Once, there was a rich lawyer who was driving through a rural neighborhood and saw a family of five on all fours eating grass in a small field. The curious lawyer got off his car and approached the family. He asked the father why they are eating grass. The father replied that they are so poor they couldn’t afford to buy rice or any other food and added that his relatives are also doing the same. The lawyer put his arms on the poor guy’s shoulder and with a reassuring smile told him “my friend, take your family and your relatives to my hacienda. You will stay there from now on and will never go hungry again; there’s a lot of grass in my property.”

With the prices of goods always inching up we might as well be eating grass instead of rice in the future. How much will a sack of rice cost 25 years from now? It’s anybody’s guess. But one thing is definite it will be much higher than it is today. Let’s see. If a sack of rice costs P1,500 today and the average annual inflation rate over the next 25 years is 5% the same sack of rice will cost P5,080 in the year 2033. Holy kamote, that’s P101 per kilo! With a higher inflation rate it will even be more expensive. If the 9.6% inflation (the rate last May 2008, the highest in 9 years), remains, the price of rice will reach P297 per kilo in 2033. (If this happens grass will really look a lot more appetizing. At huwag naman sana mangyari sa atin ang nangyari sa Zimbabwe last January kung saan umabot sa 100,000% ang inflation rate. That’s not a typo error, its 1 and 5 zeros. At this rate, a P1 pandesal last year will now cost P1,000!

Inflation is a 'savings killer.' People who fail to take into account the effects of inflation on their savings are in for a nasty surprise when their future fund falls short of their needs. You’re making a big mistake if you think that the amount you need to live comfortably today will be the same amount you need to enjoy your years in retirement. Because of inflation, P1 million 25 years from now is only equivalent to P295,000 in today’s money. So, if you figured you need P5 million to enjoy life if you’re retired today, you should have about P17 million if you plan to retire in 2033 and maintain your comfortable lifestyle.

It is very crucial then that you just don’t save but make sure your savings grow to beat inflation or at the very least keep pace with it. There are many diligent savers who are already satisfied to see their money “grow” in a low-interest savings account, unaware that their money is actually declining in value because of inflation. What is almost as bad as not saving is putting your savings in an account that earns very little or worse in some place where it earns nothing, like keeping it at home.

Saving is simply not enough. You have to learn to invest your savings to keep it growing faster than the inflation rate. The only funds you should keep in a low-interest / no-interest savings or checking account is money that you will use up within one month. (Include in this account the required minimum balance to avoid bank charges.) All other funds should be placed in any or a combination of the following investment options:

1. Time Deposits (TDs) are probably the most popular investment option among ordinary Filipinos. Interest earnings are guaranteed and usually paid during maturity, which can be as short as 30 days to more than 5 years. There are some long-term TDs that pay interest regularly (e.g. monthly) and you don’t have to wait for the account to mature to enjoy the interest. Rates are usually tiered, which means bigger amounts held for longer periods get the higher rates. Banks differ in their TD rates, so shop around for the best rate. Generally, smaller banks give higher TD rates the big ones.

2. Treasury Bills/Bonds are issued by the government but they can be acquired thru banks. They are virtually risk-free and earnings are guaranteed just like TDs. The minimum amount can be as low as P5,000 as in the case of retail treasury bonds (RTBs). Be on the lookout for the next offer period of RTBs because these are not always available.

3. UITFs and Mutual Funds are popular among more knowledgeable savers due to their potential for higher returns. These are pooled funds invested in a mix of government securities & other fixed-income instruments, stocks and/or money market. The fund’s value may go up or down. Thus, growth is not guaranteed and you may lose some of your capital. Most mutual funds & UITFs registered double-digit growth every year from 2005 to 2007. But this year more than half of mutual funds are down, some by more than 20% (as of end of May). Those which managed to grow could only manage less than 2% increase in their value. Don’t fear though, funds will still outpace inflation over the long-term and will remain as one of your best investment options.

4. Investing directly in stocks is not for the faint-hearted because stock values can swing wildly within a matter of weeks or even days. Although growth is not guaranteed, good stocks have been known to perform well over the long term.

5. Life Insurance is another investment alternative. You (actually your family) get instant growth of your investment when you go six feet under. One downside is that your money is locked up. Should you decide to pull-out during the early stages of the policy you may not get anything or a just a little surrender cash value.

6.Pre-need plans are ideal for those who don’t have the self-motivation to save or don’t want to monitor (& adjust) their investments. Pre-need plans include pension, educational and memorial plans. Since you face the risk of not getting back the whole amount if you default in payments, you will have to force yourself into saving for the premium. Pre-need plans are also good for those with a weak stomach and uncomfortable with risk-taking. Since the maturity value is guaranteed, you don’t have to lose sleep when the economy is in a downturn. Make sure that you only deal with stable and reputable companies; remember CAP and Pacific Plans?

7. Other investment options for your money are real estate, artwork, jewelry and other collectibles. Generally, they appreciate in value. However, it will not be so easy to sell them when you need cash. You may have to sell at a discount, lower than its market value, to attract buyers.

8. Lastly, you can use your money to invest in a business; it can be a real gold mine. But you have to realize not everyone is cut out to be a businessman and you can quickly lose a lot of money if you don’t have the right stuff to run a business.

Last update: June 9, 2008
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