(Photo: Left Over Currency)
If I tell you that saving 500 pesos a month has a potential to fund your retirement, probably you will tell me "Nahihibang ka! Paano naman mangyayari yun?" If we will do the math 500 x 12 months = 6,000 pesos x 30 years = Php180,000 ONLY in 30 years!!! I bet, it will convince you more that I am joking.
That is, if you look at it that way.
If you look at it from a different perspective, any amount - small or big, matters significantly. Especially if you use the power of compounding interest.
How does compounding interest work?
If you save 500 pesos today and invest it in an instrument that gives you 10% interest after a month, your 500 pesos will be 550 pesos in 30 days.
Compounding interest ay nangyayari tuwing matatapos ang maturity date o expiration date ng investement at merong automatic rollover na ang ibig sabihin ay irere-invest ulit un 550 pesos(your new principal amount) mo na magbibigay sa iyo ng 10% interest ulit pag sumapit ang isang buwan o maturity nang wala kang ginagawa. Sa madaling salita, ito ay safe.
Pero malamang sasabihin mo sa akin "Eh, mas malaki ang kikitain ko sa networking na inaalok ni kumare." Ang tanong, pag nakuha mo ang pera, saan mapupunta ito? Malamang ibibili mo ng bagong labas na smart phone, o di kaya bibilin mo un Jordan Air na matagal mo ng ina-asam asam sa IG.
The idea of compounding interest is to multiply your money overtime...at hindi one time-millionaire.
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After the 10th month, your money doubled without doing anything!
The Early You Start, The Better
Are you in your 30's or better in 20's? Want to retire in 20 to 30 years? But do
not have that huge disposable income to start with. Sacrifice that one pair of shoes or one weekend without branded coffee or it will not hurt you if you will not see movie this weekend. Rather start placing your hard-earned money in an investment tool that only requires you to start with small amount and will make use your most valued resource - TIME!
Use the power of time. If there is one thing that rich and poor are equal, each one of us have 24 hours, 365 days a year...and wealthy people knows how to maximize their time.
If you only have a few years left to save, earning from compounding interest is still not bad. But maybe you will have regrets and say if you only knew this a long time ago when you are still receiving big 13th month and bonuses, maybe you might have millions now.
If you only have a few years left to save, earning from compounding interest is still not bad. But maybe you will have regrets and say if you only knew this a long time ago when you are still receiving big 13th month and bonuses, maybe you might have millions now.
Where can you invest that you can take advantage of compounding interest?
1. High-Interest Savings Account - Banks normally ask for 500-1,000 pesos to open an account, some only requires 100 pesos. Though it is worthy to pay attention to the interest that different banks are offering. Shop around before you decide.
2. Time Deposit Account - Most of the banks offers TDA with fixed-interest rate. Normally, the longer you keep your money with them, the higher the interest is. Do not forget to check if the TDA you are getting is automatic rollover.
3. Stock Dividend - The biggest earning from a compounding interest is through the dividend that blue chip stocks are giving. You are simply receiving your share of their profit without doing anything. Did you know you can buy blue chip stocks for less than 2,000 pesos?
When is compounding interest not good?
Credit card companies use the compounding interest, this where they earn. If you notice that it seems that your outstanding balance is not decreasing even if you keep on paying the minimum amount monthly, that is because the interest is compounded every maturity date. So the longer you keep your balance, the higher interest you are paying overtime.
Be Wise and Start Saving Your 500 pesos, it Matters!
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