An effect of the pandemic is a change in the way we manage our finances. The nagging uncertainty reminded us that we must be saving and growing our money as we keep our goals in check.
While not everyone can set aside huge sums per month for our savings, everyone could invest the little we can spare. Let's start with a savings fund of P5,000.
Registered financial planner and “The Ready To Be Rich Guide To Investing” author Fitz Villafuerte shared this quick guide in an exclusive interview with Philstar.com.
First things first: invest in knowledge.
“Don’t invest in anything you don’t understand. Even if it’s a legal investment, if you don’t know how it works, you will lose money,” he said. This way, you can avoid applying the wrong strategies in your attempt at growing your money.
Villafuerte advised to browse through available and reliable resources even on YouTube on investing in the Philippines for beginners. But how would you know if you're ready to invest? Try explaining how it works to someone else, he said.
“It’s the best way to know if you understand something. If you can explain it well, that means you understand it well.”
Set a financial goal.
There is no such thing as the “best investment,” for Villafuerte. The best one varies from person to person, and it is always connected to a financial goal.
Go back to your cash flow. Make sure you can afford your current lifestyle before you jump into an investment. This includes managing your debt and making sure you’re not spending more than what you can afford to pay.
Know your risk tolerance.
Determine where you can invest the extra money that you have. “The reason why you are investing is because you want to reach a financial goal, such as a major purchase. You’re not only after high returns but you also need to manage your risk, make sure you have the money, and it will be available by the time you need it,” he said.
For long-term goals like retirement, Villafuerte suggested putting it in a high risk investment so you’ll have enough time to ride with the ups and downs of the market. “You can take advantage of the length of your investment horizon to be able to grow your money until you retire,” he said. With P5,000, you can already open an equity mutual fund or a stock market account.
If you’re investing for your child’s college education, you can put your P5,000 in a moderate-risk investment. “That P5,000, you should now invest it in a low-risk investment because it’s short-term. If your goal is two years or less, you can’t afford to put it in an investment with a lot of risks,” he added.
Which investment products are considered low-risk? Villafuerte cited money market funds, fixed-income funds or time deposit as great options. Ask your bank what it is offering.
There are also new digital banks such as CIMB and ING that offer high interest rates as much as 4% per annum—much bigger than your typical savings account in a commercial bank that yield less than 1% in yearly interest.
Be disciplined with your investments.
How? By paying yourself first. The saving formula, disclosed Villafuerte, is income - savings = expenses. “Whenever you receive money, immediately take a portion of it for your savings and investments,” he explained. “Whatever’s left, that’s what you can budget for your necessary expenses.” When signing up for these high-yielding digital bank savings accounts, you can put in as little as P50.
Make investing a habit. “Even if you put P5,000 in an investment that can give you the highest returns, it will not give you a huge amount of money in the future. Don’t just invest your P5,000 now but make it a habit,” he continued. “Try to invest at least P1,000 per month instead. It’s a better strategy—if it becomes automatic and a part of your life, you can get the best returns.”