“Money does not grow on trees.” This is truer now as people feel the impact of the low-interest rate environment where deposit rates are lower than the inflation rate, thus diminishing the appeal of holding cash.
With this backdrop, is it still possible to make your money grow? I’ve always believed that new opportunities arise in the midst of a crisis. Here are some ways to help you set your personal financial goals for 2021.
Embrace the simple joys of spending time at home with family and discovering new talents to occupy your time and improve your overall well-being. Assess the cost-benefit of alternatives for your major household expenses such as solar energy and giving up landline for mobile. Go for intimate and creative get-togethers when you have to entertain, make homebaked goodies, or contribute to charitable donations. Showcasing your talent or paying it forward makes for fuller pockets and hearts.
What do you do with your savings? Do you just put it all in a savings account? Know your options for making your money work harder for you.
- Transactional accounts—Savings accounts are transactional accounts you keep in the bank for your day-to-day needs. Determine your budget for your regular expenses and maintain this amount in your savings account where you earn a bit of interest while conveniently and securely managing your household’s daily finances.
- Build up acccounts—There are savings accounts that give additional interest or provide extra benefits for keeping your money longer, some of them giving bonus interest rate or free life insurance coverage. If you have extra money that you want to access anytime without penalty, consider these products.
- Time deposits—There is of course the usual time deposit that earns you higher interest the longer the term you place the funds in the bank for. You can choose from time deposits as short as 30 days to as long as five years. Five-year time deposits such as BPI Family’s Plan Ahead let you earn interest, tax-free.
- Emergency credit line and insurance— Being prepared for life’s unexpected events is a good principle to uphold. You can do this a number of ways. One of these is to have a standby credit line through a credit card, which provides standby funding in cases of emergencies. Some credit cards offer installment plans at hospitals and clinics for lighter payments. Also consider life, health, personal accident, and property insurance products. There are a number of life insurance products now that offer medical coverage; other insurance products offer personal accident and property insurance. We live in a hazard-prone country where floods, typhoons, or earthquakes that might damage your home and cars happen regularly, so insuring them simply makes sense.
You’ve heard of the saying, “Do not put all your eggs in one basket.” Read up and do your research to learn how. Ask people you know about their experience, or go to your bank for expert, trusted advice. A professional fund manager can go a long way in finding the best instruments for your money. Relationship managers and investment advisors can help you monitor market movements, provide the latest product information and offer alternative views.
Beginners can start with money market or short-term investment funds; equity funds offer higher returns but are also more volatile; balanced funds, which include some bonds and government securities, are less volatile.
Make sure to trust only reputable fund managers which are regulated by the BSP or SEC. Depending on your risk appetite and time horizon, you can diversify into the following:
- Foreign currency—With the peso appreciating relative to the US dollar, your peso can buy more dollars. If you have plans to travel when restrictions are lifted, consider hedging and buy US dollars now while rates are favorable.
- Investment funds—A professional fund manager can help you find your ideal fund. Beginners can start with money market or short-term investment funds. If you want higher returns and are open to market fluctuations and volatility in fund values, look for an investment fund that fits your risk profile. Equity funds offer higher returns but are also more volatile. Balanced funds, which include some bonds and government securities, are less volatile.
- Equities—Some people are comfortable dabbling in stocks directly. Some trade actively, others are passive investors. Nowadays, buying and selling stocks online is easier and more convenient but make sure to do so only in trusted and secure sites such as bpitrade.com, managed by BPI Securities.
- Capital assets—My parents used to tell me, “You will never go wrong with real estate.” It’s true. Before joining the banking industry, I worked for Ayala Land and helped launch Ayala Westgrove Heights. Lots there now fetch prices 10 times than in 1996. If you have a stable and continuous source of income and can afford the downpayment of a property, consider investing in real estate when prices are discounted, payment terms are longer, and housing interest rates are low (such as now). Imagine your own personal balance sheet. For your total assets to grow, you need to fund these with a combination of liability or debt and capital or equity, such as laying out cash for your downpayment and taking out a housing loan for the balance.
- Income generation—Deposits, investments, stocks and properties provide what you call passive income (i.e., interest, dividend, and rental income). Real estate also offers capital appreciation, realizable once sold. Turn your talent or passion into a business opportunity. This is the age of digital entrepreneurs, focused on addressing customers’ needs more affordably and more conveniently. Suffice to say, there is no better time than now.
As you can see from the list above, you can do one or two or all of the above to make money in 2021. The new year brings new beginnings, new hope, and new energy.
Don’t let COVID-19 derail you from age-old principles of making money—REDUCE - OPTIMIZE - DIVERSIFY - GENERATE. Combine this with the new-age skill, DIGITALIZE, to set you on the road to growing your money.
Now, let me leave you with this thought. Some of you may already know these principles yet somehow getting them to work is a challenge. So, here’s a secret—you need a compelling purpose. And my prayer is for you to discover it. The family’s future is a great start. Then, how about a thriving community and a progressive country? Let’s build a better Philippines.