You are tired of working for money. And you have finally decided to slowly accumulate assets and build your wealth. The question now is are you ready to invest? Here are signs that you are ready to invest:
Investment Prerequisites
Before you enter the world of investing, there are certain conditions that you must meet first:
1. Pay off all your bad debts first
It is highly recommended that you pay off all debts first, most especially the bad debts, if you have any. It does not make sense to invest and earn when the interest that you are paying for your bad debts is higher than the interest that you are earning from your investments.
So, how to know if a debt is considered good or bad?
A good debt is money that you owe to help you generate income. Examples of good debts are debts used to finance your education, business or real estate for rentals.
A bad debt on the other hand, is a debt used to purchase depreciating assets or things that decline in value over time. Examples of bad debts are consumer loans and credit card debts. You need to get rid of your credit card debt first if you have them because out of all the bad debts, they charge you the highest interest rates.
2. Make sure you have adequate cash in your emergency fund.
You should always have enough cash in your emergency fund. Your emergency fund is money set aside for financial surprises in life such as loss of a job, home improvement, car repair or trip to the dentist. The Rule of thumb is that your savings account should be equal to six months of your monthly expenses. Anything in excess of that, you can use for your investments.
3. Make sure you have adequate insurance.
An insurance is your protection for a possible unpleasant and unexpected event that might or might not happen in the future.Thus, you need your insurance to protect your life and your properties and your ability to earn income.
Here are some insurances available in the market today:
Health insurance to pay for your medical bills if you get sick
Life insurance to protect your loved ones just in case something happens to you
Property insurance for your home and vehicle
Disability insurance especially if you are the breadwinner
Travel insurance if you are traveling abroad.
Choose one depending on your needs.
4. Define your financial goals
You need to identify your financial goals or targets. Make them specific and measurable. What are you going to do with the money? When do you need it? How much do you need?
5. Know your investment risk appetite.
Investment risk appetite refers to how much risk you can handle. In investing, the higher the risk, the higher the return. Your emotional tolerance should be able to handle the rise and fall of your investments.
6. Think long term.
Always remember that the purpose of investing is to help you accumulate wealth over time. Long-term investments mean a period of one year or longer. If you are going to be needing the money in a few months time, you are better off just leaving them in your savings account.
7. Understand your investment options.
There are many investment vehicles to choose from. Don’t just jump into investing without having a basic understanding of your chosen investment vehicle. Read a lot and know your options. Choose something that fits your goal, personality and level of involvement. Be careful of investment scams.
If you have satisfied all requirements, then congratulations, you are now ready to make your first investment. Good luck!
First published in Pinoy Smart Living on 12.02.2019.
One lesson that this pandemic taught us is that we should always have money set aside for future use. However, parking your money in a regular savings account is never a good idea because of inflation. Warren Buffet, one of the world’s most successful investors of our time has this to say about investing in cash:
The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time… Cash is a bad investment over time.”
– Warren Buffet
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Thus, it is always better to invest your money. But, there are so many investment vehicles available out there. How to know which one is best for you? If you want to stay liquid and are willing to take a little risk to get higher returns; then, you can try investing in stocks or stock options.
Stocks
A stock means a share in a company. As part-owner of a company, you get a claim on the company’s assets and earnings. You cannot make decisions on the management of the company though. As a common shareholder, you do however have the right to vote on major issues such as changes in charter or board of directors during shareholder’s meetings.
How to Profit in Stocks?
There are two possible ways to earn money from stock ownership. First, you can get a share of the company’s earnings through dividends. Second, if you need the money in the future, you can always sell your stocks and earn from price appreciation. Just like in real estate, art works, jewelries and other assets; there is always a possibility of an increase in the value of your stocks over a period of time.
Why Buy Stocks?
Owning a businessentails a lot of work especially if you build your business from scratch. You need to oversee not just the day-to-day operations but also other aspects like marketing, human resource and financial management. You may be your own boss but you have a lot of responsibilities. You need to make tough decisions and sometimes work long hours.
Investing in stocks is just like owning a business. The only difference is that you don’t need to go to work at all. You can just sit back, relax, wait for your pay check and let the likes of Bill Gates, Jack Ma, Warren Buffet or Jeff Bezos take care of your money. These business tycoons will be the ones to manage the day-to-day operations of the business while you just wait for your income. Now, how cool is that?!
