Save Yourself

Save Yourself
By: George S. Chua
January 13, 2005

Over the recent holiday season, I had a chance to attend a lot of parties meeting up with all sorts of people – relatives, friends, officemates, business associates, acquaintances and even strangers.

While everyone was politely in good disposition, practically everyone had some financial concern. I was quite surprised, actualy more disappointed, to find out that a lot of the people I meet hardly have any savings and worse, a significant number had no savings whatsoever and were actually in debt with their company, the SSS, PAG-IBIG, credit card companies, loan sharks, anyone that would be willing to lend them money and sometimes all of the above.

I am certainly not in the position to pass judgement on these people or how and why they got into their current predicament. However, I do not know that everyone needs to save up for their retirement if they want to stop working at some point in their lives, to provide a future for their children and cover emergencies. There are already enough private bankers around taking care of people making the big bucks so I wantto focus on the vast majority of Filipinos who are at the minimum wage range.

Most of you probably think that someone making the minimum wage could not possibly have anything left to save or even get out of debt. I would like to point out that this is not the case and the current 33 million Filipinos with cell phones will support my position. Fully 36% of our population has a cell phone and that would include maids and other household help that does not even make the official minimum wage.

Even if you are a minimum wage earner but you have the will to restrain yourself from the peer pressure of spending and you have the genuine desire to sacrifice now for a better future, there is no doubt in my mind that you can save yourself. If you have a cell phone, chances are that you are spending at least 10 pesos a day on it. Think of your life before you had a cell phone, you were able to manage. You can do it again.

Just imagine putting aside that 10 pesos daily cellphone money for a rainy day or saving 300 pesos a month. Assuming that you put the money in a time deposit with a bank earning a modest net interest of just 5% and just on rolling over the principal and interest, from the time you start working at say 20 years to the time you retire by 65, or working for 45 years, you would end up with 607,931.19 pesos.

Another tip is that whatever you save, you should pay off your loans with the highest interest rates first. It certainly does not make sense to keep saving in a time deposit 5% per annum while paying the interest on your credit card loan at 3.5% a month or 42% per annum, and that is without any penalties.

While 607,931.19 pesos may not seem to be much to show for 45 years of working in the salt mines, this is very conservative estmate. Chances are that if you are really serious about cutting down on non-essential expenses, and I mean just spending on those things that will keep you alive and your kids in school, you should be able to save more than 10 pesos a day, Of course you should limit the number of children you have to what your finances can afford, and I cannot over emphasize that this must be done at all costs! The good news is that as you have more money, there are more investment alternatives that wil provide a higher rate of return for the same amount of risk. I guess this is where the saying "the rich get richer and the poor get poorer" comes from. Given the choice, I would always choose rich, and I a sure you would too, even if you are too proud to admit it.

As an example, if you are able to set aside 20 pesos a day instead of just 10 pesos, and the net interest rate on your placement is 10% instead of 5% per annum, at the end of 45 yers you would have a whopping 6,289,501.03 pesos! Now we're talking! Alternatively, at this savings rate, it would only take you 22.58 years to rase 607,931.19 pesos, instead of 45 yrears. The critical thing in all of this is the consistency in setting aside that fixed amount and letting your money help you out by allowing it to earn interest on a compounded basis.

When should you start? You should have started the day you earned your first peso, but if you did not, all is not lost. You should just set aside more to allow you to catch up. Remember, a small amount may be too insignificant to save, but as we have shown, it does add up. If I am able to convince just one soul to save 10 pesos a day, all the time and effort it took to write this column is worth it. Then its up to you to save yourself.