For most individuals who have yet to reach this mark, you can bet the answer is a clear yes. We’re here to tell you that you can make this happen, and not just by joining the eponymous game show.
If you’re young and just starting out in your career, the possibility of earning your first million may seem to be light years away, but all you need is a financial roadmap and a discipline to saving and investing. And even for the not so young, it’s not too late to earn your way to your first million.
Here are six simple steps to get you on the road to being a peso millionaire:
Your clock should be ticking. Rather than saying that you’d want to be a millionaire, set the goal that you’d want to have your first million before your 30th birthday, or 25th or 40th. By committing to a deadline, you have identified the point B to your point A, and you can then create the strategies towards connecting these two dots. If you’re married or have a steady partner, you can make this a mutual goal and both of you need to agree on the sacrifices you have to make to achieve it.
Pay yourself first. This is the first commandment in personal finance – learn to set aside a substantial portion of your paycheck every month. Ideally, it should be at least 20% of your pay, and keep it as soon as you receive it. Some find it convenient to arrange for automatic transfer of funds from their payroll account to their personal savings account, and most banks can now accommodate this type of standing order. If 20% is painful at the start, you can do 10%, even 5%, but start now. When you have a sizeable pot, say P100,000, you can begin shopping for higher interest earning instruments.
Assume that you earn P20,000 a month and you save 20 percent of your salary or P4,000 every month for two years. Given an initial deposit of P5,000 with an interest rate of 0.25 percent compounded annually, you would be able to save P53,067.48 on your first year; and P101,255.12 on your second year. You can begin investing after year 2.
Supersize your savings. Make your money work harder by always looking for best yields in the market. Right now, it’s a low interest rate environment but there are banks that offer higher interest if you limit your withdrawals each month, or agree to transact mostly online. You may also want to keep your ATM card under lock and key, so taking funds from your personal savings account will not be too tempting. If you have reached your target initial savings, consider moving your funds to a time deposit account that offers higher interest.
Invest for better yields. When you have enough savings, it’s time to diversify and study equity funds, bond funds, and other investments. Your goal here is build a tidy bundle that would grow your passive income, or money that comes to you not from a working salary but from smart investments. Look into a wide range of products with care and attention so you will make an informed choice. If you read the stories of men and women that have become rich from wise investments, you’ll learn that for most of them, it was a simple trick of investing their savings, watching the funds grow, and then reinvesting the dividends, all while keeping a sharp eye on the growth rate of your holdings.
Grow your income. You might say that your income is barely enough to make ends meet – let alone consider saving and investing. Why not convert your free time into cash? You need not juggle two jobs and exhaust yourself in the process. You only need to look at your skills or your passions to arrive at a suitable weekend business, whether it’s photographing babies, baking cupcakes, or even organizing parties.
Live within your means. This age-old wisdom will serve you well on your road to earning your first million. You can definitely save more by committing to a simple lifestyle. Prioritize needs over wants. Monitor every expense, whether large or small. Identify your budget busters and control them. Can you save on gas, or parking fees? How about all those gourmet coffee and SMS blasts to all your friends? When you get a raise, keep your everyday expenses at the level that you have been accustomed to —and put away that extra 10 or 15 percent in the bank. Seeing your money grow will motivate you even more!
Grow Your Money is an editorial partnership between ABS CBN News and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances. Click here to know more.
Visit www.citibank.com.ph for more information.