Taking out loans to finance a business venture or to invest in the stock market is costly and risky. Costly because the investor is already saddled with interest payments even before the business takes off. Risky because very few businesses produce profits at the start; often, entrepreneurs usually strive to break even at first before thinking about making profits. Also, losses and even shutdowns are realities that would-be businessmen should consider.
If loans are necessary to start a business, then these should be supplementary to "internal" funds, or the investors' own money. If the business loses or is closed, then the burden of paying creditors is not so heavy compared to a 100-percent borrowed capital.
This is where the concept of forced savings comes in. Banks realize that saving money requires personal discipline. Many people are unable to keep savings accounts not because they have no money to save, but because they have accepted that all the money they earn is just enough for their expenses.
What banks do is to offer innovative savings schemes, like offering to double the depositor's money after a certain number of years. This type of account requires the depositor to make fixed amounts of deposits and maintain their accounts for an agreed period, after which the bank turns over the accumulated deposits and interest earnings.
This type of innovative savings is usually offered to young or young couples just starting their families, or for their children.
The stock market also offers provides a way to encourage forced savings. Some stockbrokers offer easy investment plans, under which new investors agree to invest as small as P5,000 every month or every quarter in shares of stocks.
The stockbroker recommends stocks that are good to buy because of the profitable operations of a certain listed company or the prospects of higher prices for its shares. The investor, however, is not required to follow the stockbroker's recommendations - he or she can buy other stocks - and decides whether or not to sell the shares in the portfolio.
The agreement to invest P5,000 every month or every quarter is also not an unbreakable obligation. The investor may or may not make the investment at the agreed month or quarter, but is encouraged by the stockbroker to do it as an exercise at self-discipline and to ensure that the goal of reaching an investment level at a certain date is achieved.
Forced savings, which may also be called financial discipline, should actually start at home and at a very young age. Actually, this is part of Filipino culture: parents encouraged their children to save in piggy (bamboo, actually) banks instead of spending all their allowances.
For such kids, saving money becomes a habit, which serves them well in adulthood. For other people, acquiring the habit should not be difficult; all it takes is to set a goal, like building a personal fund within a given period, or committing oneself to make fixed investments, also at preset dates, and then set aside certain amounts to reach the goal.
The first deposit in a "forced" savings account or for an initial purchase of stocks can come from foregoing a date at a fine dining restaurant or postponing an out-of-town vacation, or simply taking out a portion of the take-home pay that is not for essential items.