Building Wealth: A Step-By-Step Guide

Building Wealth: A Step-By-Step Guide

building wealth - francisco colayco

Francisco Colayco has been helping Filipinos manage their money and build wealth since the early 2000s. “I realized people were hungry for guidance, so I thought I’d throw in my two cents,” he tells iMoney in an interview. Throughout his career, Colayco has helped OFWs and others grow their money and achieve their financial goals through Colayco Financial Education.

In this interview, we spoke to Colayco about how Filipinos can build wealth from the ground up. Read on to learn the steps you need to take to get your finances in order and start growing your money, no matter what stage of life you’re in:

1. Know Where You Are.

Photo: Calsidyrose on Flickr (CC BY 2.0)

Colayco divides the financial life into four phases:

  1. Start-up phase (20 – 35 years old). Your only source of income is your salary and commissions.
  2. Build-up phase (35 – 45). You have assets and investments that generate passive income, which accounts for 20% of your total income, which funds 20% of your needs and expenses.
  3. Asset allocation phase (45 – 60). Your assets and investments generate 30% to 60% of your total income, and fund at least 50% of your needs and expenses.
  4. Retirement phase (60 and up). You no longer earn active income. Your passive income is 100% of your total income, providing for all your needs and expenses.

The ages are estimates — depending on your financial achievements, they could be different for you. Knowing where you are in this paradigm will allow you to set achievable goals for building wealth.

As you can see, the key to moving from one phase to the next is increasing your passive income, which you can do via saving and investing. “Never depend on a single source of income,” Colayco says. “The vast majority of us, we don’t have inheritances. We don’t have rich parents.

So you have two horses in your life — your active way of earning money, and your passive way. Make them run at the same time.”

2. Set Your Financial Goal For Each Life Phase.

building wealth - financial goals


Now that you’ve determined your life phase, you must define your target level of personal net worth to be able to move to the next. If your current income isn’t enough to support the lifestyle you want in the future, you’ll have to find ways to add to your income, be it via sidelines or investments or other means.

Financial goals will be different for each person, and for each stage. To help you determine your financial goals, here are some guide questions, taken from Colayco’s book:

  • How much money do you need to enjoy the lifestyle that you want? If your current lifestyle costs you P20,000 a month, how much will your ideal lifestyle cost?
  • How much risk are you willing to take with your money? If you’re young, you can afford to take on more risks. If you’re older, you should be more conservative. What’s your risk tolerance?
  • How can you add to your current income? If you’ve only got one source of income, how can you develop more revenue streams?
  • What amount can you afford to save/invest monthly? 10%? 20%? Or more?

The answers to these guide questions can help you determine your goals in a quantifiable manner. Set a specific timetable for each goal. Once you know the amount of money you need for your goal, and the time you can do it in, the steps will be clearer.

For example, if you’re 21 and you want to have a million pesos invested by the time you’re 30, you can figure out that you’ll have to deposit around P6,000 a month in an investment vehicle that yields at least 9% annually. (For more on this, check out our article: How To Make One Million Pesos By 30.) If you can’t afford to do that, you may have to change your goal, change your money habits to accommodate that goal, or go for a potentially higher average annual cumulative return. For example, even if you save only P4,000 a month, you can still accumulate a P1,000,000 in ten years if you achieve an average annual cumulative return of 14%. This is possible as shown in the performance of certain equity mutual funds over the same period.

3. Avoid these major mistakes.

building wealth - avoid mistakes


People who get into financial trouble on the way to building wealth often do one or all of these things:

  1. Premature acquisition of assets. “Some people, just because they have the money for a downpayment, puwede na, even when they don’t have the money to keep up the payments,” Colayco says. Remember that when you enter a contract, you are under obligation. “You have to know where you’re going to get the money to pay your contracted amortization. Otherwise, you may lose even the hard-earned money you used as downpayment. If you don’t have a sure source for loan repayments, don’t even enter into contract talks. Don’t be swayed by fancy sales agents.”
  2. Living a lifestyle beyond actual capabilities. If you’re only earning P20,000 a month, living a lifestyle that requires P50,000 a month is the surest way to financial trouble. Prioritize saving and investing to achieve the lifestyle you want, instead of trying to live the lifestyle you want on half the salary.
  3. Falling for scams. Sadly, many people have lost and are still losing money to scams. If someone is offering you ridiculously high returns, like 300% yearly, far outstripping the returns of legitimate investments or high risk vehicles like the stock market, it’s probably a scam. (For more on scams, check out Are You Being Scammed?)

Steer clear of these pitfalls, and remember: save and invest based on a purpose, and stick to that purpose.

4. Invest wisely.

building wealth - invest wisely


“In my personal opinion, if you don’t have a million pesos, you should not go into investing directly in stocks,” says Colayco. But if you do want to go into investing in the stock market, he advises that you keep the following in mind:

  • Don’t put borrowed money in stocks. This may just put you in more debt.
  • Don’t put all your money in one or just a few stocks. Spread the risk by allocating your assets into different companies in different industries.
  • Don’t put everything in one stock. “I don’t care if you have inside information. There are so many variables that control the prices of stocks.”
  • Diversify. If you have more to invest, consider allocating your money into several asset classes, like fixed income securities, income earning real estate, proven businesses/franchises, and others.

When it comes to which products to invest in, it depends on your goals. “Even the lowest-earning investment can make you money over time. But if you don’t have the understanding of where you are, what you want to achieve, how much you want to make and why, you won’t be able to make the choice of what to invest in,” Colayco says.

When you’re considering investment options, focus on risk. Every investment you make should be focused on the safety of your capital, the returns you can expect, and the liquidity of your money. Spread the risk around by putting your money in different vehicles: mutual funds, bonds, UITFs, and the like. Do your research thoroughly before you put your money in anything.

How Do You Know When You’ve Achieved Wealth?

building wealth - success

Photo: Shutterstock

To Colayco, wealth is simply being in a place where you can live the lifestyle you want without having to work. “It’s not so much about money as it is about a disposition. When people ask me what wealth is, I quote this to them: ‘Rich is not the one who has the most, but the one who needs the least.’ You choose the lifestyle that will give you that feeling, and that’s wealth.”

“There’s no magic formula. Just save and invest. And don’t put it all in one place.”

Wealth is within your reach, especially if you start now. “Time is the greatest tool to manage your finances,” Colayco says. “This, combined with risk management, will help you succeed.”

Francisco Colayco is one of the country’s leading personal finance experts and authors. His latest book is Wealth Reached, Money Worked: Pera Mo, Pinalago Mo!. For more on Colayco’s financial literacy advocacy, visit his website at

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