"₱500 lang naman, hindi naman yan lalaki." It won't look like much at first. But time does something to regular savings, and the arithmetic is worth seeing once.
Assumptions, stated up front
I'm going to save ₱500 at the end of every month for 20 years (240 payments, ₱120,000 in total) and show what it grows to at a few illustrative annual rates, compounded monthly.
These aren't predictions. Real returns vary and aren't guaranteed. The figures also ignore fees, taxes and inflation.
The results
| Annual rate | Value after 20 years | Of which interest | |---|---|---| | 0% (under the mattress) | ₱120,000 | ₱0 | | 3% | about ₱164,000 | about ₱44,000 | | 5% | about ₱206,000 | about ₱86,000 | | 7% | about ₱260,000 | about ₱140,000 |
The money you put in is the same in every row. The difference is what time and the rate do to it.
What waiting costs
Now the more important comparison. Suppose you wait ten years before starting, and save the same ₱500 a month for only the last ten years, at the same 5% illustrative rate:
- Starting now, 20 years: about ₱206,000.
- Starting in ten years, 10 years: about ₱78,000 on ₱60,000 contributed.
Waiting ten years costs you more than half of the final result, even though you've only skipped half of the payments. The early years are the ones that have the longest to grow.
What the numbers don't say
- They don't promise a rate. In reality, returns on different products range widely, and some years are negative.
- They don't include costs. Charges and taxes reduce the final figure.
- They don't account for inflation. ₱206,000 in twenty years won't buy ₱206,000 of today's goods.
- They don't say ₱500 is enough. It's a starting point, not a plan.
What I take from them
1. Start before you feel ready. The amount matters less than the start date. 2. Increase it when you can. Raise the monthly amount whenever your income rises. 3. Keep it going. Stopping and restarting costs the compounding. 4. Match the money to the job. Short-term needs belong in safe, reachable places. Long-term goals can take more risk, for those who can afford to.
Don't skip the protection step
All of this assumes you're still there, earning and saving, for the twenty years. A serious illness or a death in the first few years breaks the sequence. That's why savings and protection belong together: one builds the future, the other keeps the building going when something goes wrong.
This month
Choose an amount that won't hurt. Set it to move on payday. Write the date you started. Twenty years from now, you'll be glad you did.
Sources: Arithmetic only: future value of monthly contributions of ₱500 at annual rates of 0%, 3%, 5% and 7%, compounded monthly, for 240 months (and 120 months for the delayed-start comparison). The rates are illustrative assumptions, not forecasts, and the figures ignore fees, taxes and inflation.
The free Life Ready Checklist at lifereadywithvenus.com has a page for writing down what you find, free and with no sign-up.
