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Nice read on wealth creation for every Juan :)
“Savings and investments are independent of each other,” says registered financial planner Rowena Cuyco-Suarez. “These two create wealth that covers the things that you will need. From the day you were born to the time after you join your creator, you will need money. It’s not being morbid nor materialism, you’re just being practical.”
She elaborates, “You either live too long or die too young. If you die too young, you need income replacement for your family. If you live too long, you need money to take care of yourself—and we are talking of past retirement. We are talking about the time when you’re 70 or 80 years old, and probably need a wheelchair or a caregiver.”
Saving for the far-off future is probably a stretch for many Filipinos, and Suarez argues for a change in mindset. “Only five percent of Filipinos have planned for retirement,” she claims, citing a study made within her industry. “That’s because many of them believe that their kids will take care of them when they grow old.
But this is a cycle we have to break. Because by the time you do retire, your kids will have their expenses to think of.”
Like death and taxes, day-to-day expenses are inarguable. Suarez classifies them into six major categories, and advises planning ahead to respond to them in the form of investments. These categories then become the basis for one’s creation of wealth.
The first pillar, which is the foundation that precedes other, is income replacement. This is the insurance to cover the family’s welfare should the main breadwinner pass away. Suarez gives an example of one form of financial planning: “If the family spends P500,000 a year, to survive the loss of their breadwinner, they’d have to multiply this annual income by, say, 10 years. Their protection amount”— or the monies that would serve them in good stead at the death of a parent—“would be P5 million.”
Health protection or available income for the inevitable sickness or hospitalization is the next in line. Suarez says that current research shows 48 percent of Filipino families contending with the illness of a loved one will take the out-of-pocket expenses from their daily budget. Neither do they have a substitute for the lost (or temporarily disabled) generator of revenue. She advises,
“If you have protection for health, you will get the money you need for hospitalization and medical expenses from a fund that you have set aside for that. The money for your monthly expenses will not get touched at all.”
The third category for wealth creation would be setting aside funds for the kind of education that will help children develop a bright future. The fourth is retirement, which marks its time after the last child has graduated from college. The fifth is the aforementioned post-retirement life of the senior citizen. Small beginnings
Financial planners like Suarez recommend investments that take factors like inflation into account. She points out, “Given the present inflation rate, your monthly expenses of P40,000 in 20 years time can grow to P100,000. You have to plan for it.”
Some of the tools that are available in her arsenal and which can give an interest rate higher than the usual bank deposit are investments in stocks and bonds, pension plans, and mutual funds. Financial planners act like “financial doctors” who analyze the would-be investor’s sources of income, level of capability to save, and financial objectives, and then make the necessary recommendations.
Some investments can last for decades, while others, like an educational plan, will require the investor to pay a certain amount for only a few years. Each plan is customized according to the investor’s needs and plans.
“In every investment, you have to have a goal,” Suarez says. “We ask about goals, dreams, and aspirations. We also update ourselves in what’s happening to our client’s life. Like if he’s sending a new kid to college or got a new job, how will that development affect his finances?”
She also debunks the myth that only millionaires can invest. It all starts by setting aside 20 percent of one’s income, which could mean a modest amount like the abovementioned P4,000 monthly seed money that blossomed into a P5,000,000 retirement fund.
The rewards can come much sooner. In one case, one middle-class professional who only set aside P56,000 for the past two-anda-half years was able to collect more than half a million pesos as her health insurance when she was diagnosed with cancer. Another lady in her 60s used merely the interest in her savings to shop along with her grandchildren in the U.S., leaving her savings principal still intact.
Start with a small amount, but make the effort to start at all, Suarez urges. The key to cultivating the pillars of life are “discipline and commitment. Forget the jackpot mentality of enjoying all the money you have right now. What happens when all of it is gone?”
http://mb.com.ph/node/339564/building-pillar
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