As a starry-eyed bride back in 19-something, I told my husband: “When we make our first million, what do you think about putting up a school for street children?”
The world was unraveling before us. I felt like I could conquer the world. You know the feeling :-). I admit there are still fleeting moments now when I still feel that I could.
Unfortunately, no one quite explained to me then exactly how I could make my first million. An article to be posted today (already posted. Click here to read the article) in INQUIRER.net’s Personal Finance section puts the strategy down pat. It details how much you need to save, with a few return-on-investment scenarios in mind. It talks about the science and art that is needed in making your first million.
Consider this:
Note: For lump sum contribution, the ROI is compounded annually. For periodic contributions, the number of compounding periods varies. For example, a monthly contribution at 5% per annum effectively earns 5.1162% per annum because of monthly compounding.
And this:
Note: For example, should you decide to contribute monthly over 7 years expecting to earn 5% per annum, a P9,967.24 monthly contribution for 7 years amounts to P837,248.36.
Millionaire habit tip: Begin with the end in mind.
When we do that, we can clearly see where to put our foot next so that we can step closer to our goals. This strategy also allows us to map out our journey and helps keep us out of potential investment mistakes.
Of course, many of you could use this strategy to make your second, third, fourth or gazillionth million. You may not use an off-the-shelf investment instrument. You could go for setting up your own business. Risky, true, but the returns would probably be high, too.
Whatever you do, building wealth also needs to be accompanied with the right attitude and the right financial habits. These include living a simple lifestyle, paying yourself first, among others. And don’t forget: sharing your wealth with others in a worthwhile cause.
Note: For lump sum contribution, the ROI is compounded annually. For periodic contributions, the number of compounding periods varies. For example, a monthly contribution at 5% per annum effectively earns 5.1162% per annum because of monthly compounding.
And this:
Note: For example, should you decide to contribute monthly over 7 years expecting to earn 5% per annum, a P9,967.24 monthly contribution for 7 years amounts to P837,248.36.
Millionaire habit tip: Begin with the end in mind.
When we do that, we can clearly see where to put our foot next so that we can step closer to our goals. This strategy also allows us to map out our journey and helps keep us out of potential investment mistakes.
Of course, many of you could use this strategy to make your second, third, fourth or gazillionth million. You may not use an off-the-shelf investment instrument. You could go for setting up your own business. Risky, true, but the returns would probably be high, too.
Whatever you do, building wealth also needs to be accompanied with the right attitude and the right financial habits. These include living a simple lifestyle, paying yourself first, among others. And don’t forget: sharing your wealth with others in a worthwhile cause.
the author said and i quote: " Moreover, in considering investing in financial markets, it may also be a useful strategy to enter in stages so you get better chances of improving your return and not timing the market instead."..true, victory is won not in miles but in inches... Let's save/invest and profit a little now, hold our ground and then save/invest and profit a little more...
This article is a crap. It is easy to save, but where to get something to save. After 7 years your million will worth 1/10 of its original value. You know?
hello. is there an "ideal" scheme to follow in apportioning one's earnings/assets? Example: savings account 5%, mutual funds 20%, stock market50%, time deposit 25%....should insurance be included in such scheme?
Nice and simple article
Making your first million is the hardest because you're starting from scratch. The next million is less hard. The succeeding millions are easier because you have a bigger base. Money begets money.
I made my first million at 25 in real estate during the real estate boom in early '90s. I had to bet all my savings and borrow money to do that. Now I earn the same amount in interest alone.
Business is the fastest way to make money. It is also the fastest way to lose money if you fail. Don't worry it's okay to fail but don't lose it all.
This is very true, set aside 20% or more of your monthly earnings up to the point that you're used to it. Then it will be easy for you to save more in the future. Make it a habit!
It is quite a challenge to save 10,000 or 6,000 pesos a month for 7 years....unless one is an OFW.
Your Money Smart blog really helps a lot of people who chooses to keep track their financial gain. It's not easy but if we really do it religiously, in the end it pays well.
@rene, "It is easy to save, but where to get something to save." -
why not find a decent job? if you have one but still got nothing save, then look at you expenses. It only means your spending more than what you earn.
read Colayco's books or better yet read money smarts blogs you'll learn a lot!!!
this whole thing's a gradual process, just take your pick which million to aim for! :D
- first million yen (P 380k, easiest! :D )
- first million pesos
- 1M Hong Kong dollars (P 5.8M)
- 1M US dollars (P 46M)
- 1M euros (P 62M)
- 1M pounds (P 94M)
@ hachiko, I think I will go for the Dong (Vietnam) or the Rupiah (Indonesia) - a month! that would be a lot easier.
@rene
I agree with you that one million today will be worth less in seven years. So that's why you need to put your money in an investment that returns more than the current inflation rate. Kung ilalagay mo lang sa ilalim ng unan yung pera mo, mababawasan talaga value nyan. You think that one million maybe not enough for you in seven years? Then you need to set aside more. But still, better to have one million in seven years than broke right? Like the others said, read through this blog. Keep an open mind and I bet you'll learn a lot.
@gcol
"It is quite a challenge to save 10,000 or 6,000 pesos a month for 7 years….unless one is an OFW."
I think the real challenge for most (even for me) is to be disciplined and patient enough to set aside something (or anything) every month (or year).
Marami akong mga kaibigan na highly paid professionals (those locally employed and those working here in Singapore) na wala pa yun next paycheck, running flat na. They've not been able to save even 5% of their income. Sabihan mo to save and invest and what you get is either a bored look or a lot of excuses not to. Well, to each his own...
Saving and investing compensates for the effect of inflation... still a lot better than not savings and investing at all.
Hi Hachiko,
What do you mean by those figures?
