Disclaimer: Philippine context is used in writing this article.
I received a Facebook private message last week from a friend. She came to realize that she needs to invest in order to grow her hard-earned money . She realized that depositing her money in the bank after several years of work couldn’t do any wonder for her.
I literally felt her feeling as I went through the same realization six years ago. She asked me straight afterwards if it’s possible to save one million in five years. I answered in the affirmative, but clarified that she needs to invest in order to reach that goal.
In starting any given task, it is important to have a specific goal. Accumulating one million in five years is a specific goal and it’s good that my friend knows her goal. Wealth accumulation is more of an attitude game than a numbers game. It’s true that the more money you put in, the faster you can reach your goal. However, discipline is as important. It’s like running a marathon. You have to endure until the end.
So really, how to start the process of saving one million in five years? Start small and be consistent. Mutual funds and unit investment trust funds (UITF) are now offering retail investors like us to start investing for as low as 1,000 pesos. To understand what are UITF and mutual funds, you may visit this site.
And the good thing about this type of investment is that you don’t have to track the market on your own because fund managers will do all the work for you. Also, more and more banks offering UITF have automatic debit arrangement so you can be consistent in investing every month. BPI and BDO are some of the banks that offer this kind of investment plan.
The industry is well aware that people tend to be inconsistent with saving and investment and automatic debit arrangement let’s say during payday is the solution to this problem. The client has the option on which day to deduct the investment and I suggest to schedule it during payday.
After having made the first small step, you should keep tracking your progress. Online platforms are now available to track your investments and so this is more convenient than ever. You will see before your very eyes how your 1,000 pesos grow every month .
However, there will be times that the market is down and you may notice that your investment is actually losing money. The good news is that you don’t have to worry because you are investing over the long-term. Personally, I have seen my investments lose more than 10% in a particular given time but I didn’t withdraw because I know it will recover in time. Sure they all did. Now you are motivated to invest more. This is the phase when you have acquired the discipline.
But you have to be cautious because you must remain realistic. Before you commit to increase your investment every month, you have to check your cash flow. You cannot increase your investment while maintaining the same lifestyle you’re used to.
You either cut back on your expenses or increase your income. Better yet you can do both. Based on experience, there are always, I mean ALWAYS items on the budget that we can cut back. Dining out expenses are always number one. If you get used to eating out once a week, you should make it once every ten days. And when implementing this strategy, you should go back to the principle of starting small and being consistent.
Don’t fall into the trap that you eliminate a specific item in your budget at once and later feel being deprived and end up rewarding yourself by spending even more than you can afford. You can also increase your income by doing part-time jobs. Many people spend four or more hours on social media everyday. How about translating those hours into something fruitful?
In recent years, UITF and mutual funds tend to give average annual return of 6% to 8%. There are funds which give a return of more than 10%. You can find out which funds deliver the highest returns by using the UITF calculator here. However, past returns are not an indication of future returns. This is where diversification comes in. Invest in several funds to make the most out of your investment.
Once you get the momentum to investing, you will be eager to find out more investment vehicles that would eventually able to help you reach your goal. This is the phase when you will actively seek and read more about investing. This is also the phase when people will start noticing the difference in you. Difference in the sense that your outlook in life becomes better and this becomes evident in the way you talk to people.
Sooner than later, you find yourself achieving your goal and having that financial freedom. This is the phase when you challenge yourself to achieve another goal. The main difference this time is that you’re not starting from scratch and everything seems easier compared when you started five years ago.
This is the path I took and still taking and there is no reason why others can’t do the same.