Wise Wealth Builder Investing.Personal Finance.Entrepreneurship

Part1: Savings for Retirment and Child.. What Comes First?

By Francisco J. Colayco

There are two parts to this article. For those who are still young and have more urgent expenses, you probably wonder how anyone can talk of retirement when you are only in your 30s and have another 30-40 years ahead of you. You are faced with the need to pay for the education of your child, buy your own house or maybe you might find the need for your own car might even come first.

Times are hard. All costs are higher than ever and unfortunately, it will continue going higher. Thus, you end up telling yourself to forget about retirement and just focus on today’s needs first. After all, you tell yourself, you might not even live that long and you will certainly not live long if you cannot take care of today.

Wrong! Retirement is also a priority. Your children’s education, your own house/car are all important but you need to see another point of view.

You have to approach retirement in an organized way. First, accept that retirement or the time where you no longer can earn active income is inevitable. You have to prepare for it and the earlier you do, the less savings you need to put aside regularly. Then, you have to go through the computation that involves your age, inflation, earnings and compounding. It is not that complicated but it requires some study. These are in our books and in our website www.colaycofoundation.com.

If you are diligent and disciplined in regular setting aside of savings, you will be surprised that the daily amount can be minimal. For example, the average lump sum pension of a Filipino employee retiring after 30 years of working is P300,000. Yet if you save P33 per day or P1000 a month and invest it at 10% per annum for 30 years, your savings will grow to P2.1 million. This is 7 times more than the average retiree’s pension mentioned above. All you need to do here is to start saving P33 per day, keep it till it accumulates to P1,000, invest it every month and just leave it alone till you retire.

With smarter investing, it is possible to earn 20% per year . At this rate, the same investment of P1,000 per month in 30 years, will grow to P15.7 million. Isn’t that good something worthwhile learning?

Take part in all government-sponsored plans like SSS, GSIS, Pag-ibig, PhilHealth etc. Even if you are not employed, participate. All of these are at special rates and the benefits they give will be of great support most especially today and even at the time of your retirement. Keep your payment records very well. You may not find this important but I assure you that only you can prove that you made your payments.

You must take effort to participate in company-sponsored savings plans. There are many who forget to inquire until it is too late. You need not put all your savings in those plans and in fact, you should not. It is always good to spread your risks. Even if you work for a very good company, you will never know what the future is. If your company goes down, you could lose your job and all your savings in it. Of course, if it continues to do well, you could be well rewarded in your retirement.

Now for your mid-term plans like your child’s education, car and house. You should treat each as a separate “basket of savings.” Set your priorities first. I think it should be your child’s education even before a car and house but of course, it could be all three depending on your budget for each.

As you already know, you need to make a good budget on what you need for your child’s education. Similar to retirement, you need to know the kind of education and the amount required, number of years to save, inflation, compounded interest rate you can estimate. You can start when your child is young by limiting the material gifts you give and instead invest the cash no matter how small in different instruments to earn.

How expensive should your child’s education be? Remember that an expensive school may not be the best school. Your child can take in a lot of information and learn life lessons and values from you. A lot of mothers now prefer home schooling and educate themselves for this purpose. By the way, if you are good at teaching your kids, it could also be the start of a possible new business of home tutoring for other kids.

Plan on improving the special talents of your child like excelling in a sport or playing a musical instrument. It is better to start them early in case it will bring them a scholarship and/or extra income in the future. Singing and dancing are natural to most Filipinos but being trained for more professional singing and dancing will require more effort and expenses. If you can afford it, go for it!

More in the next article. Click Here for Part 2