George S. Chua l October 16, 2024 l Business Mirror
WE all want it and certainly need it. However, the reality is that not everyone can achieve financial security.
First of all, what is financial security? In my mind, this means you can afford to live comfortably with the income and savings that you have up to your retirement to the day you pass away. In many cases, when your spouse is dependent on you, there must also be enough for their well-being until the day they too die.
Financial security includes having enough funds to cover emergency contingencies such as medical or economic like when you lose your job. Ideally, when you are gone, it would be nice if you could leave something for your children to inherit. There are many guides as to how much you would need to be able to have financial security. The simplest calculation would be to determine your monthly living expenses and living on an investment capital that would earn a benchmark of at least 5 percent in say a perpetual bond. Assuming you need P100,000 a month or P1,200,000 a year, this means having a nest egg of P24 million. Try to keep your nest egg intact and only in extreme emergencies should you draw down on the principal.
Building up financial security is something that needs to be well planned, preferably with two cash flow sources, namely passive income such as a time deposit or bonds and the other one is investment income from rental properties, cash dividends or businesses. Of course, the longer you can maintain your primary source of cash flow such as a salary or professional fees, the better off you are since you do not need to draw on your savings but also likely to add to it.
As someone who has been working and filing income taxes for more than 40 years, I would like to share with you some tips to aid in your financial security. Start as early as possible, live within your means, don’t be a parasite and stay productive. Starting as early as possible in working towards your financial security will give you more time to build up your savings and take advantage of in-vestment opportunities, particularly through capital gains. Imagine how much property prices were 40 years ago and how much they are now. Something worth P1,000 per square meter then is now worth more than P100,000, an amazing hundredfold increase!
Living within your means is a choice between spending or saving or worse, spending and borrowing the money to spend! The liberal use of your credit card to purchase luxury items that you cannot af-ford will mean that not only do you miss out on building up your savings but also carry the burden of credit card debt of 3 percent a month. If you kept a credit card unpaid balance of P50,000 this means you are paying P18,000 a year!
Being a greedy parasite is horrible, you do not learn how to stand on your own but develop bad habits that will also end up ruining your reputation! You do not learn how to make your own money, don’t know to save and how to manage your own investments because you are too preoccupied with asking or stealing from your friends and relatives. Good people will avoid you like the plague and opportunities will not come your way. Just remember, karma is a bitch!
Staying productive has many benefits such as keeping your mental facilities sharp, not to mention keeping your cash flow coming. Many people do some sideline businesses when they retire such as setting up a home bakeshop, sitting as an independent director, keeping their profession as a con-sultant, teaching, farming and other things that not only keeps them occupied but also generates in-come as well.
Remember, life will be better with financial security even if you have to work hard for it.
*** The views and comments of Dr. George S. Chua are his own and not of the BusinessMirror or the Financial Executives Institute of the Philippines (Finex). The author was 2016 Finex President, 2010 to 2020 FPI President, an active entrepreneur in fintech, broadcast, media, telecommunications, properties and a regular member of the National Press Club. Dr. Chua is also a Professorial Lecturer 2 at the University of the Philippines Diliman and BGC Campus, a Trustee of the FINEX Foundation and the Vice Chairman of the Market Governance Board of the Philippine Dealing and Exchange Corporation. Comments may be sent to georgechuaph@yahoo.com or gschua@up.edu.ph. Photo from Pinterest.