Successful people don’t earn their money overnight, they often get there via hard work and shrewd investments. Many of us don’t mind doing the former, but it’s the latter that often stymies those who need a little chat with a mentor to know where they can start.
As a personal finance and a financial planner, people have come to me asking what’s a good investment, and how to avoid bad ones. I usually give several simple guidelines, and people can put into practice the first three or six steps depending on at what financial point in their lives they may be when starting out.
If you’re just starting out on the road to financial health, set these three goals to achieve now: positive cash flow, savings goals and building your capacity to invest. I never tire of speaking and writing on the topic of personal finance, even after 30 years in the financial services industry, and I think I will continue to do so in the coming years.
The first step is making more money and/or spending less money, in essence achieving positive cash flow. You can do this by increasing the ways you get active or passive income, or decreasing your expenses (especially after you identify non-essentials you can defer to another date or do without). Positive cash flow involves earning more money or spending less money, although the ideal state is doing both.
Savings goals involve setting up your emergency fund (equivalent to at least three to six months’ worth of expenses) then other funds for your short, medium- and long-term needs (ex. a new car, new appliances, further studies to advance in your career, retirement). Building a separate fund for investments will take time, but so will your capacity to decide which investments are good for you.
There are many important aspects of financial management that money-smart people should learn or know about. I recommend you read personal finance blogs, books and videos regularly. Those who attended my seminars told me the discussions were an “eye-opener” as they learned things they had previously overlooked or ignored in their quest to financial well-being.
Education is an investment not only for your children (if you have any), but also for yourself to gain an edge in the market or workplace. I advise you to pay close attention to building your skills and honing your abilities, whatever the job or position you hold. Education is an investment and it constantly builds your competence and abilities. In fact, education could be what would set you on the road to earning more money.
Like the parable of the talents in the New Testament (Matthew 25:14-30), each of us is given something we can use to invest and grow exponentially, rather than hide and bury it in the ground. So if you have P100,000, what can you do with it to make it grow even more? Assuming that you already have an emergency fund and no debt, you should determine your investment objective and time frame as well as assess your tolerance for risk.
From there, you can explore what investment works best for you, from time deposits or treasury bills (low-risk), to mutual funds that have both bonds and stocks in the fund (medium-risk), to high risk ventures such as the stock market or cryptocurrency. I recommend that beginners should practice with small amounts. Taking risks can be very profitable, but being good at it requires practice.
Whatever your goals are, you have to become a no-nonsense investor, because great investment opportunities can be like losing poker games if one does not pay full attention to what is going on. I also caution many people against putting everything they have in a risky investment, because you should only take risks when you already have savings and nonrisky investments to fall back on. Following my advice may take some discipline and attention to detail, but if one believes in making money work for you, after all the hard work you put into earning it, you’ll be part of a generation that’s working smarter, not just harder. INQ
Randell Tiongson is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 101st RFP program this May 2023. To inquire, e-mail info@rfp.ph or text at 0917-6248110.