5 Steps to Get A Head Start On Your Financial Future

It’s never too early to start thinking about the life you want to live down the road and building the financial foundation to support it. Act on these five tips now to put yourself on the right path to a wealthy tomorrow.

The first step on your journey to financial security should be to focus on paying down all debt. Most consumer debt—in the form of credit card debt or loans—comes with interest rates that are much higher than the returns you earn from savings accounts or stock investments. Clearing your debt first will free your money to build on itself.

However, this approach is not for everyone. If you focus only on paying down debts without having any emergency funds, you may have to take on more debt in a time of need. If you’re starting from zero savings, take as much as you can spare after essential expenses and put 70% of that money into your emergency fund, and then 30% toward paying down debt. Once you've reached your target amount for emergency funds— the amount should depend on your circumstances—start concentrating 100% on paying off all debts.

Leaving all your money sitting in a savings account means you aren’t helping your wealth grow. Invest it to make your money work for you, but keep in mind that every investment carries some risks. Putting all your savings into one big investment can have a big payoff, but it can also ruin you if you’re unlucky. That’s why it’s good to diversify; it spreads your risk in different places so that if one or more investments turn out badly, your other investments can still work to build your wealth.

Non-experts should generally avoid investing in specific stocks because of the inherent risks. Instead, choose diverse investment funds. It's also best to seek trustworthy advice from experts who can guide you to wiser investments.

When it comes to investments, there’s a saying that it’s “time in the market, not timing the market.” It's not about knowing the best stock to invest in at a certain time, it’s about investing as early as you can in low-risk investments and letting time and compound interest do the work for you.

What is compound interest? It’s the principle that interest allows the principal to grow exponentially greater over the years. Imagine a 40-year-old who invests a one-time sum of Php5,000 in a fund with an average 8 percent annual return. By the time he is 65 years old, that money will grow to almost Php40,000. But if that person had invested the same amount of money at the same percent annual return at 20 years of age instead of 40, that Php5,000 would have grown to Php180,000 by the time he is 65. And that is just with a one-time investment. If that person put aside Php5,000 every year in the same fund with the same rate of return from age 20, he would have over Php2 million by the time he is 65.

This is the biggest reason to start saving right now. No matter what amount you have to put aside, giving it time to grow will be the most effective—and easiest—way to secure your future finances.

Automating contributions to your savings will not only ensure you set money aside for the future, it will also put money safely out of reach before you can spend it on something unplanned. BPI offers scheduled payments through BPI Express Online and the option for automatic debit arrangements, giving you one less thing to remember each month.

One of the biggest obstacles to building wealth is not having the discipline to leave your savings alone. Compounding interest cannot have its full effect if you are constantly withdrawing from your savings funds and investments in moments of temptation. Build a firewall around your savings and give yourself freedom to spend within limits by opening spending accounts dedicated to dream expenses.

Every month, after setting aside money for essential expenses (such as rent and monthly bills) and long-term savings investments, keep the rest of your money in an account meant for miscellaneous expenses. This can be used for things like spur-of-the-moment shopping or going out to eat. From there, think about the goals you want to save up for in the near future. Is there a big trip you want to take this year? Or a designer bag you have your eye on? Open a separate spending account for each goal and deposit a portion of your miscellaneous money into them each month until you hit your goal. Being intentional about your spending will help you achieve your dreams and curb the temptation to dip into your long-term savings.

With a low minimum premium of Php2,100 a month, Life Ready Plus is a great insurance plan to help you get started on the road to a financially-secure future. You can start small with basic life insurance, and then customize with add-on benefits and investments in up to 10 professionally-managed funds when you're ready.

Life Ready Plus is part of the BPI AIA's health and wellness programs powered by AIA Vitality – a wellness program that rewards a healthy lifestyle. Enjoy an upfront 20% additional life coverage and supplementary benefits by making healthy choices. Boost Vitality Status and get up to a maximum of 50% additional coverage on the succeeding years. Plus, avail of discounts from a range of partners as a reward for living healthy.

To find out how you can take the first step in living longer, healthier, and better, check BPI AIA Wellness Series.