Have you ever wondered why you keep on earning money but it just keeps on disappearing into thin air? Maybe it is going down the drain?
There are many reasons why, and one reason is
SOMEONE IS STEALING YOUR MONEY!
Actually, there’s more than one thief! Let me name two thieves.
Suppose on January 1, 2016 you deposited P100,000 in a savings account in a leading Philippine commercial bank.
Most commercial banks in the Philippines give you 0.25% interest per annum. Let me simplify this example a little and assume annual interest.
This means that on Dec 31, 2016, after one year, the bank will give you about 0.2% interest on your P100,000, or the magnificent amount of P250!
Beginning balance on January 1, 2016 P 100,000.00 Interest credited on December 31, 2016 250.00
So after one long year, the bank decided to give you P250.00 interest on your P100,000. But wait!
Let me introduce you to one thief.
TAXES are stealing your money.
The Bureau of Internal Revenue will collect 25% withholding tax on that interest, or P50.00. So after one year your bank statement will look like this:
Beginning balance on January 1, 2016 P 100,000.00
Interest credited on December 31, 2016 250.00
Withholding tax ( 50.00)
Balance as of December 31, 2016 P100,200.00
On January 1, 2017, exactly one year later, your bank will show a very slightly higher total: P100,200. Your P100,000 would have earned a disappointingly low interest of P200.
Let me digress a little.
I remember when I was young and I bought burgers from a local burger chain X. Their burger was pretty big and satisfying. Eat one and you’d be full!
Last week I bought two of the same burgers for lunch and after eating two (smaller) burgers, I was still hungry.
There was this other burger chain Y which claims their burgers are exactly the same size as when the burgers were introduced many years ago.
What happened? My money was buying either smaller burgers. or the same burgers at higher prices.
Gentlemen, the name of the second silent thief is INFLATION.
Inflation is slowly but surely stealing the value of your money through the gradual reduction of buying power of your money.
In January 1, 2016, your P100,000 was worth P100,000, and maybe I could buy 1,000 burgers for P100,000 from X, and another 1,000 burgers from Y.
In January 1, 2017, one year later, the same P100,000 had a higher number P100,200, but I could probably buy 1,000 SMALLER burgers from X, or FEWER burgers from Y. The P100,000 had a higher number, but the buying power was less. Suppose inflation was 5%. Then inflation caused the VALUE to go down by 5% x P100,000 = P5,000.
Beginning balance on January 1, 2016 P 100,000.00 Interest credited on December 31, 2016 250.00 Withholding tax ( 50.00) Balance as of December 31, 2016 P100,200.00 Less 5% value lost due to inflation (5,000.00) Value as of January 1, 2017 P 95,200.00
You LOST P4,800 because you kept your money in a savings account in the bank!
Now I am not saying you should not keep your money in the bank. The banks are great for depositing and withdrawing money and, processing checks, payments, and daily transactions. They are great for money you use on a day-to-day basis.
BUT, if you want to grow your long term savings, the money you are saving for your future retirement many years from now, DO NOT KEEP THEM IN YOUR SAVINGS ACCOUNT!
Put your money in high yield investment vehicles to grow your money.
This is why we need to learn about money.
This is why we must look for investments that can beat the effects of taxes and inflation.
Understanding money allows us how to fight wealth enemies such as the silent thieves: taxes and inflation.
Financial education enables us to take control of our money.
Financial literacy is about Building Your Future.
Learn about money by reading, researching and attending financial seminars.