Three things to consider for a worry-free, financially independent life
Financial independence especially during retirement is a goal that many Filipinos aspire for but have difficulty achieving. According to Author and Personal Finance Professional Aristides “Jong” Merida Jr., President and CEO of Insights TM Corp. and Chairman of Wealth Management Center for Communications and Research, Inc., lack of awareness and method are the reasons why 99% of Filipinos fail to achieve this.
Insular Life (InLife), the country’s first and largest Filipino life insurance company, recently presented a webinar featuring Merida with the topic, “Wealth Journey: Steps to Financial Independence.” It is the first of a series designed to equip Filipinos with the knowledge and tools they need to secure a prosperous and worry-free future.
“If you’re a typical Filipino between the ages of 20-50, you’re part of the Sandwich Generation, as the Americans call it. That is the financial situation that many Filipino adults find themselves in -- supporting parents above them and supporting their own kids under them at the same time. If you find yourself in that situation, can you save money for your own future? If you cannot save money and build wealth for your own retirement, what will that make of you when it’s your time to retire? The day you stop working is the day you put your own kids in the same situation you could not escape from,” Merida said.
There are ways to escape this generational burden, and it all begins with knowing one’s ultimate financial destination in life: to be financially independent, to retire, and to be wealthy. It is to accumulate an amount of money that will last a lifetime sustaining the lifestyle one is used to.
“Financial independence is a comfortable life, secure, no worries about money. It has the same definition as retirement. Why is it, when we label it as retirement, people think it will happen when they’re 60 or 65. But when we label it as financial independence, there seems to be an urgency to it. Retirement, financial independence, and being rich -- they all mean one and the same thing. It is not an age: It is an amount of money that will sustain you up to the last day of your life without running out (of resources),” he said.
How does one accumulate lasting wealth that will sustain the lifestyle one has been accustomed to? Below are three important points that Merida raised during his talk that can serve as a guide.
1. Understand the need to set financial goals to have a successful financial journey.
Everybody thinks that retirement is a time to be happy, to spend all your free time with the people you love. You need money for that to happen.” Merida said there should be a successful transition between labor income—the income earned through one’s line of work, to capital income—the money one makes even while one is asleep.
“If you’re a doctor, you need to see patients. If you don’t show up, you don’t get paid. If you’re an employee, you have to perform your work, if you don’t show up, you don’t get paid. At some point in our lives, we cannot show up, and that is the time we stop earning. If that is not the time you stop living, your expenses will continue. We must accumulate the money needed to generate capital income,” Merida said.
2. Focus on creating a positive cash flow as early as possible.
“Cash flow is nothing more than what came in and what went out. It's important for us to have budgets,” Merida said.
He added that maintaining a household budget is key to having a positive cash flow as it helps one target how much money one should save or invest. He also urges Filipinos to start accumulating wealth at a young age.
“In finance, it’s not how much you make, it’s how much you keep. The goal is to accumulate the money needed to generate the capital income that can completely sustain you starting now. Nowadays, the people who attend my seminars are the newly hired, coming to the workforce and hearing about the need to accumulate wealth and finally putting an end to the cycle of intergenerational dependency,” he said.
However, Merida says those who are in their 40s should not lose hope. “When you have less time, you have fewer options: invest more or find a way to get much higher returns. Either way, it limits the options, and you may have to take risks you cannot afford to make. That’s the reason people get attracted to 50, 60, 70% returns,” he said. To counter this, Merida suggests a prudent approach. “Get good guidance from your financial advisor. Be on the lookout for opportunities to build wealth. If you want to be happy in the future, that happiness should be obtained today not in the future.”
3. Be open to the idea of earning more to accumulate wealth and get better returns.
“In order for us to achieve financial independence, for our lives to be better, we must earn more,” Merida said.
He added, “I've encountered many people who say, but my salary is only like this. Why? Who said you can't earn more? If you believe you can’t do it, no amount of financial education will take you to your financial promised land. The moment you believe this can be done, many opportunities open up to you.”
Merida said that while it is hard to start one’s journey towards accumulating wealth, it gets easier as one goes on. He likened it to launching a rocket into space. “When you launch a rocket into space, the first two three minutes are crucial because the rocket is trying to go up the space and gravity is trying to pull it down. Same with the financial system. It works against those who don’t have financial resources, and it works for those who do. Many rockets fail in the first two to three minutes of launch but when they get to the atmosphere, everything becomes easier. There’s less gravity there. Building wealth will be very difficult at the start but it will get easier. You will start receiving better returns as the level of your resources rise because you’re able to take on risks that you could not take when you were down there,” he said.
InLife’s “Wealth Journey: Steps to Financial Independence” webinar is the first of a series designed to equip Filipinos with the knowledge and tools to live a comfortable, worry-free life. Follow InLife’s Facebook page (https://www.facebook.com/InsularLifePH) to stay updated on the latest financial literacy sessions.
Visit www.insularlife.com.ph or get in touch with an InLife financial advisor to learn more about the Company’s products.
