In The Richest man in Babylon, George Clason wrote, A PART OF ALL YOU EARN IS YOURS TO KEEP.
According to this book, there are 7 CURES for a LEAN PURSE
1. Start thy purse into fattening.
For each ten coins you put in, spend only nine.
2. Control thy expenditures.
Budget your expenses that you have coins to pay for your necessities, enjoyments and desires without spending more than 9/10th of your earnings.
3. Make thy gold multiply.
Make money work for you.
4. Guard thy treasure from loss.
Invest only where the principal is safe...consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect your treasure from unsafe investments.
5. Make of thy dwelling a profitable investment.
Own your own home.
6. Insure a future income.
Provide in advance for the needs of your growing age and the protection of your family.
7. Increase thy ability to earn.
Cultivate your own powers, study and become wiser, be more skillful and act as to respect yourself.
Saving is not just taking aside a portion of your income. It has to have a purpose and we have to stick to that purpose. We have to distinguish EMERGENCY FUND from INVESTIBLE FUND.
Emergency fund is something we set aside for emergencies, something we can cash in anytime. Investible fund is something we set aside for the long term. Our investment should grow on itself and be able to provide for us when we stop working.
Where to invest?
a. MUTUAL FUNDS
A mutual fund collectively pools money from individual and corporate investors. These funds are managed by a professional fund manager who invests the money in stocks, bonds, money market instruments, and/or other securities. The mutual fund earns in two ways: from the capital gain (increase in value) of the security and dividend or interest income. These proceeds, net of whatever charges and expenses, are passed along to the shareholders. The value of a share of the mutual fund, called the Net Asset Value (NAV), is calculated daily based on the fund's total value divided by the total number of outstanding shares.
There are mainly four types of mutual funds in the Philippines: stock (or equity), bond, balanced, and money market. Stock or equity funds invest in shares of stock of Philippine corporations listed in the Philippine Stock Exchange. Equity funds offer the highest possibility of growth among all mutual fund types, but they also have a corresponding high amount or risk.
Bond funds invest primarily in fixed-income securities such as bonds or treasury notes issued by the Philippine government and commercial papers issued by reputable Philippine companies. Because these bonds are normally guaranteed, the possibility of loss is very low. Investing in bond funds provide capital preservation while maintaining conservative asset growth.
Balanced fund is a mixture of equity and bond funds. The high potential growth of equity investments is tempered by the conservative growth of fixed-income securities. Obviously, the return of a balanced fund is normally somewhere between the return of an equity fund and a bond fund.
Money market funds are similar to bond funds because they also invest in fixed-income securities and the growth of the fund is conservative. The main difference lies, however, in the term of money market fund investments, which is usually short-term such as one year or less.
Choosing which mutual funds to invest in ultimately depends on the investor's growth goal and risk tolerance. If the purpose is capital growth, equity funds are the way to go. Bond funds are chosen, on the other hand, if the investor prefers capital preservation over risky capital growth. For those who want medium risk and medium growth, balanced funds are the best option. Money market funds are for those who wish to earn a conservative amount of return in the short-term.
According to the Investment Company Association of the Philippines, a duly recognized association of investment companies in the country, there are currently a total of 22 mutual funds. Six (6) of these are bond funds, five (5) are equity funds, ten (10) are balanced funds, while one (1) is a money market fund. (Source: http://www.pinoymoneytalk.com/2006/09/11/introduction-to-philippine-mutual-funds/)
A unit investment trust fund or UITF is a banking product that replaced common trust funds (CTFs). It is managed by the offering bank’s treasury department or group.
c. STOCKS
A stock market, or (equity market), is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.
NOTE: Investing can be a risky endeavor. Get a broker you can trust (who would put your best interest first before his/her commission) or learn the trade yourself. Don't know where and how? Wealth academy offers seminars on investing. Text/call edmund at 09173262077 for more information.
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