Turbo-charging your savings tip#1: Ignore promotions and bonuses

My hubby, who allowed himself to be absorbed by the rate race after years of consultant work, got promoted the other week after only two years in the company. Initial reaction: whoppeee! Lets go out to dinner to celebrate…We can buy that second car after all…Should I arrange for a vacation out of the country next year?

Earth to Salve…earth to Salve. Financial planning bibles out there say my husband and I are still in the accumulation stage because of our age. I can’t afford yet another misstep in financial planning, like splurging on vacations and baby gear. We are still paying for our children’s education, good insurance policies and other stuff. I have to discipline myself to ignore promotions and bonuses (especially if they are my husband’s haha), keep them immediately tucked in our savings and investment portfolio, so I can turbo-charge our retirement kitty.

This one’s a no-brainer Money Myth Buster. It’s easy to see how a mindset of not counting chicks even if the eggs are hatched can help us get totally out of the rate race. But can the additional scrimping and saving really turbo-charge my savings or am I merely looking at a slow, painful growth in savings despite the sacrifices I am preparing to make?

After all, I live in a third-world country :-). (Sorry, I couldn’t resist, heh.)

So, I turn to Bankrate.com, my favorite site for financial calculators. No need to learn fancy accounting stuff. I just plugged in the numbers and literally watched my savings grow. They have cool flash charting tools, too!

The compounding interest calculator shows that if I ignore the increase in his monthly salary and invest the amount regularly in an instrument that gives a conservative 6.5 percent return compounded annually, we will have an additional P10.8 million by the time we both retire. Cool eh? Just for doing nothing.

If I factor in the annual bonuses he receives, we will have an additional P23 million hot moolah by the time we are 60. Hmm…I think those nice shoes and second set of wheels will have to wait. We will just have to settle for delayed gratification, then.

Some notes, though. This tip may not work on everyone. Incomes in the Philippine setting are widely varied, as you have heard me say before. The gini coefficient, which measures inequality of income, shows that the Philippines’ rich people are grossly rich and very few…and the poor are grossly poor and very many.

For those whose incomes are insufficient for monthly expenses, totally ignoring much-needed salary increases and bonuses may not be sustainable. It can make you feel deprived, make you vulnerable to splurging and will make it difficult to stick with the savings plan. Perhaps a 50-50 savings plan will be more workable, or a 40-60. Spend half, save half.

Wealth smarts is about balance and being happy while saving smartly.

So What Chocnut?

Interesting news for personal finance watchers.

Shares again closed at a new record high, this time boosted by Wall St. and regional gains. Yet another firm is going into the hotel and tourism business, and this time, it’s another taipan. Metrobank will build the country’s tallest hotel in Fort Bonifacio, Taguig. Have you been to that place lately? It’s like a blank canvass for property developers. Wide streets and less traffic in the area sound really appealing now that there are a lot of developments in the area. But if you saw that place in 2000 before Ayala Corp. came in, you would be depressed. The mood now is very, very different.

Jeanette Yutan, an analyst for JP Morgan Securities, pointed out to me just this afternoon that it’s now very, very hard to get good hotel rooms in Metro Manila. The hotel industry is in bloom, and all the planned government infrastructure spending, coupled with a lot of other factors of course, has increased confidence in the economy so well that big chunks of foreign direct investments have been committed by companies like Coca-Cola, Texas Instruments, Unilab, Nestle etc. All told, we really could be looking at economic resurgence.

“These are all telltale signs. Cyclically there are factors driving the economy, but more importantly, there are structural factors as well,” Yutan said.

HSBC is reacting to that resurgence with its decision to expand its insurance business in the Philippines. It’s imperative that you don’t outlive your insurance company, right? HSBC has one of the biggest names in the financial industry, and its good that Filipinos will have more options where to buy their insurance policies. More players, more competition – tougher for the players but better for consumers. All hail Adam Smith!

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