A long, long time ago as I was just starting to work, I could not imagine how my cash flow from salaries and other income would enable me to afford all the things people typically aspire for, such as a car and your own home. With some sacrifice, a lot of hard work, the kind help of my parents and a little bit of luck, things turned out pretty well. Here are some basic rules that may help you in achieving your goal.
You cannot spend more than what you earn. This is so basic that it boggles my mind why even governments are unable to grasp this reality. However, please take note that spending is different from investing. Once you start down the road of over spending, you get into all sorts of problems that will make it very difficult to reverse. Naturally, whatever you do not spend, you are able to save and you can use to make an investment. Do not get tempted into making nonessential purchases. It would be nice to go to a fancy restaurant or a spa to treat yourself for working so hard, but, perhaps, you can consider more affordable alternatives that will enable you to save up more of your hard-earned money.
Prioritize investments that provide a return or capital appreciation over assets that depreciate. Given a choice between buying a car or owning your own home, get your own home first. Cars will always lose value with each passing day, whereas your residential property provides you with an upside potential. Car ownership will always result in a larger expenditure than commuting because not only do you have to take into account your monthly amortization but also you fuel, maintenance and insurance expenses not to mention your daily parking costs. On the other hand, there are many home ownership opportunities that just cost as much as renting and even provides you the possibility of capital appreciation.
Take into account other expenses on top of the acquisition cost. When buying a property, your cost does not end in what you paid for it. You have to take into account your maintenance costs, real-estate taxes, association dues and insurance premiums. Even in the case of golf and country clubs, you have to consider your monthly dues and other assessments. If you have to borrow money to make the purchase you also need to consider the financing costs such as the interest rate that you are being charged on top of your principal repayments. After taking all of these into account, only you can make the decision if it is worth it.
Cheaper investments are not necessarily better. About 30 years ago, I bought my first golf membership proprietary share in Alabang for P125,000. At that time Manila Golf cost three times as much. I decided again buying Manila Golf since I preferred to play golf in the south where I lived and while I could have afforded it at the time, it would have been a stretch for me financially. Since then, Alabang share prices have gone up 20 times, which is not bad. However, in comparison, Manila Golf shares have appreciated by 100 times!
Let your money work for you. You can put your money in various financial instruments, such as time deposits and bonds that earn interest. Other investments can be in the form of equity investments in the stock market, which may provide you with cash dividends and capital appreciation. Of course, it would be good to consult with someone who is experienced in fixed income securities and the stock market.
Affordability is relative. There is the possibility of leveraging or borrowing, depending on your credit history and financial capability and, of course, over a period of time, hopefully your cash flow will improve as you get a higher salary or your investments provide a better return. If there is an opportunity to take advantage of making an investment or a property acquisition, where the cash flow and capital appreciation is higher than the cost of borrowing, consider making the loan. Take into account what your future cash flows will look like and see if you can comfortably repay back the loan.
Can you afford it? The answer to that largely depends on you. You just need to know how to generate more cash flows, allocate your resources properly, spend wisely and prioritize savings.
Comments may be sent to georgechuaph@yahoo.com.