Why You Need To Maintain Both A Savings Account and an Investing Account
A Savings Account and an Investing Account are the two main vehicles upon which robust and effective personal finance planning is anchored upon. It is not enough that we have a savings account in the bank. We also need to have an investing account so that our money may have a chance to grow in the long run.
THE SAVINGS ACCOUNT.
Our Tool for Settling Short-Term and Immediate Money Obligations.
Most of us already have a Savings Account. It's almost second nature to us to immediately open one at the bank of our choice as soon as we start working. That Savings Account usually serves the following purposes:
A Savings Account is something that is easily accessible. We therefore use it as a quick way to settle immediate purchases. When we keep our money in a regular Savings Account, the bank usually gives interest of anywhere from 0.5% to 1% usually depending on the amount of money stored in the account.
A Savings Account is therefore something to maintain so that we can have immediate access to our money.
It is NOT something we use to substantially GROW our money in the long-term. We need an Investing Account for that.
THE INVESTING ACCOUNT:
Our Tool for Growing our Money for Long-Term Use.
An Investing Account is something that we open when we want to achieve the purpose of SUBSTANTIALLY GROWING OUR MONEY in the medium to long-term. By this we mean a period of between 5 to 10 years and beyond. We want to achieve this growth because:
An investing account may come in many different forms. A typical investing account used by many people like you and me is the MUTUAL FUND.
These are pooled money collected from many different investors and then invested by financial institutions like Mutual Fund Companies in various financial instruments such as stocks, bonds and treasury bills on behalf of the investors.
Mutual Funds usually achieve higher returns on investments than those earned in bank savings accounts over the long-run. Though returns are not guaranteed, mutual funds invested in bonds typically earn anywhere from 4% to 6% on average per year, while those invested in stocks and equities may potentially earn anywhere from 7% to 20% or more. It is important to note that these returns are not guaranteed and are largely dependent on market conditions prevailing in a particular year.
RELATIONSHIP BETWEEN YOUR SAVINGS ACCOUNT AND INVESTING ACCOUNT.
Your Savings and Investing Accounts should have a complementary relationship with each other. They should work closely together so that your financial plan is well-funded and therefore carried out consistently to deliver good results for you in the medium to long term.
Here are the suggested steps in setting-up a complementary relationship between your Savings and Investing Accounts:
(1.) Set-up your Savings Account in the Bank of your Choice (i.e. BPI, BDO, Metrobank, EastWest etc).
(2.) Set-up your Investing Account in a reputable Mutual Fund Company (i.e. Sun Life Asset Management);
(3.) Take stock of the monthly inflows of Cash into your Savings Account;
(4.) Allocate a certain portion of that Cash to be used for Investing Purposes. The younger you are, the higher the percentage that is ideally allocated for investing. IMPORTANT: Invest only the money that you think you won't need in the next 3 to 5 years;
(5.) Arrange for the regular transfer of your investing money from your Savings to your Investing Account;
(6.) In your Investing Account, specify whether you wish to place your investing funds into the following instruments:
(7.) Be sure to regularly and consistently invest money to grow your funds in the medium to long term.
We should all remember that there is no such thing as growing rich overnight. There is no such thing as EASY MONEY - that is unless you win the lottery or do some things that may not be permitted by law.
Growing rich is still largely a product of hard work, application of knowledge and your talents, as well as intelligent investing.
And the first thing you should do on your way to riches in the medium to long term is to set-up a complementary relationship between your SAVINGS and INVESTING Accounts.
"Someone is sitting in the shade today because someone planted a tree a long time ago"
YOUR PARTNER :
Edwin T. Bartolome
Financial Advisor and Certified Investment Solicitor
Authorized by the Insurance Commission to act as an Insurance Agent.
For inquiries and free assistance on Personal Finance, Investments, Estate Planning and other Money Matters, you can reach him at:
Baobab New Business Office
Sun Life Financial
6/F BTTC Centre,
288 Ortigas Avenue
Greenhills, San Juan City
Tel. No. 7-719-3958
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