational plans for your future kids, preparing for future health care after retirement, preparing sufficient cash for life after retirement, and settling outstanding debts incurred and trying to live beyond 60 years old. You need not worry, another article involving this investment vehicles will be done. “simpleng simple lang”
As I wrote in my article “How do we end?” we must be thankful from day one (1) and not just after we lived beyond retirement age of 60, or age 40, or age 50. I have to mention that one of our supposed long term goals should include longevity of our lives. We should aspire to live beyond 60 years old and not just to live with a complacent lifestyle and a come what may attitude, for it will surely have a catch on our body in the later part of our lives. Absent the gun for hires, we should learn to help our body maintain a healthy meat suit to enjoy retirement without being in a frail condition. *Note 3
It is noted that the average life span of Filipinos is 65 for man and 72.5 for woman as per World Health Organization published last May 2014. It is very short indeed, but if you have lived your life in contentment and happiness, then it is equivalent to living a life in heaven here on earth and age 65 would not be classified as a short lived life at all.
“When you feel down or you pity yourself because you are depriving yourself of the luxury of spending your money into petty expenses. You should think about what you are saving for. Remember that as payment to yourself you should be responsible in planning for yourself. You should think about learning to focus on what you want to achieve with your attempt to save money. Yes! the “memory” that you are saving for is much worth remembering rather than spending it on your usual expenses. So, just keep on saving!
Example: Give up your daily consumption of sweetened beverages, instead save it and place it to any investment vehicle that you may use when the need arises: marriage fund, car fund, whatever fund. The “memory” that you’ll experience in those special events are worth million times than just spending it to usual beverages. In addition, if you will not give up that beverage, it will end up to your fats.
I feel the pain of having a limited income to cover both my further education and at the same time, paying for my life insurance. However, despite my limited budget, I am optimistic that by at least knowing what to prioritize, I know that someday I will achieve my goals whether they maybe for the short-term, mid-term or long-term. That applies to you too!
I am quite guilty of this fact, I know I have a problem but I’m so industrious in procrastinating the solution. I was once at the weight level of Manny Pacquiao in the Super Featherweight Division at 130 pounds back in college CY 2005, but now, I’m at the Light Heavyweight Division at 180 pounds. Damn! Right. I guess, I lack #Balls in prioritizing my health as I make my pursuit of higher education an excuse to feed myself even more. I find comfort with the stress at school and work as an excuse of eating more, which I know is wrong for my overall health. I am aware of the problem, but I’m so numb of it that I am willing to just live with it. Well, I am fortunate though, that by writing this blog, with you reading this, I am thinking that I should as well do something about my weight problem who knows I might be able to write a blog about losing weight right? hehe. Gonna practice what you preach yo!