We have a lot of “ordinary employees” in this world who value the importance of hard work, wakes up very early in the morning and eventually earning a decent salary to ensure that they’re able to address basic needs in life – such as food, clothing and shelter. These are people who appreciate the value of being employed, having a job to survive.
For some reason, these people don’t have the luxury to fully learn and understand the basic fundamentals of money management. As much as they want to set money aside, they only have little knowledge or access about financial planning. I guess balancing their income versus expenses makes it difficult for them to start planning. When it comes to planning for their retirement, they normally rely only on what the company/employer will just provide like basic salary and company benefits – the question of tenure, loyalty and rising from the ranks are part of the equation.
We’ve seen a lot -– government employees, agency-dependent personnel, delivery boys and the like. These are the Juan Dela Cruzes of the world, these are the “ordinary employees” we must educate whether they are still starting, or even if they are in their middle age period to learn more financial ideas on how an ordinary employee can prepare for retirement.
If you’re employed, just like a businessman, treat your salary as your profit. The good thing about it, we already know our “profit” (salary) every month. All we need to do is to set aside portion of it, let it grow and start your quest towards a brighter Life.
Let’s examine how a normal salary of an ordinary, newly-hired employee looks like using some average computation.
Juan’s adjusted salary by the time he reaches age 65 would be Php 64,402.
Now, if Juan decides to retire, how much retirement fund will he receive from his employer using a standard computation?
On top of this, Juan is also entitled to receive SSS Retirement pay, a government-sponsored plan which only ranges from Php 1,250 – Php 14, 750 monthly pension.
When Juan Dela Cruz finally retires to do what he wants to do with his time, is this amount going to be sufficient? Before we continue, here are some myths we need to shatter.
1. (MYTH) It’s the obligation of your employer to make you financially independent.
(TRUTH) It’s your personal obligation. The common thinking is that since the ordinary Filipino spends at least 9 hours in the office or in the field working, is that he will be bound by the amount he is to accept every payday. And since most of the salary goes to expenses, we are hardwired to think we will never become wealthy unless we win the lottery.
2. (MYTH) It’s only with a high income level that one can be financially independent.
(TRUTH) Shatter the delusion that just because you’re earning minimum, you cannot save. What you do with your money is more important than how much you earn.
Now, what if we teach Juan to set aside or allocate at least 20% of his current salary to prepare him in case of rainy days?
20% of Php 9,148 = PHP 1,830. This amount can be used to help Juan start his journey towards Brighter Life. In the beginning, this portion may be too much to just set aside but test it and you will see how life will be flexible enough to let you and your family live on less.
Let us divide Php 1,830 by 2. The amount will be Php 915. Why did i do that? The idea of doing this is to diversify his allocation to 2 baskets:
1. SAVING (for urgent needs, liquidity, short-term purchases)
2. INVESTING (for long-term financial goal)
If we were to put each Php 915 to both saving and investing and have it accumulated for the next 40 years, it will look like this:
Given his discipline to save and invest and adding everything, how much will Juan receive by the time he reaches age 65:
Going back to my big question: Is this already enough for Juan? It will really depend on what Juan dela Cruz wants to do when he retires and how much his desired lifestyle costs. At the end of the day, it all boils down to our ability to walk away from shelling out money for fleeting wants and saving them instead, as well as being able to foresee expenses so we can prepare for it. Juan Dela Cruz has to start somewhere.
Something important to remember, no matter what income level you’re in at the moment: TIME, MONEY, INTEREST RATE can work for us regardless of the size of your income. Always practice the 3 important habits in financial planning:
1. Save as early as possible,
2. Save regularly
3. Look for rates to compliment your need, both for short term (banks) and long term (insurance and investments)
Cheers to a brighter life ahead of you!
Cary Yamut, 35, is a trainer at Sun Life Financial Philippines. When he’s not busy training advisors, he can be found cooking Filipino dishes and exploring scenic nature spots. You may follow him on Twitter via @i_amgob
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