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How You Can Beat Inflation

Most Filipinos are familiar with inflation. It is the continuous rise of prices in the market. According to investopedia, inflation is “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.”

inflation is real

Ten years ago, when I was still a student in UP, my tuition fee every semester ranged from Php 5,000-6,000. UP tuition fees now range from about Php 25,000-35,000 per semester. This is 5 times more than it was 10 years ago. This shows that as time passes by the prices of necessities like tuition fees and education rise and the purchasing power of our money gets smaller and smaller.

computation of tuition fees up diliman

On average, inflation rate in the Philippines every year is about 5-6%. This is one of the reasons why the prices of commodities go up.

Filipinos often put their money in a savings account or a time deposit. A savings account returns about 0.85% annually. If our inflation rate is 5% on average, merely putting money in a savings account is not enough to beat inflation. We have to put our money in other financial instruments that give us more returns; otherwise, achieving our financial goals will not be possible.

Let’s look at the comparative analysis below. A man sets aside Php300,000 for his retirement. He places this money (Php100,000 each) in 3 different financial instruments – a savings account, long term bonds and  equities – and leaves his money for 20 years.

issues to consider

In a savings account, the man’s money does not grow. The 1.00% annual interest only results in Php123,239 after 20 years. Some may say that    Php123,239 isn’t bad, considering that it’s more than it used to be. But, this amount is very low compared to what other financial instruments can give and your money did not earn.

With long term bonds, the man’s money grows with a variance of 176% and he gets Php278,596 after 20 years. This is more than what a savings account can give. Great, right? But, he gets even more with equities! After 20 years, his Php100,000 becomes Php 1,080,385 – all this money without even working or lifting a finger!

In spite of being aware or taught to invest our money in bonds or equities, most of us still choose to put our money in savings accounts because we believe that these are safe. Yes, savings accounts are safe – no risk touches our money – but our money eventually loses its value because of inflation. Now, this is not to say that savings accounts are bad. Financial instruments like these and time deposits are actually very useful and are great for short term financial goals. For long term goals, however, maybe it’s time that we consider other instruments that give high returns like equities and bonds. As we have seen above, these instruments help us beat inflation and give us more money to enjoy.

Some people refuse to invest in equities and stocks because these are too risky. It’s true. Investing in equities and stocks is risky if it is done without the proper guidance and knowledge. That is why a lot of financial institutions offer mutual funds, UITFs and Variable Unit Linked, so that fund managers can grow and manage our money properly. For those who would like to invest in the stock market on their own, they can learn through experts, attend seminars, and read books on investing and trading and even seek an advice from a Financial Planner.

Inflation is real and inevitable, and the only way for us to beat it is to choose financial instruments that give returns higher than the average inflation of 5-6% every year.

To read more on inflation, visit: http://www.investopedia.com/terms/i/inflation.asp#ixzz3ixuObDpN

To learn more about Financial Planning.

You may reach me.

Archie M. Yuki

Financial Advisor

The Insular Life Assurance Ltd., Co.

0923-4941362

let's connect

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The Importance of Delayed Gratification

The Marshmallow Experiment (https://www.youtube.com/watch?v=Yo4WF3cSd9Q)is a powerful example of instant gratification. The experiment presents 1 marshmallow in front of different kids and gives them the option to: 1) eat the marshmallow now, or 2) wait for a while and get 1 more marshmallow on top of the marshmallow presented to them. You see in the video that while some kids say they will wait, they eat the marshmallow right away.

This is common not only for kids, but also for adults. Most people choose instant gratification. The world encourages us to embrace consumerism and adopt an I-WANT-IT-NOW attitude. Media and advertising bombard us with messages that encourage us to buy products now without assessing if it is a want or a need.

