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What can you buy with P20 pesos?
It is a simple question. You can take it as a helpless statement about how the value of our peso is becoming less and less over the years due to inflation.
Way back in college, P20 pesos could buy a decent lunch. (Oh don’t ask what year that was. Haha.) Now, it can’t buy you half a kilo of rice. This is the sort of situation that the Cornetto ice cream TV ad plays out in different, often funny, scenarios.
But what if instead of spending the money, you save it instead.
Better yet, instead of just putting it in a piggy bank, you invest it.
This is what I am going to talk about in this post.
Say that you have P20 pesos spare every day. You choose to save it. At the end of the year, you will have P7,300 pesos. That’s P20 pesos multiplied by 365 days in a year.
Say that you put your savings of P7,300 in an investment managed fund starting this year and every year onward until you retire at age 65.
There are three fund options. One earns 2% interest, another 4% and the last one 5%, all compounded annually. Assuming that you are now 25 years old, here’s how the returns would look like. (If you are on mobile, scroll to the right of to see the rest of the data.)
|TOTAL Savings at age 65||299,300||449,753||721,434||925,930|
The table above is a projection of returns for different funds.
Saving right away, consistently
As you can see from the table that by saving P20 daily and depositing at the end of the year at 5% interest, you can retire with almost a million pesos! And that’s not all, the interest rate of 5% is considered a conservative return. There are investment funds in the market today that can provide higher than that, even at 10%.
It is important to remember that no matter how good the returns look like, no company guarantees them. There are risks involved in investing. The higher the chances of returns, the higher the risks that you have to take.
By saying that, risks can be managed in many ways. Having a long-term time horizon is one of them. Talk to an advisor to know more.
How far can your twenty pesos go?
What can you buy with P20 pesos? I think the better question is, how far can your twenty pesos go?
And as the table illustrates, it goes a long way.
By starting to save as soon as possible and doing it consistently, a millenial today can be prepared for future retirement.