The younger, the better

Question: How can I convince yuppies like me to save and invest more?—Christina Soriano Rosales via Facebook

Answer: I am always encouraged when young people ask me questions on personal finance or, better yet, attend our personal finance events. I can’t help but think in retrospect of years gone by and how I was in my youthful years. So many things are associated with the word “yuppie” other than being young. For some, it connotes a group of young people dedicated in their pursuit of their careers, full of ideas, creative, hard-working and ambitious. However, there are also negative undertones with the term yuppie—reckless, financially irresponsible and big spender. In hindsight, I was in both sides of the camp and there are many things I wish to undo—most are related to my personal finance.

I never had an issue with creating income but I always had problems in keeping them—my propensity to spend far outweighs any yearning I had to save, let alone invest.

Well enough of my boring history and let me try to answer your query.  The first thing we need to understand with finance is that it is largely about behavior and mindset. I once read that finance is 80 percent attitude and only 20 percent knowledge; judging from my personal experience I would say I agree 100 percent (there I go with my lost youth). There must first be a paradigm shift for many yuppies if they are to start taking control of their financial future. Many yuppies must put the same zeal they have with career advancement when it comes to their personal finances. They must see the value of making critical sacrifices today so that they will have a more secured future.

Dave Ramsey, a leading personal finance guru says that “if you live like no one else, later you will live like no one else.” The young must understand that they too will get older and that life will bring a lot of surprises—most cost a lot of money. The persistent quest to satisfy the yearnings of wants will always be an insatiable journey that will bring financial havoc in one’s life. We must learn that contentment is one of the greatest financial principles there is.

I always say that time is our greatest asset: the more time we have, the better we can make our wealth grow. An understanding of TVM [Time Value of Money] will go a long way to see that money can grow in an exponential manner if savings and investments are properly undertaken and done regularly. Did you know that if you save and invest P2,000 per month at age 21 and assuming that you get an average yield of 8 percent per year, you will have over a million pesos by the time you are 41? Imagine how much money you will have if you invest more and in more diversified instruments. I always recommend people to start at a realistic monthly savings target, say P1,000 to P2,000, and periodically increase that amount as income increases and invest the amount regularly. In a few years, their nest egg will grow fast and they will be able to finance many of life’s important events like marriage, children, education, home, travel, aging parents and retirement. Someone who starts young will definitely be at an advantage over someone who starts late even if the latter will invest more—simply a function of elementary mathematics.

When someone young starts investing, he can also be comfortable with his risk appetite—an aggressive investor will have time to recoup losses since there is still ample time in his investment horizon, or a conservative investor can follow the slow but sure way. Both avenues will bring him to his objective. When there is not much time, being aggressive will be too risky and being conservative will probably not deliver the desired result. Time is also a great risk manager—stock market swings can be smoothened out over time, pooled funds like UITF or mutual funds can grow properly, real estate can achieve capital growth, and business can generate much revenue. One can also opt to retire earlier than customary retirement ages if he will prepare earlier and enjoy financial freedom younger than most everyone else.

Here’s my nugget of wisdom: the key for the young (or the old) to start saving and investing early is to find one’s purpose. Finding your purpose gives you focus; it motivates you and puts you on a steady track. Material things can’t really give us happiness; only purpose can. If you find your purpose soon, you will have an answer to many of your questions, finances included. “Don’t love money; be satisfied with what you have. For God has said, “I will never fail you. I will never abandon you.” Hebrews 13:5, NLT.

Randell Tiongson is an advocate of life and personal finance. He is a director of the Registered Financial Planner Institute (Phils.) and has over 20 years’ experience in the financial services industry. For speaking engagements, financial planning, training and consultancy, write to [email protected]. To know more about becoming a registered financial planner, please visit www.rfp.ph or e-mail [email protected].