As a Financial Literacy Advocate, I teach people to practice delayed gratification. There are important reasons to waiting and choosing delayed gratification:

  • It saves you from bad debt. Most people choose to buy things now and use their credit cards without realizing that added credit card purchases can lead to debt. Debt is not a bad thing per say, but not knowing how to use it can lead to a lot of trouble and heart ache. David Bach in his book “Start Late, Finish Rich” said that the credit card should be called a liability card. It’s a liability since it often causes people to buy things that they don’t need and accumulate more and more debt. Instead of choosing instant gratification with your credit card, it would be better to save your money and make it grow.

cut-credit-cards

  • It forces you to buy only what you can afford. If you can’t pay for an item in cash, then you can’t afford it. Sometimes, paying in cash can also help you negotiate for better prices (in the case of bazaars and tiangges). Some people believe that saving for an item takes forever. And when they already have enough money for it, it becomes laos or obsolete (as in the case of cellular phones). This may be true, but choosing delayed gratification and buying with cash leads you to prioritize what you need and saves you from credit card debt.

dont buy if you cant afford

  • It helps you avoid impulse buying. Impulse buying is a spur of the moment, unplanned decision to buy an item. While it is fun, impulse buying can drain your money. You can practice delayed gratification by assessing if the item you want is important and ultimately choosing not to buy it if it isn’t. This helps you control your income and save your money for more important things.

shopaholic

You can never go wrong with delayed gratification. Choosing to save and invest money instead of spending it on unimportant items ultimately leads to financial freedom. A study shows that 63% of this generation’s 25-year-olds will be broke by the age of 60. This is of course if they don’t save and invest money wisely. You can choose what your future will be. Do you choose instant gratification and an unstable future? Or, delayed gratification and a bright future? You decide.

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You may reach me to learn about Financial Planning.

Archie M. Yuki

Licensed Financial Planner

The Insular Life Assurance Ltd., Co.

0923-4941362

let's connect

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Save More, Invest More and Spend Less

If we can’t save, then there is little chance for us to be wealthy and financially independent. It is important that we monitor our daily expenses. It is easy to spend our cash because it’s fun to shop. I know some people who like to shop because it relieves stress.  But we can’t keep on spending. One day, we will grow old and will not be able to work anymore.

Last week, I rode a jeep going to Pedro Gil.  I couldn’t help but notice the driver. He looked like he was in his late 70s. His face was sagging. He had no teeth and had a hard time seeing the road. He seemed too old to drive. During the trip, one passenger shouted, “Para!” Instead of stopping, he extended his right arm as if to reach for someone’s fare. Coming to his senses, he said in a low voice, “Kala ko may magbabayad.” I felt sorry for the old man, but I couldn’t blame him for working in spite of his old age.

We don’t have to be like the old driver working until our old age. We can choose our future. If we work to be financially independent while we are young, we can have the life that we want when we grow old. Peter Drucker says that the best way to predict the future is to create it. As a Financial Literacy Advocate, I always teach to people to have a mindset geared towards financial independence. It should be intentional; otherwise, people will never reach their financial goals.

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Last July, I had a talk in a university in Metro Manila. There were about 1,000 attendees. Holding up a 100-peso bill, I asked the audience, “Who wants Php100?” Majority raised their hands. I asked them again, “Who wants Php100.00?” I asked two more times until one student boldly went up on stage to get the 100-peso bill from me. Everyone wanted Php100.00, but only one student came up to get it.  This is the same with being financial independent. No one will give it to us. We have to work for it.

Save More

The first thing to do is to build a habit of saving. Every time we get our salary, we should set aside 20% for savings. Even if you have debts, pay it little by little until you get out of it. This sounds easy, but it is quite difficult. Discipline is important. Ideally, if a person earns Php10,000 per month, he should set aside Php2,000 for savings. Saving should be prioritized over expenses. If you can save more that would be better.

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Invest More

After building your savings, the second thing to do is to invest. You have to learn how money can work for you. There are many financial instruments that can make your money grow. You just have to choose based on your risk appetite. Can you handle high risk investments? Or are you averse to risk? You decide what fits your financial goals. The key to investing is to diversify. Never put all your eggs in one basket. Spread it to minimize the risks of losing your hard-earned money.

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Spend Less

Living within our means is one of the best ways to reach financial independence. We have to learn how to stick to our daily budget for us to achieve our financial goals in the future. We can observe that a lot of financially successful people live simply or live below their means.

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Being intentional in achieving our financial goals will give us direction and drive us to save more, invest more and spend less. Doing this can help us be part of the Filipinos who are enjoying financial independence. Most people wish for a better life but smart people learn, plan, and take action to get a better life.

EmilysQuotes.Com-discipline-bridge-goals-accomplishment-intelligent-Jim-Rohn

To learn more about Financial Planning you may reach me.

Archie M. Yuki

Associate Unit Manager

The Insular Life Assurance Ltd. Co.

Mobile Number:0923-4941362

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