Furthermore, stock investing is ideal for beginners. There is a way to become a passive investor. The easiest way to invest is through Cost-Averaging. It simply means buying stocks for a set amount each month over a long period of time. There is no need to carefully watch the market.
Stock Options
Stock options are different from stocks. With options, you don’t actually become shareholders of a company. Instead, what you have are contracts. Options are contracts that give the holder the right, but not the obligation, to buy and sell stocks at a predetermined date and price.
How to Profit from Options?
There are two kinds of options: the call and the put. The call option is a contract with the right to buy while the put option is a contract with the right to sell shares at a predetermined date and price. In short, a call option is a good investment if there is an expected increase in future stock prices. A put option on the other hand, is a good investment if there is an expected decrease in future stock prices. To put it simply, stock options empower the holder to potentially profit from a trade regardless of market direction.
Why Buy Stock Options?
For one, compared to stocks, options are more affordable. You can get options for just a fraction of the price of a stock. For example, as of this writing, an Apple Inc. share cost US$119.49 while a stock option price cost only US$1 per contract and even cheaper.
Second, with options there is a way to earn money even if the market goes down. Options allow investors to use a hedging strategy to lower risk. This means that an investor can buy a call option, a put option or both at the same time if the investor is not sure whether the price of stocks will go up or down in the future. This is different from stocks wherein price appreciation only happens when the market goes up.
And lastly, since options are contracts, there are expiration dates. Contracts can either be weekly, monthly or even longer. This is good for short-term investors. It means there is no need to wait for a couple of months or even years to earn. Higher percentage returns are possible in just a few days.
However, unlike stock investing, stock options investors need proper training first. To earn a higher percentage of returns is not without risks. Thus, it is important that stock options traders know what they are doing.
Both stock and stock options are good investment vehicles. To know which one is better for you, it all depends on what kind of investor you are. If you are looking for something long-term then go for stocks. If you are a short-term investor, then stock options trading is for you. If you are a passive investor, meaning you don’t want to be bothered with the management of your investment, then you are better off with stocks. However, if you want to be in control of your investments, then go with stock options.
In short, whichever is better for you is totally up to you. It is a personal choice. It all depends on what you want and what will best suit your financial goals, personal interests and lifestyle.
Have you ever thought of why you should invest in the stock market? Maybe you have heard of stories from people getting rich from investing in stocks. There are also horror stories of people going broke from risking too much in stock investments. We all have financial anxieties and investing in stocks is one way to ease our financial burdens. Most of us only lack the knowledge on how to do it.
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Common Financial Situation
The chart of expenses below compares the expenses of the regular employee to that of their house helpers. This may seem like a funny comparison but the situation also tugs at reality in a major way.
ITEMS
MS. OFFICE WORKER
MS. HOUSE MAID
Salary
12,000 / month
5,500 / month
Tax
1,000
None
Food
3,000 / month
FREE, from groceries bought by Ms. Employee
Transportation
100 / day or 3,000 / month
FREE ride w/ Ms. Employee
Mobile Phone
1,000 / month
500 / month
Freedom of Time
Need to complete 8 hours of work
Can relax when all household chores are done
Personal Care (e.g., shampoo, soap, toothpaste, etc.)
500 / month
FREE, bought by Ms. Employee
Bills
3,000 / month (Rent + Utilities)
FREE
TOTAL EXPENSES
11,500 / month
500 / month
SAVINGS
500 / month
5,000 / month
Need to save up some more before she can send financial aid to her family in the province.
Has enough savings to send monthly financial aid to her family in the province.
Financial Situation of Ms. Employee vs. Ms. House Maid | Original Source: Flickr
“Ms. Employee” represents all of us who struggle to make ends meet with our monthly salaries. “Ms. House Maid” represents the household helper that we employ to help us manage our households. Not many of our household helpers may be able to save this much of their actual salaries. Most of us are also unable to maximize our savings because we have to take care of our expenses first. That’s why our first lesson is actually to prioritize our investment fund.
In his book My Maid Invests in the Stock Market and Why You Should, Too!, Bo Sanchez shows us that his household helpers do invest in the stock market and they can look forward to a brighter financial future by doing so. Here are some of the lessons Bo Sanchez teaches his maids which we can use so we can start investing too.
