Virgilio Lorenzo Jr

Why Gen Z is not content with making their first P1 million

Article (news)

Aneth Ng-Lim

Did you know that P1 million today can only give you about P680,000 worth of purchasing power versus 10 years ago?  Another way to describe this is that what P1 million in 2016 can buy will cost about P1.47 million in 2026.  You can blame the huge and depressing difference to inflation.  Based on the historical Philippine Statistics Authority consumer price indices, the cumulative inflation increase over the last decade reached roughly 47 percent.  Consumer prices rose rapidly due to several factors including the weakening value of peso, surging costs of electricity and water, global fuel hikes, and food price spikes.If you had P1 million in 2016 and left all that cash uninvested, you are still a millionaire in paper.  However, the spending value of that million has shrunk by almost half.No wonder I overheard some Gen Z or Zoomers over at another table during lunch that having one million is no longer impressive these days.  It reminded me of Reddit threads sharing similar sentiments.  But at our table, a Boomer friend and a Gen X friend were earnestly asking where best to invest their P1 million.Regardless of your generation, your first P1 million is still an impressive financial milestone.  It may not be worth as much today as it did 5 or 10 years ago, but earning that million could not have come easy.<div>Why it&#x27;s still impressive</div>One, it gives you a strong safety net. In times of market turmoil and volatility, having this amount in savings or investments provides excellent security against emergencies, job loss, or medical expenses.Two, better investment opportunities start at P1 million.  While you can begin with P10,000 or P100,000, having this capital can let you diversify into stocks, bonds, or real estate, plus multiply your wealth through compounding interest.Three, you’ve crossed the &quot;first million&quot; hurdle.  Many financial experts say that earning the first million is the hardest part of building wealth.  The next millions become easier once you have this capital working for you.<div>Why it doesn&#x27;t make you &quot;rich&quot;</div>The Gen Z at the other table were wrong to say it’s no longer impressive, but they’re right that P1 million does not make you “rich”.If we consider the high cost of living, particularly in urban centers like Metro Manila, this amount won’t last long if you are unemployed or do not have a steady source of income.It’s also not enough for early retirement on its own.  You can’t stop working yet, as relying only on the interest of a P1 million savings account will not be enough to sustain your living expenses for long.<div>What you can buy with P1 million</div>That said, your P1 million can still go far.You can use it to buy a car or other vehicles for personal use.  You’ll get to enjoy a more comfortable lifestyle with brand-new subcompact cars like the Toyota Vios, Honda Brio, or Mitsubishi Mirage.  It can also stretch for second-hand SUVs or family vans in good condition. How about owning your dream home?  It’s enough for a down payment for a mid-range condo in Metro Manila or a house-and-lot package in nearby provinces such as Cavite, Laguna, or Bulacan. If you’re already a homeowner, the capital can pay for a complete major renovation of a medium-sized family home.Or become your own boss by looking at franchise packages for established food carts, water refilling stations, or laundry shops. You can also consider low-overhead service businesses like generic pharmacies or micro-logistics hubs.<div>Start your wealth building era</div>Remember that your first million need not be your last.  Use it to generate more millions.With P1 million as your starting capital, set aside 20% or P200,000 for emergency funds.  To earn interest and for easy access, look into digital banks offering 4% to 6% annual rates.  You can split what remains into 40% or P400,000 for low-risk growth investments like PAG-IBIG MP2 and the other 40% into high-yield but also high risk instruments like stocks, REITS or a franchise business.Your emergency fund can be less or more, depending on how much you need to cover 6 months of living expenses.  If you park it into high-yield digital banks like Maya, GoTyme, or MariBank, you can stay liquid while earning attractive daily interest.Pag-IBIG MP2 is a tax-free, government-backed savings program and in the last decade, it’s been paying out dividends of 6 percent to 8 percent annually.  I admit it’s a personal favorite and I opened 2 accounts after my first one matured.Meanwhile, the stock market &amp; Real Estate Investment Trusts (REITs) offer dividend payouts and capital growth but you’ll need to be aware of the risks before making your choice.So enjoy your first million if you’ve reached this milestone, and begin your wealth building era for more.