"Saving is one thing, but taking that discipline and moving it to investing is another...."and that
"AWARENESS is the key..."
I remember reading a wonderful article that points out EXPENSIVE COSTS of being FINANCIALLY IGNORANT and I want to share it with you, I highly recommend that you read it. Below is a link to the article;
3 Most Expensive Costs of Being Financially Ignorant
As a summary, it highlighted things that seems like a SOCIAL CANCER that envelops an individual preventing them to achieve their own financial freedom. But even cancer has a cure and has a means to prevent it. We just have to be aware of it and recognize that it is indeed a problem that needs to be addressed. It tackles this 3 main root cause of the problem.
- Investing in Depreciating Assets
- Entering Bad deals (Being Afraid of Good Ones)
- Missed Opportunities (because of a lack of preparations.
Saving is very simple. But despite of its simplicity, still many people struggles to practice it, simply because they do not have this mindset of "delaying gratification". Most people fall prey to the temptation of spending their hard earned money to things that in the long run would have lessen or no value at all...Things that gives you self-gratification as you can say or will give you this feeling of self-worth and fulfilment, but they failed to prepare to the hindrances that they may face in the future. I'll be hypocrite if I'll say that I didn't fall for that mentality, I once did, really... But I'll tell you, It'll be more fulfilling if you are able to recognize that problem and start to act on it. It is never too late.
Now, you accepted that fact and you started saving. Congratulations! You've matured. There are many ways and strategies that you can do to be able to consistently practice saving, just find what suits you. You can be the master of your own self, just do it responsibly.
It doesn't stop there... In Saving, you just simply allocate a portion of your cash flow/income and let it accumulate over time. It seems a good thing right? But another problem will arise here, you have to recognize the fact that our money decreases its value overtime. WHY? Because of INFLATION...
What is INFLATION?
Investopedia defines it as;
A sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar(peso) you own buys a smaller percentage of a good or service.
In the Philippines, Inflation rates varies from 1.5-10% since 2008... The latest data for May 2015 says,
"Philippines annual inflation rate eased to 1.6 percent in May of 2015 from 2.2 percent in April. It is the lowest rate since mid-1987" this is according to the National Statistics Office.
How will INFLATION affect your savings if you just let it sit in banks with very minimal growth?
Watch the video below from Investopedia on how inflation works...
Let's say you have a savings of 100,000 PHP in May of 2014 which you let it sit in the bank for 1 year with annual interest of 0.25%, after 1 year, your money grew 0.25% higher, with your 100k php capital, It grew 250 pesos.. Now you have 100,250 pesos at hand. Is it good? Not so fast, let's say that the annual inflation rate averaged at 5% from last year. How will that affect your savings? 1 year ago (May 2014), what your 100,000 php purchasing power by then, this year May 2015, you have to pay 5% more (or 5000php) for you to be able to purchase the same amount of goods and services. This is how inflation would hurt your savings. That will be 4,750 php net difference since you were able to grow your money 250 php. Too bad isn't it?
But!!! there is a way to BEAT IT!!, this is where Investing takes place. That is why it is in a totally different level... and you have to put a sweat in learning this concept because there is another thing that will come in to place and that is...tada... RISK.
What is Risk?It is the chance that an investment's actual return will be different than what is expected. Risk includes the possibility of losing some or all of your original investment.
Sounds frightening ei!? Not at all... there will be ways to manage these risk in your favor, the reason why educating yourself and exerting your effort by doing so is a skill we have to develop if we want to venture in the world of investment. Your first task is to identify how much risk you are willing to take. Saving involves risk as well, as I mentioned above, your saved money has a risk of monetary devaluation as a result of inflation. Investing on the other hand involves more greater risk. It is important to understand that ALL INVESTMENTS INCLUDES RISK. If someone tells you to invest in something that has no risk, better think twice before diving into it.
There are many different ways or vehicles where a person can choose to invest such as Time deposits, Mutual Funds, UITF's, Real Estate, VUL's and the most riskiest but will give higher returns if done correctly... The Stock Market, and this will be where I will be focusing my weblog... (all of these, I will tackle on a separate posts)...
In my own ways, I've decided to share what I learned and what I will continuously learn in the coming years by keeping a simple journal, with this, I am hoping more and more people will be attracted to investing. I also believe that as an investor/trader, one shouldn't stop learning.
As I emphasized above, AWARENESS is a key aspect and so as the awareness in our country's economy and current events. With this I would highly recommend everyone a very useful website where you can easily find relevant news and current events. This site is very useful as well for people who are already involved in the stock market. A place where you will find stock-specific news, sentiments and tweets and get along with other traders and investors.
here is the link;
bookaka.com
Keep these things in mind, successful quotes coming from a man of wisdom, indeed a Great Investor to look up to... Mr. Warren Buffet
I'll keep you posted, you can like my page as well to receive continuous updates from me. =)
The Half Blood Prince Trader
Happy Investing =)
