Happy Money Monday!
Let’s talk about preparing for your retirement.
And no, it is not too early to be talking about retirement.
When your adult life is just starting, you tend to get immersed with all the freedom adulthood brings, including the perks like earning your own money to spend on shopping, on gadgets, on eating out – the temptation is just too strong!
But do you know that young as you are, you should start preparing for your retirement?
Most Filipinos have the “bahala na” attitude and will totally depend on their company’s retirement package. However, with the continuous increase in the prices of basic commodities, health care and standard of living, plus the Filipino way of lending a hand to the younger generation who asks for the retiree’s help, the hard-earned retirement money will drain fast.
They will eventually find themselves becoming dependent on their children. I am sure you have read or watched somewhere about seniors roaming the streets, practically with nothing! Sad, but that’s reality.
And you tell yourself that will never happen to you.
Well, the key to avoiding this is by starting to take control of your finances. You should be financial literate.
Here are some tips in preparing for your retirement:
Know the bare necessities.
Knowing the necessities from the luxuries spell the difference between financial freedom and financial ruin.
Like, us ladies would love to have at least one luxury bag, right? Guys don’t get it, but when we see that Louis Vuitton bag, that bag becomes our end goal and we start saving for that bag.
However, getting that luxury bag will depend on your financial capability. If you are earning millions a month, well, you can have a luxury bag every month (and that bag does not seem to be luxury at all.
Financial freedom starts when you know which are your needs and which are your wants.
When you start to want more – beyond what you can afford – you will find yourself borrowing money to satisfy your wants.
Avoid Credit Card Debt Like The Plague
Avoid credit card debt.
Of course, our credit card is very important, but keep this in mind – if you should use your credit card, pay it off at once. You see, credit card debt is the most expensive money debt one can acquire. If you don’t pay full and only pay the minimum payment, you will find out that your credit card’s monthly interest will eat off your monthly income and may make you buried deep in debt.
Start to save small but early and consistently.
Saving your money is important, but what is crucial is that you save early and save consistently.
If you start setting aside P2,500 per month at age 25 and you do it consistently until you turn 60, you would have saved P1,050,000.
If you invested the same amount in an equity fund at an assumed annual interest rate of 10%, you would have about P9,000,000.
Think Long Term.
Einstein once claimed that compound interest is the eighth wonder of the world.
Compounding can exponentially increase your money’s income potential and this becomes more powerful if your fund is invested long term.
The longer the time the money is invested, the higher is its expected returns.
Financial advisors recommend that our free funds (funds that you don’t need immediately) should be invested in a diversified portfolio of bonds, notes and equities, but it makes no sense in checking every day our funds’ performance. Let time do its magic. As Warren Buffet said, his “favorite tenor is forever.”
So, to plan for you retirement, you need to:
- Be financially literate,
- Start saving with a purpose,
- Start early, consistently and with a long term mindset.