- first million yen (P 380k, easiest! )
- first million pesos
- 1M Hong Kong dollars (P 5.8M)
- 1M US dollars (P 46M)
- 1M euros (P 62M)
- 1M pounds (P 94M)
What do you mean aim for these?
nice one hachiko and gcol!
it would have been easier with the lira before. haha!
but seriously, i'm still working on my first million (pesos na lang muna).
Nice one hachiko and gcol! 1 million korean Won might be easy also. Would cost us
PHP49204.79260
rene--
You said, "After 7 years your million will worth 1/10 of its original value."
Huh?!?!?!... I wud disagree. What average inflation rate did you use for that?
@rene
>> After 7 years your million will worth 1/10 of its original value. You know?
Your inflation number of 10x every 7yrs is way too high. For example, 40 pesos ang spaghetti sa Jollibee ngayon. 7 years ago 4 pesos lang ba ang spaghetti sa Jollibee?
Given 6% annual inflation - which I think is near average (someone may correct me here) - 1M in 7yrs should have ~66% of its value today.
mindmarc--
Yes u r correct w/ ur 66%.
So if you guys have a million today, where do you put it?
i'd probably have 50% at a startup MF like First Metro balanced fund, then use the other 50% sa stocks. semi risk taker lang po ako eh
mzkuro:
Put it in call center business. It's high risk & high return. You can easily double it or lose it. If you fail, charge it to experience. You'll be luckier next time. :-)
mzkukuro, If i have a million, i'll invest 80% in Mutual Funds and UITFs and the rest in Stocks. How about you guys?
@Richardson. Isnt putting 50% in First Metro (I assume its the equity fund we are talking about here?) and 50% in stocks ... is like putting 100% in stocks? Kasi stocks rin yung equity fund e.
@pinoy investor... na-iintriga na talaga ako dyan sa call center biz sir. elaborate naman po. baka may iba pa po dyan interested. :)
Hi wiseguy, there's a saying you don't get your 1st million w/o getting to your first 100k, 10k, whatever. One step at a time, 10k, then 100k, then soon enough 1m!
That's just like saying aim for 1 million korean won first (P 50k). then 1M jap yen. And even after your 1M pesos there are more quests ahead of you, like 1M pounds sterling :D
If you have P 1M, UITF and stocks are a-okay, call center if you're gutsy and know what it's about! I just came from New York, my relatives with the nice apartment there were so interested in my own UITF investments they gave me $2,500 cash on the spot to invest in Manila! Salve, I'm now in Las Vegas, hope I don't plunk their investments down the blackjack table hahaha :D
Is there a service like Value Line where local investors can know the fundamental performance data of a company and investigate the company deeper if it meets the investors criteria?
i think call centers are profitable considering overseas market/clients. you may need overseas partner/ contact to market and negotiate contracts. depending on quality service offered, you can utilize cutting edge technologies, ie. compression techniques on digital transmission links, redundant systems, fault tolerant servers, etc. a specialized call rep training program is also important.
@mzkukuro, i mentioned First Metro balanced fund, which started just last May 25. Its NAV is only around 1.00xx. It's currently not offered yet though. :D
We assume this P1M is disposable cash. It is a different story if 1M is all you have. How much of this 1M should one reserve for emergency expenses? And how much of this 1M should be in cash/cash equivalents to cover for expenses while one is unemployed? How much of that 1M should be set aside for the worst-case scenario? For example : a head injury requiring emergent neurosurgery that is not covered by insurance. Peter Lynch wrote that if you don't have a house, then you shouldn't be buying stocks. I think he meant that if the basics of your life are still not in order, then don't invest in stocks...yet.
If 1M is disposable cash, things become a bit easier. I remember one asset allocation tool based on age. Your age now represents the percentage of your funds to be allocated to cash/bonds/fixed-income instruments and the remainder to stocks/equity funds. At 30, for example, 70% will go to equity/stocks then 30% in a combination of investment-grade bonds/money-market funds/cash. One has to factor in one's risk appetite as well. Just be honest with yourself. In this example, 700k will go to a stock portfolio. What is your investment horizon? One year? Five years? Thirty years? In one year how much of that 700k can you tolerate losing? Try the worst case scenario : in your over-excitement, you plowed money into an equity fund at the peak of the bull market in 1997. Can you bear the pain of seeing your money lose as much as 30-50% of its value in almost seven years? After all, you're in it for the long haul. This is exquisite psychological torture. Be honest with yourself, and don't be greedy. Pare down your allocation further until you reach the sleeping point. Know what is your maximum tolerable loss.
@mzkuro:
bata pa po ako. 30s pa lang ako sir. I'd like to go into call center but I have no partner. My friend started 3 yrs. ago with 1 million pesos and 10 seats. He now has 300 seats each earning $100 per day. With all that money, he don't need me anymore. We could have been partners 3 yrs ago. :-)
I don't know if this has been posted here already but around 2 or 3 years ago, I encountered a pretty reader-friendly resource from a friend. Here's a set of slides, How to Make a Million Dollars, by Marshall Brain. It largely aims to impart the entrepreneurial spirit through written language that's very easy to understand.
A funny quote there went:
our 1M is currently invested in a savings and loan corporation which is earning 16% interest per annum. the thing is, everytime the interest goes over 30,000 per quarter, the excess gets bumped into a second account which earns only 4% interest. i need sound financial advice as to whether the returns of my current investment scheme can be improved, specifically the amount that gets transferred to a lesser ineterest account. advice please.
@Richardson, Meron na palang balanced fund ang First Metro? Ah... kaya pala di ko alam, di pa pala open to public.
@pinoy investor, 30s din po ako sir, at babae po ako. :D