Take Charge of Your Finances
In the first part of his book, he encourages us to take charge of our financial future. Most regular employees including household helpers and OFWs do not have this initiative. We are all preoccupied with addressing our family’s present financial needs. We often forget that we should also prepare for our own future.
This is an all too common scenario outlined in his book that often happens to employees.
“They send most of their salaries back home. They send it to their parents, siblings, nephews, nieces, aunties, uncles, cousins, including their pet carabao. Sometimes, I feel my helpers are supporting entire civilizations. Without their monthly stipend back home, the economy of an entire barrio will cease to exist. People will loiter on the road aimlessly. Children will die of starvation. And the world will come to an end.”
We are all burdened by the financial needs of our families. This puts a lot of pressure on us to send them all that we can. We even end up giving them all that we have. Then, we shelve the thought of our own futures for pondering on another day.
Bo says that everyone ought to be rich but not everyone knows how to do it. This is why we should learn to invest in the stock market — to start building our wealth. In his book, he shows us the basic strategies he teaches his maids for planning their budget and what each fund is for.
Budget Your Income
If you have an income, you need to make a budget. Be sure to include investments in your budget. For his helpers, Bo suggests this simple budgeting system. The first fund for him is the tithe fund.
You’ll grow in abundance thinking, when you give beyond your family’s needs. This will make you think rich and feel rich. And when you change your thinking, you change your living. Soon, you’ll become very rich and you’ll have more to share.
Tithe Fund – Having this fund helps you grow in abundance thinking. He recommends allocating 10% of your budget for this fund.
Expenses Fund – This fund is where you will get all your spending for your daily needs.
Support Fund – What you regularly send for your family’s needs.
Emergency Fund – A savings fund that you use for when emergencies come up.
Retirement Fund – Your real savings.
Because you don’t have a business, the best way for you to grow your money is to invest in the stock market.”
This is a good budget plan to start you off on allocating your money. If you want a more sophisticated budget plan, you can also try out the money jars budgeting system. Of course, if you have loans and debts, such as credit card debts, then you need to pay off those first.
Have a Powerful Vision
Bo encouraged his helpers to follow the budget plan monthly by showing them the best and worst case scenarios that they could find themselves in if they don’t take care of their financial futures.
We should all have a clear vision of what we want to achieve when we have improved our financial situations. This will keep us motivated to stick to our monthly budget goals and help keep us disciplined to spend our money wisely.
Create a powerful vision for yourself in the future. This is where the discipline of delayed gratification can be used to your advantage. Disciplining yourself to live within the limits of your current budget will enable you to enjoy the comforts you want in life in the future, when you are not working anymore and you have all the time and the money to do what you want.
If you don’t own a business, then concentrate on doing great at your job. Then, use the money you earn to invest in the stock market. This is another reason why you should invest in the stock market.
Many people fear the stock market but Bo states that “trading” is the riskier side of the stock market and there is a difference between trading and investing.
Trading is speculation.
In trading or speculating, you don’t look at how strong the company is. Any company is a game–even what they call “penny” stocks. These are companies whose stocks are worth centavos. Because they’re considered very risky. So leave the trading to full-time traders–the people who do this full-time, studying about it 8 hours a day.
Investing is where the investor “invests only on the great companies. Because we’re in for the long haul. Through your business or job, you create the money necessary to invest in the stock market.”
Money Cost Averaging
The best strategy to invest in the stock market is money cost averaging where you buy stocks of great companies, little by little each month. The important thing is to do it regularly. When you adapt this strategy, “you’ll be buying stocks without much thought to the bouncing of the market prices.”
He follows Warren Buffet’s strategy: “Be fearful when others are greedy, be greedy when others are fearful.” This is a simple strategy that anybody can use. This is also another reason why you should start investing in the stock market.
You Can Start Investing Online
Bo recommends that you invest online through Citiseconline, now COLFinancial using their Easy Investment Program (EIP). He states that he is not sponsored by the company but he recommends it because it allows people with smaller budgets to invest since only Php5,000 is required as the initial investment amount.
Each month, or every 3 months thereafter, you can deposit your investment fund to the different branches of these banks: BDO, BPI, Security Bank and HSBC.
These are just some of the lessons from the book My Maid Invests in the Stock Market and also the reasons on why you should invest in the stock market too! Remember though that before you start investing, you should try to eliminate all your current debts first. You should also start learning about the different investment types.
