THERE was once a rich lawyer driving through a rural neighborhood and saw a family of five on all fours eating grass in a small field.  The curious lawyer got off his car and approached the family.  He asked the father why they were eating grass.  The father replied that they were so poor they couldn’t afford to buy rice or any other food and added that his relatives are also doing the same.  The lawyer put his arms on the poor guy’s shoulder and with a reassuring smile told him, “My friend, take your family and your relatives to my hacienda. You will stay there from now on and will never go hungry again; there’s a lot of grass in my property.”

With the prices of goods always inching up we might as well be eating grass instead of rice in the future.  How much will a sack of rice cost 25 years from now?  It’s anybody’s guess.  But one thing is definite; it will be much higher than it is today.  Let’s see.  If a sack of rice costs P1,200 today and the average inflation (increase in prices of goods) rate over the next 25 years is 5 percent, the same sack of rice will cost P4,064 in the year 2031.  Holy kamote, that’s P81 per kilo!  With higher inflation it will even be more expensive.

Inflation is a “savings killer.”  People who fail to take into account the effects of inflation on their savings are in for a nasty surprise when their future fund falls short of their needs.  Thinking that the amount you need to live comfortably today will be the same amount you need to enjoy your retirement is absolutely wrong.  With inflation, P1 million 25 years from now is just P295,000 in today’s money.  So, if you need P5 million today to live comfortably, you should have about P17 million by 2031 in order to maintain your lifestyle.

It is crucial then that you just don’t save but make your savings grow to beat inflation or at the very least keep pace with it.  There are many diligent savers who are already pleased to see their money “grow” in a low-interest savings account, unaware that it’s actually declining in purchasing value because inflation is slowly but steadily eating up their savings.  What is almost as bad as not saving is putting your savings in an account that earns very little or worse in some place where it earns nothing, like keeping it at home.

Saving is simply not enough.  You have to learn to invest your savings to keep it growing faster than the inflation rate.  The only funds you should keep in a low-interest/no-interest savings or checking account is money that you will use up within one month.  (Include in this account the required minimum balance to avoid bank charges.)   All other funds should be placed in any or a combination of the following investment options:

Time deposits (TDs) are probably the most popular investment option among ordinary Filipinos.  Interest earnings are guaranteed and usually paid during maturity, which can be as short as 30 days to more than 5 years.  There are some long-term TDs that pay interest regularly (e.g. monthly).  Rates are usually tiered where bigger amounts held for longer periods get the higher rates.  Banks differ in their TD rates, so shop around for the best rate.

Treasury bills/bonds are issued by the government but they can be acquired through banks.  They are virtually risk-free and earnings are guaranteed just like TDs.  The minimum amount can be as low as P5,000 as in the case of  retail treasury bonds (RTBs).  Be on the lookout for the next offer period of RTBs because these are not always available.

UITFs and mutual funds are popular among more knowledgeable savers due to their potential for higher returns.  These are pooled funds invested in a mix of government securities and other fixed-income instruments, stocks and/or money market.  The fund’s value may go up or down. Thus, growth is not guaranteed and you may lose some of your capital.  Historically though, most funds have clearly outpaced inflation over the long term.

Investing directly in stocks is not for the faint-hearted because stock values can swing wildly within a matter of weeks or even days.  Although growth is not guaranteed, good stocks have been known to perform well over the long term.

Life Insurance is another investment alternative.  You (actually your family) get instant growth of your investment when you go six feet under.  One downside is that your money is locked up.  Should you decide to pull out during the early stages of the policy, you may not get anything or a just a little surrender cash value.

Other investment options for your money are real estate, artwork, jewelry and other collectibles.  Generally, they appreciate in value. However, it will not be so easy to sell them when you need cash. You may have to sell at a discount from the prevailing market value to attract buyers.

Lastly, you can use your money to invest in a business; it can be a real gold mine.  But you have to realize not everyone is cut out to be a businessman and you can quickly lose a lot of money if you don’t have the right stuff to run a business.

Alvin T. Tabañag is a registered financial planner and a member of RFP Philippines. He is the founder and training director of Advantage Plus Training & Consultancy. To learn more about becoming Registered Financial Planner, visit www.rfp.ph or e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it .