One of the essential life lessons that every person must realize is the importance of financial literacy. Earning money is not enough. People also have to learn how to manage and budget their finances. The cornerstone of your relationship with money is laid out by financial literacy, which is a lifetime learning process. The earlier you start, the better. Thus, education is the secret to financial success.
Another aspect of financial literacy is knowing how your current investment choices affect your future tax payments. Another factor is learning the ideal investment instruments to employ when preparing for retirement.
There are various strategies to help you improve your skills in Financial Literacy. Some of them are budget tracking, paying yourself first (saving up for your future goals), discipline in paying bills timely, investing, etc.
Savings and Investment
As crucial as explaining all of these strategies, let's focus on discussing the importance of savings and investment. These two are commonly used interchangeably, but both are important in securing a stable financial future.
If you think about whether to save money or invest, then the answer is to do both. The key difference is that savings should generally be short-term while investments should be long-term. Additionally, keep in mind for both saving and investing that when risk decreases, liquidity increases and vice versa. In simpler terms, when you save, your cash is liquid, or you have it readily available for spending. But as you invest your money, which is a higher risk, your funds are harder to convert to cash.
Savings vs. Investment Ratio
Another important decision you must make is determining the percentage of your personal income that should be allotted for savings and investment.
The investor's mindset will determine their savings ratio. However, saving at least 15% of after-tax income is advised. If this were not done, the investor would be forced to live paycheck to paycheck with no backup plans. Adopting the "pay yourself first" principle is important in determining your savings ratio. The idea here is to choose a saving goal and then decide on the amount you want to contribute per month. Setting aside a portion or small percentage of your money for your goals allows you to prioritize yourself first. It also helps you practice consistency, which will eventually train you to be more disciplined when handling your finances.
On the other hand, to determine the Investment Ratio, you should build up your investment portfolio throughout your life. Some of these assets are stocks, bonds, money markets, mutual funds, real estate investments, and retirement accounts. It is recommendable to grow these throughout your 20s and beyond by utilizing compound growth. When you are in your 20s, aim for a ratio of 10. Your investment assets should increase as you become older, raising your proportion.
Benefits of Turning your Savings to Investments
As explained earlier, savings and investments are essential to achieve financial stability. But turning your savings into investments allows you to have a more efficient way of growing your finances and eventually securing your future. Here are some reasons to prove you why:
Inflation is one of the main reasons you should turn your savings into investments. It is defined as the rate at which prices increase over a specific period is known as. Inflation is often measured in broad terms, such as the general rise in prices or the increase in a nation's cost of living.
The pandemic is one great example of visualizing inflation quickly. If you compare the prices before and during a pandemic, you'd see how the prices have changed over time. The purchasing power of money is declining because of the ongoing price rise. Therefore, in five years, your P10,000 will not be worth P10,000.
With this being explained, you can easily see why you should invest a portion of your salary or income instead of just saving it in a bank. Investments allow your money to grow money with higher interest rates and lets you beat inflation.
Earn higher returns
Your money needs to be invested in a place where it can earn a high rate of return if you want it to expand. You will make more money if the rate of return is higher. Compared to savings accounts, investment vehicles often provide the chance to earn higher rates of return. As a result, you start investing your money if you want the opportunity to get a better return. Real Estate investment is one example of assets you could acquire and helps you generate higher returns in the future.
In today's generation, people are gearing towards early retirement rather than working their whole life. This is especially important for people who want to build families in the future.
You should be able to accomplish your life goals much more quickly if the purpose of investing is to grow your money at a much faster rate. Before you reach your 40s or 50s, you can find that you are working less and enjoying life more, depending on the quantity and type of investments you have.
It would be best if you started saving money for retirement while working. Invest your retirement funds in various assets, including equities, bonds, mutual funds, real estate, companies, and precious metals. Once retirement age has come, you can continue living off these investments' income.
Depending on your risk tolerance, you can consider taking on more risk with your assets when you're younger. Your odds of becoming richer grow as your level of risk rises. As you become older and get closer to retirement, you may want to start investing more conservatively.
Thinking of an investment opportunity? Vista Residences is the best real estate to invest in a condo in the Philippines. Invest in your future while allowing yourself to enjoy a convenient lifestyle.
For more information on Vista Residences, email [email protected], follow @VistaResidencesOfficial on Facebook, Twitter, Instagram, and YouTube, or call the Marketing Office at 0999 886 4262 / 0917 582 5167.