Bo Sanchez’s book definitely gave me a new perspective on how to manage my finances. The budget plan he recommends is a good plan to follow if you are just starting out earning your own money especially if you have no current loans to keep your budget tied up.
There are many resources that you can get your hands on online to help you get started on investing. In the meantime, start growing your investment fund so you can make your initial investment as soon as possible.
Here’s to a brighter financial future for all of us!
If you want to discover the Seven Success Principles from the Ancient Book of Proverbs for your money, work and life; click here to get a free copy of the Ebook from Bo Sanchez entitled Nothing Much Has Changed.
Updated. First published on Pinoy Smart Living on 04.16.2019. Feature Image: Original Photo by Austin Distel on Unsplash.
You have been working very hard all your life. Yet, you found yourself in the same financial situation over and over again. Your income is barely enough to cover your basic needs. You are trapped in the rat race and you often wonder, what is it that you have been doing wrong? How come there are some people who are getting richer and richer by the day while you who have been working very hard are getting nowhere? The answers to your questions can be found in the wealth rules from the richest man in Babylon.
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George Samuel Clason, author of the finance book The Richest Man in Babylongave 7 financial advice to those who found themselves in the above-mentioned situation through one of the parables set in Ancient Babylon.
In the parable, the king summoned the richest man in Babylon, Arked and asked him why he became so wealthy. The King wanted to know the secret to acquiring wealth. At that time despite the years of prosperity in the kingdom, many people were struggling financially. It was the king’s desire to make Babylon a city of many wealthy men.
Here is a list of Arkad’s 7 Cures to a Lean Purse:
1. Save 10% of your Income
Saving 10% of your income is the first step towards wealth. Do this each time you earn. It may not be much at first but it will grow over time if you do this on a regular basis.
For example, suppose you and your friend are both earning 10,000 a month. Your friend started saving 10% of his income while you continue to spend all of your income. Obviously, after a year, your friend will already have 12,000 worth of savings while you will have none.
Wealth, like a tree, grows from a tiny seed. The sooner you plant that seed, the sooner shall the tree grows.
2. Control your Spending
The second cure is to control your spending. You might ask how is this possible when your income is not even enough to cover the necessary expenses?
Arkad insisted that it is possible. The key is to differentiate the necessary with the desires. Have a budget and stick to it. You can save money on the little things like cutting down on your expensive coffee habits and your cable subscriptions. You can save on water and electricity in your home. Stretching your food budget is also one way to save on expenses. The point is there are lots of ways if you are willing.
3. Invest
As soon as you have built up your savings, the next thing to do is to multiply that by investing. You will not be able to grow your wealth by merely saving your money. You need to invest your money too.
A man’s wealth is not in the coins he carries in his purse; it is the income he builds, the golden stream that continually flows into his purse and keeps it always bulging…an income that continues to come whether I work or travel.
An income that continues to flow whether you work or travel pertains to passive income. Passive income should be the goal of everyone. Only through investing will you be able to let money work for you.
4. Guard your Investments
There are many investment opportunities out there. The key is to choose your investments properly and learn to protect them. Choose something that you are familiar with. Don’t invest in something that you know nothing of. Learn about your investment. Consult mentors or experts in that particular field. Just because you know somebody who got rich in that particular endeavour, it does not mean that you will too.
Also, don’t be fooled with the get rich quick schemes being offered to you. Remember that if it is too good to be true, it probably is. The basic rule of investment is that the higher the risk, the higher the return. The lower the risk, the lower the return.
5. Own your Home
Make your home a profitable investment. Instead of making somebody else rich through your monthly rentals, why not make your monthly payments become equity. It will reduce your cost of living in the long run. You would have also acquired a valuable home.
Moreover, Arkad believes that many blessings will come to a man who owns his house. After all, your home is the place where your family will live. It is the place where your children will grow and a place for you to rest. It is a place of happiness and memories for your family.
6. Prepare for Retirement
Every man should prepare for retirement. When you retire, your ability to earn income will diminish. You will no longer be able to work just like when you were young. It is also during retirement years where your health will most likely deteriorate. Thus, you should be ready before that time comes.
7. Increase your Ability to Learn
If you want to increase your income, don’t chase the money. Instead, increase your ability to learn. Study again. Read books. Attend seminars. Learn from mentors. Be more skilful. By improving yourself, you make yourself more valuable. Then success will ultimately follow.
The more wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded.
