Tuesday, November 2, 2010

It is really not a matter of how much you earn

It really makes me sad when I encounter somebody who earns a lot (more than what I earn means 'a lot' for me) but who just saves in a bank and who thinks banks are the greatest investment facilities. I have nothing against banks. It's just that I don't recommend it as an investment facility. Mind you, banks are not investment vehicles. They are just there to cater for our emergency funds.

Let me ask you, how much is the salary of a manager? 50 thousand? 80 thousand? 100 thousand? Or even higher. No doubt their salary is way way bigger than mine. But let me tell you, the sad part when you earn more is you intend to increase your lifestyle to suit your status. The mindset goes like this, "Oh, I didn't have a good time when I was an 'ordinary employee'. Now that I'm a manager I should enjoy a lot. Anyway the company is there to feed me." And there goes the spending.

On the other hand, if the manager is a saver but is afraid of other types of investments like mutual funds and stock market then there is still a problem. Let me show you a computation so that you will understand. For example, the manager can save 50 thousand pesos per month but puts his/her money in a bank earning one percent (1%) per annum. The employee, on the other hand, can save 10 thousand pesos but puts his/her money in an investment facility which earns twelve percent (12%) per annum. Let us assume that the manager's age is 40 while the employee is 25. The manager has 20 years more to save while the employee has 35 years more before retirement. (Note: I am assuming that they will both retire at age 60.)

From the table above, it is clear that the 'regular employee' who saves lesser than the manager has a whopping 58 million pesos worth of retirement fund while the manager who saves in a bank has a retirement fund of 13 million pesos.

It only shows that, it is not important whether you have big money or small money. The thing is, you regularly save and invest in the right vehicle. Thirteen million is not bad. But if the manager knows the right facility then he could have accumulated more.

~till then

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