The Starter Investor Guide for Accumulating Investment Funds
Effective from our update on April 5, 2023, we have rebranded from Marginal Investor to The Starter Investor. For additional details, please visit our About Us page.
Finding the money
Finding the money to fund our investing activities is among the most important first steps of our journey to financial freedom.
Budget deficit
Let us imagine someone who has a monthly salary or earnings of between Php10,000.00 to 15,000.00 monthly. And assume that this employee or this self-employed individual has one or more of the following financial commitments:
- salary loan either from the Social Security System (SSS) or the Government Service Insurance System (GSIS);
- personal loans like those offered by Chinatrust, Citifinancial, Banco de Oro, Asialink, or even your local credit cooperative;
- business loan from commercial banks, rural banks, or even the now familiar micro financing institutions;
- obligations arising from cash advances and purchases using credit cards offered by Citibank, Banco de Oro, BPI, AIG, Metrobank, among many others;
- housing loan from PAG-IBIG;
- assortment of borrowings including those from relatives, friends, and others.
In addition to the above obligations, we must also include household expenditures like the following:
- living expenses (food, clothing, medicine),
- utilities (water, electricity, telephone),
Most likely than not, under this scenario, expenses will be much more than what we have for income. Living within our means will now be a very challenging proposition given the existing commitments and fixed expenses that demands our limited resources. What can we do? Where can we find the money to invest? Is there a way out of debt?
First Law of Gold
We cannot delay investing for our future. There is a huge opportunity cost when we consider the impact of compound interest, whether it applies to our debts, or to our investments. Our desired situation is to diminish in an orderly fashion, the outstanding balances of our debts. At the same time, we also gradually accumulate funds for our planned stock trading activities.
The first place to look for funds, of course, is our paycheck or any regular income that comes our way. These funds should not just pass through our hands straight away to our creditors.
We find an excellent solution from the book The Richest Man In Babylon. Stated as The First Law of Gold, here is our strategy:
"Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family."
Described in the a different way as the First Cure For A Lean Purse, the book further explained the first law in this manner:
"For every ten coins thou places within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul."
Allow this thought to sink into your subconscious mind and meditate on it. Once you started believing in it, express it in action.
Practical application
Let us say we apply the above principle at that point when we have decided to start saving for our nest egg. Some compromises may have to be made here and there. But the important thing is we start the program. Here is what our savings schedule may look like in Philippine peso (Php):
Savings for Year 2007- October - 160.00
- November - 440.00
- December - nil
Savings for Year 2008
- January - nil
- February - 100.00
- March - 25.00
- April - nil
- May - nil
- June - 600.00
- July - 500.00
- August - 100.00
- September - nil
- October - nil
- November - 400.00
- December - 120.00
Savings for Year 2009- January - 1,600.00
- February - 2,000.00
Our total savings would have been Php6,045.00 after 17 months, or close to Php360.00 monthly savings on average. This amount represents about 2% to 4% of our monthly salary or earnings assumption.
BPI Trading Account service charge
In another post entitled BPI Trade: Best Online Broker for Novice Trader, we mentioned that our BPI Direct Trading Account requires an Average Daily Balance of PhP 5,000.00. In practice, however, we learned that BPI will stop charging the Php100.00 monthly service charge if your account balance is over Php1,000.00.
Thus, using our example above, BPI would have applied the service charges for the first 14 months of our savings program or a total of Php1,400.00. This is equivalent to about one-fourth of our gross funds accumulated.
Flow of money
Presented here is how our money will flow once we started our stock trading activities. To avoid further expense, we will consider someone who has a payroll ATM account with BPI. What we mean is an employee who was given by his or her company a BPI Savings Account wherein an employee's salary is directly credited. This type of account has no stated maintaining balance; and consequently, it does not incur any service charges.
We enroll this BPI Savings account with BPI Express Online to be able to transfer funds over the Internet to our BPI Direct Trading Account.
To withdraw funds from our trading account, we will fill up a web form with BPI Trade, which then will transfer the withdrawn amount into our BPI Saving Account. The funds is now available for withdrawal through ATMs.
Money accumulated
After deducting the BPI Direct service charges, our net saving is about Php4,645.00 or roughly Php275.00 monthly. On the average, we would have saved 2% of our monthly salary or earnings.
Now is the right time to invest
Clearly, it takes tremendous effort, patience, and resolve to start a savings program for
investment purposes especially if you are deep in debt or have lots of financial obligations and limited income. But this should not stop us from making our first step however small, towards financial freedom.
In the end, we should rather be more motivated now than ever to accumulate that money we need for investment.
