08 May 2012

{Parenting & Money} Basic Principles of Saving & Investing Money

{Parenting and Money} The Inevitable Link
Part 2

Last week, I confessed about our challenges in managing our finances. Read Previous Post: {Parenting and Money} The Inevitable Link.   Don and I agreed to tighten (really tighten) our belts and follow our self-imposed spending rules and guidelines.  Here are some that I'd like to share:
  1. No more drive-thru trips on the way home.  We live in Quezon City and travel time is about an hour to and an hour and a half.  So instead of fries with large coke, we eat biscuits and home-made sandwiches instead.  We save money and we get to lessen our junk intake.

  2. Travel ban for fifteen (15) months.  Our financial obligations will be paid in fifteen (15) months.  So until it's paid in full, we will not schedule any out-of-town trips that will require spending for a plane ticket and hotel accommodations.

  3. Limit eat-outs to twice a month.  This is an ultimate sacrifice because we love eating at our favorite restaurants.

  4. Shopping for shoes and bags is suspended until further notice.  I don't have anything else to say about this.  It's too painful.
Often times, I wallow in self-pity.  But, Don reminds me of Julia's future expenses on education to snap me out of my teleserye-lead-actress-like drama.  Our challenge is not only to finish our financial obligations but also to save and invest a portion of our income for Julia's future and our retirement.



So, the first question I asked Mr. Hector De Leon, EVP of First Metro Asset Management, Inc. was "how?".  It is easy to declare that we will save and invest but, I honestly do not know where to begin.  He said, change in perspective and mindset about money should be the starting point.  Mr. De Leon narrates the basic principles about saving and investing that all moms should know about:

small-versus-large-target illustration

GOALS

Any successful saving (immediate-term) or investing (medium-term to long-term) endeavor should begin with the end in mind.  Many people make the mistake of saving / investing without knowing what they are doing it for.  Thus, resulting to mismatches of expectations.  This mismatch in expectations and risk appetite is a sure-fire formula for disaster.

When you do not know what you are saving for, it is common to always look for the highest yielding vehicles, hence, you are deciding based on greed.  This is probably the reason why we hear a lot of stories about people whose hard-earned money are lost due to investment scams.


INFLATION

Inflation is an economic condition wherein the price of the goods and services increase steadily measured against standard level of purchasing power, whereas the supply of goods and services decline along with the devaluation of money.

Unless you are saving for your basic household expenses or setting up your emergency fund, the rule of thumb is always outpace inflation.  Otherwise, your funds lose value every year without you knowing it.

Most Filipinos are very conservative in their investing activities and this is why time-deposits are currently the most popular investment choice for Filipinos.  They fail to realize that risk is not just about losing money.  It is also about not having enough in the end.


TIME

Compounding is a process whereby the value of an investment increases exponentially over time due to compound interest.

Compounding is a very potent tool for accumulating wealth over time.  The power of compounding enables investors to build a substantial nest-egg over the long term.  When you decide to delay your saving or investing activities in favor of immediate gratification, you are actually minimizing the effect of compounding.  Hence, in order to meet the same goal, you will need to invest more over time and take more risks.

Timing the market is essential for people investing directly in the stock market or other forms of volatile instruments.  This is very difficult to do and is best left to the experts or fund managers.  For the ordinary investors, successful investing is not a matter of timing, it is a matter of time.  The more time you have for growing your assets, the better it is for you.

Next Week:  {Parenting and Money}  Three Important Requirements of Saving and Investing

18th Floor PS Bank Center, 777 Paseo De Roxas, Makati City891-2860 / www.fami.com.ph

Disclaimer:  Cruisin' Mommyhood did not receive any form of compensation from First Metro Asset Management, Inc. for this post.  


Photo Credits:  Inflation from Kittisak; Time from renjith krishnan
Related Posts Plugin for WordPress, Blogger...

  © Theme Designed by Patricia Alix-Villa of Fancy Girl Designs 2012

Back to TOP