Take the P3.50 challenge

Question: The Philippine economy is roaring ahead. In the just-concluded quarter, the country was among the fastest-growing economies in Asia, next only to China. S&P just upgraded the country’s credit rating to one notch below investment grade. Consequently, I get the feeling that I am being left behind. A lot of people say that the best way to ride the country’s economic growth is to become an entrepreneur. But I am just an ordinary employee with no knack for running a business and definitely not enough money to start investing like the rich. Moreover, I believe that I have found my calling in being an employee. I love what I do, I do it well and my employer pays me commensurately for it. Is there no other way to become rich and secure my family’s future?—Employee who is sleepless in the struggle to become rich

Answer: Allow me to point out some misconceptions about becoming rich.  First, a rich person is not one who has the most. Instead, as pointed out in the New Interview with God, he is one who needs the least. This means that a person must learn the value of contentment to be truly rich.

Second, not everyone can be an entrepreneur. If this were true then how could businesses flourish when there would be no one left to hire as employees? Ironically, though, everyone is in business, just in a different sense. Yes, even a full-time employee is in business because he sells his skills and talents to his employer who is his customer.

At this point you are probably saying that we’re back to square one because an employee’s income is fixed whereas the businessman’s goes up the harder he works. Compared to the rising cost of living, a businessman would naturally be in the better position to balance his finances.

Here’s the pin to burst this bubble.

I once did a personal-finance training program for the maintenance people of a school. One of the participants fascinated me. Let’s call him Pedro.

Pedro understood well his capabilities and his limitations. So rather than blame the rest of the world for his fate, he learned the value of contentment and employed the surefire way of getting rich. He spent less than what he earned and invested the difference.

To be certain, it was not a well-paved road for Pedro. He needed to be patient, a very hard thing to practice. Just ask Nick Vujicic, one of the world’s best motivational speakers, who was born without arms and legs. But like Nick, Pedro persevered such that despite his meager maintenance man’s pay, he was able to send his children to school, buy a car and invest in a business managed by his wife.

In a sense, Pedro and his wife worked as a team in reaching their family’s financial goals.

Employment plus investment, or “emvest,” is the base strategy for getting rich. It is not enough for you to just earn a wage or salary. As an employee, you must save and turbo-charge these savings through investing.  You could follow Pedro’s example and invest directly in a business through a family member or trusted individual who is truly business-minded.

If you cannot find somebody to invest in a business for you, the next best thing is to invest indirectly and periodically in financial securities. This is done via investing in actively managed pooled funds. Pooled funds in the Philippines come in the form of mutual funds, unit investment trust funds, variable unit-linked insurance and even pre-need plans. Opening an account is not difficult. The stiff competition among these product providers has compelled them to devise ways of making investing more affordable and automatic.

Critical to the “emvest” strategy is the discipline of saving even small amounts. A little thing truly goes a long way. And to prove this, take the P3.50 challenge.

What can you buy with P3.50 nowadays? Not a whole lot. Perhaps it is just about the amount of change you get every time you pay for lunch at work. But save P3.50 a day for five days in a work-week, four weeks in a month and 12 months in a year. You would accumulate P840.

Now compare that to putting P100,000 in a savings account with a large bank for one year. You get to earn a net of only P300 (using a net savings interest rate of 0.30 percent a year.) In fact, it would take 2.8 times as much money or P280,000 to match what you could “effectively earn” through the P3.50 challenge. And all you needed to do was dig into your pockets and save P3.50 each work day for a year.

We actually practice the P3.50 challenge at home. But we don’t just save P3.50 a day. We save all of the change we have at the end of each day.  The minimum we save is P1,000 a month. Multiply that monthly amount by 12 and you get P12,000.

That’s the equivalent of earning a net 12 percent a year on a P100,000 savings deposit (but without the capital). No large bank will pay you a net 12 percent a year on a savings deposit. Only your pocket will.

Personal finance education is the key. It is a structured way of learning how people can become financially free in the least distracting way.  Personal finance is applicable to all, from full-time employees to full-time businessmen.

If your company is not yet hiring financial planners to train its staff on personal finance, persuade your company’s Employee Relations Manager to attend the EnRich training scheduled on August 14. There are limited seats being given away to HR practitioners. And if you personally want to know more about uncommon ways of savings as well as effective personal cash, debt, risk and wealth management, why not attend as well (as a paying guest). Visit www.personalfinance.ph, email [email protected] or call 2161541/3593094 for more details.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 09175050709 or e-mailed to [email protected]. To learn more about the RFP program, visit www.rfp.ph or e-mail [email protected].)