Secret No. 5: Protect Yourself (Retirement Funds) Part 2

This is part 2 of Secret no 5: Raising your Financial I.Q. from Bo Sanchez' 8 Secrets of the Truly Rich. In this section, we tackle issues about how to protect yourself and building your own retirement fund.

Protect Yourself Adequately

Most Filipinos are under-insured. Some don't even have insurance at all. We need to protect ourselves so that the family's we live behind will have sort of an "income replacement" when we die. Bo suggests that you insure yourself equivalent to 10 times your family's annual expenses. (Example: if your family spends P100,000 a year, you will need a P1 million insurance) This way your family can have more than enough time to look for a new income source. Better yet, they can be financially wise and invest the entire amount in a fund that earns 10% a year. This way, the P1 million will earn P100,000 a year which is the same amount your family was spending while you were alive. This way, they're provided for the rest of their lives!

Build Your Retirement Fund Now

Dying young can be a problem and it would be important to protect your family through insurance. However, living too long can also be a problem. In a survey on people above 65 years old, around 40% have to keep on working to survive, around 30% depend on their relatives to survive, around 8% depend on charitable institutions, and only 2% are financially independent. In order to protect yourself from living too long, you need to build your Retirement Fund now.

How to Build your Retirement Fund?

1. Automatically save 20% of your monthly income.

2. Invest as Early as You can.

The earlier you save, the more you'll have in the future.
(The power of compounding interest)

3. Don't Put Your Retirement Fund in the Bank.

Instead Bo suggests that we all become Investors and put our long-term retirement funds in mutual funds, bond funds, equity funds and stocks. Although these instruments present more risk, investments put in these instruments in for the long-term have produced far greater yields compared to regular bank deposits.

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