Making Money Work for You: Tips to Maximize Your Earning Potential

These are wise words from respected American businessman and philanthropist Warren Buffett. Close to eight decades after he made his first foray into stock market investing, the so-called Oracle of Omaha now has an estimated net worth of roughly $73 billion. He is, quite literally, resting happily on his savvy investment laurels.

While all of us strive to make our own fortune and live comfortable lives, the first thing we need to understand is that earning money and making it flourish are two very different things. Relying solely on our monthly income may help us provide for our daily needs but as Mr. Buffett himself said,

The truth is, saving money is easier said than done. More often than not, we find reasons or excuses not to pay ourselves first - monthly bills, the urge to order out because cooking is just so inconvenient, or that newly released smartphone that you just have to have. Because of these seemingly trivial spending habits, we end up losing more money than we should, and impair our future profitability.

We can only truly save money when we make the conscious effort to prepare for and prioritize our future needs. Nothing beats the satisfaction of knowing that you are free of debt, have substantial savings and emergency funds in place, and are well on your way to building a healthy retirement fund.

One of the best ways to build and strengthen our income is by making strategic investments. We have to underscore the word strategic, because in reality, not all investment products are the same. Some are considered safe yet offer relatively meager returns, while others can be riskier but can provide greater profitability. There are also those that promise big rewards within a short period of time, only to be proven a scam in the long run.

The question is - what can be considered good and credible investments for your hard-earned money? We list down some options that you may wish to consider. Bear in mind, however, that in choosing investment products, you should have a clear and realistic picture of your financial targets so that you can make a wise and objective decision.

Putting a portion of our earnings in the bank remains to be a preferred method of saving money. Aside from earning interest, banking institutions take deliberate steps to ensure that your money is safe in their care, as mandated by Republic Act No. 8791 or The General Banking Law of 2000. And as an additional safeguard, the Philippine Deposit Insurance Corporation (PDIC) provides each depositor with a maximum deposit insurance coverage of PHP 500,000 per account.

How much exactly should you set aside for your savings? In her book entitled All Your Worth: The Ultimate Lifetime Money Plan, US Senator Elizabeth Warren shared that your income should be divided as follows:

  • 50% should be allocated for your essential expenses, such as food and groceries, utilities, and loan repayments
  • 30% should go to your wants, or any non-essential purchases you may wish to make
  • 20% must immediately be transferred into your savings fund

A bank account with traditional banks in the Philippines typically yields a low annual interest rate of 0.01%. However, there are now savings accounts that offer higher interest rates per annum, as well as bonus interests if there are no withdrawals made within a specific period.

Placing 20% of your monthly earnings in a high-yield savings account can generate interest earnings between 0.6% to 4% per year. Not only do you secure your hard-earned money, you make it grow too.

Another option that can give you higher interest earnings is a time deposit. Unlike a conventional bank savings account that can be maintained and grown throughout your lifetime, you can earn interest from a time deposit by keeping your money with a bank for a specific lock-in period.

The minimum lock-in period for time deposits is 30 days, while the maximum is five (5) years and one (1) day. The only downside to investing in a time deposit is that you will need to shoulder the corresponding withholding and documentary taxes, as well as penalties should you need to pre-terminate the agreement.

Mutual funds are defined as “a pool of money from the public that is invested with the expectation of profit.” This pooled investment fund is then used to purchase and sell different securities, such as stocks and bonds.

A balanced fund is a type of mutual fund that invests in a mix of stocks and bonds. Since stocks are considered an aggressive type of investment because its performance is heavily impacted by market volatility, investing in bonds is an effective way to temper and mitigate these risks, especially as bonds are relatively low-risk.

Apart from being handled by professional fund managers, what is good about mutual funds is that it allows investors to diversify their portfolios through their small investment in various businesses and organizations. In doing so, they can protect themselves, as well as their investments, from any adverse market downturns. After all, it is never good to place all your eggs in one basket.

Investing in mutual funds does not require a large starting capital. In fact, you can invest in mutual funds for as low as PHP 5,000, depending on the company that you sign up with. Moreover, all earnings from mutual funds are tax-free, in observance of Republic Act 8424 or the Tax Reform Act of 1997.

On the other hand, investing directly in the stock market is viewed as a high-risk undertaking because of the market’s highly unpredictable nature. However, for those that have a high risk tolerance, investing in stocks can also generate high profit, which can be in the form of dividends or earnings from the sale of stocks.

New investors are advised to research the earnings, stability, and dividend payout of a specific company prior to investing in their stocks. Once you purchase a stock, you automatically become a part owner of the business - it would serve you well to understand how the company operates, how they fare against their competitors in the industry, as well as current and future projects. Doing all of these can help you gain a better gauge of their long-term profitability.

Unlike before when investing in the stock market requires the services of a stockbroker to trade in the Philippine Stock Exchange (PSE), there are now online stock brokerage platforms that encourage direct and active trading. Keep in mind, however, that to actually earn from the stock market, you need to be patient and fully invested in it for the long term, because pulling out your investment prematurely may only lead to unfortunate losses.

Building your net requires time, knowledge, and discipline, as well as the support of a strong financial partner like Allianz PNB Life. If you are on the lookout for a conservative yet high-performing investment product, Allianz PNB Life offers the Maximal Power, a single pay, unit-linked life insurance product that maximizes your investments by putting these into expertly managed funds while providing superior lifetime insurance protection of at least 130% of the single premium you paid. The Maximal Power plan is available in both Philippine Peso (PHP) and US Dollar (USD) denominations.

For more information, check out Maximal Power here.