Learn the Importance of Setting a Financial Goal
“I want to invest. Where do I start?”
This is one of the most common questions we receive everyday. The simplest way to start is by knowing your magic number.
Investing is a journey. And with every journey, you have to know where you want to go. The only time you should move forward is once you know where your destination is.
Define Your Magic Number
Think of the amount you need to live the life that you want. This number should cover whatever purpose you may have. It may be for retirement, health care, education, vacation, etc.
This is your Magic Number or your financial goal.
The Cost of Your Current Lifestyle
Do you know how much your current lifestyle costs?
Let’s say you are single, and you need around P30,000 a month to survive. P30,000 multiplied by 12 months is P360,000 a year. Round it off to P400,000 so you have extra for emergency. Now if you have 4 million pesos that earns 10% a year, you already got your current lifestyle covered.
But of course, as you grow older, get married, and have a child, your magic number will change as well. That is why you have to keep updating this.
How will you know that you can actually retire if you don’t know your magic number?
That is why it’s called magic. Once you have it, it changes the entire way you live.
My Magic Number
Back in 2007, I was about to get married. And since we are about to start a family, the attitude should be more focused. So the first thing I did was resign. I also asked my wife to to resign as well. What a crazy thing to do, right?
Why was I able to do that? I already got my magic number. I knew what I wanted. I knew how much I had and I knew how much it could make. I had my money work for me.
The next 4 years, I stayed at home and watched my son grow up. I started working again in 2011 simply because COL gave me an opportunity I could not resist.
How Long Should I Invest?
Another way of getting your magic number is knowing the ideal age to enjoy the life you want. If your first magic number will tell you how much you need, the second one will tell you when you should have it.
At what age do you want to retire, or achieve your financial goal? You have to know this too, because this will determine how much time you have to invest and grow your money.
This will establish your time frame and help you choose which investment is right for you.
How To Get There
If your magic number is the destination, your investment is the vehicle to get there.
Look for an investment that will help you achieve your magic number. But before you do that, there are things that you have to consider – like the time you have and the risks involved.
Different people have different magic numbers. Depending on your financial goal and situation in life, there is an investment that is best suited for you.
Whatever investments you go into, you should be able to get what you want. Once you have it, do you still need to work? If you want to, you could but you don’t have to.
A lot of successful people fail to do this – doctors, lawyers, and celebrities especially. Most of them enjoy what they do, but a lot of them are also terrified to stop because they don’t have enough savings.
Whether you want to invest in stocks, mutual funds, or other investment vehicles – knowing what you want to accomplish and when you want to have it, will be your compass on where to invest your hard-earned money.
For example, an 80 year old retiree who wants to place his money in a long term investment like a mutual fund – his time frame and the time needed for the investment to mature don’t match.
Knowing your magic number will help align your resources, investment strategy, and goals. Find your magic number first.
Question: Now you know the importance of getting your magic number, how will it affect your investment decisions?