We are now in the 5th step on our Financial Security Series.
Before you can proceed to any Long Term Investment, you need to pay off your debt. Paying your debt is also like investment since you will stop on paying interest. I suggest that if you have credit card debt, first pay your credit card debt before going to investment. Credit card interest is for sure higher than any moderate investment because most credit charge up to 18% to 25% yearly or worst 2.5% compounded monthly. So know the priorities first and know your wants and needs.
What is Compounded Interest?
From Wikipedia: Compound interest arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding ( in other words Tubo na tinubuan pa – Good for investment – bad for Credit)
What is Rule of 72
Dividing the number 72 by the interest rate of your savings or investments will give the estimated number of years it will take for your money to double.
Example : 72 / 8 = 9 it means that your money will double after 9 years with 8% interest per year.
What is Inflation?
Did you know that money in the Bank slowly “evaporates” under the heat of INFLATION?
Your money shrinks over time, just like how water dries up under the heat of the sun.
Example a Ligo Sardines is costing Php 11.25 on year 2011 but now it cost Php 16.00 , the change of the price of sardines is called inflation.
You may see the inflation record at http://www.nscb.gov.ph/secstat/d_price.asp
Time has always something to do with our investment, the longer the investment the safer the investment. But of course Risk is always there, but based on statistics, investments placed for a longer period always gives good returns and always beats the inflation.
A solid Financial Foundation is needed in order to be financially secured. In future post, we will give you details on some investment vehicles that could beat the inflation.