If you are looking for a strategy that can help you achieve your financial goals and build your personal estate, then look at the  50/30/20 rule. It’s about dividing up your after-tax income and allocating  it to spend: 50% on needs, 30% on wants, and stocking 20% on savings. Let me explain how this easy-to-follow budgeting plan works:

• 50% on “needs and obligations”.

Needs are those bills that you absolutely must pay.

These include rentals, mortgage payments, food, transportation, health care and utilities expenses.

Half of your after-tax income should be intended to pay your needs and obligations

• 30% on “wants”.

“Wants” are all the things that are not absolutely essential.

They include leisure activities and hobbies, holidays, dinner and movies, tickets to events, the latest electronic gadget, and so on.

Basically, “wants” are all those little extra money you spend to make your life more enjoyable; they are all things that you want but you don’t need.

• 20% to savings.

Finally, try to allocate 20% of your net income to savings and investments, in order to:

– improve your current lifestyle

– build your retirement plan

– leave a wealth in inheritance to your family

Once you have planned your savings strategy, you should implement your investment decisions.

There are several strategies that you can use to invest your money:

• -Deposit your money in a bank saving account
• -Buy stocks
• -Invest in bonds
• -Purchase a real estate property

You should analyze the three key aspects of all investment strategies, before deciding where to put your money: long or short-term perspective, risk tolerance, and yield.

1. Bank saving account

It is the least risky short-term choice, but the least profitable way of investing your money as well.

The interest rate on a savings account in Mexico ranges between 0.85% and 2.70%, before income taxes. With a current annual inflation rate at nearly 6%, you will see your wealth reduced by the purchasing power of money.

2. Bonds

You can use your savings to buy government or corporate bonds.

Generally, they pay a fixed interest rate coupon. Also, there are bonds with floating interest rate and the so-called zero coupon bonds (securities with no coupon and no recurrent interest rate), where the return is the difference between the purchase price and the face value paid at maturity.

A bond with a longer maturity usually will pay a higher interest than a shorter-term bond.The same occurs with a riskier bond, issued by a government or companies with a low credit rating.

For instance, a Mexican government bond redeemable in 5 years can yield 6.3% gross per year based on the current market prices.

Purchasing a bond could be a relatively safe investment. But nevertheless, you might face two types of risks:

– the possible financial collapse of the issuing country or corporation

– the bonds’ price fluctuation due to market conditions

When market interest rates increase, there will be a downward movement on the price of the bonds exchanged in the financial market  with a lower nominal value: accordingly, bond’s yield might decrease

3. Stocks

You can invest in stocks as a trader, buying and selling securities all the time.

Or you can choose to be a buy-and-hold investor, purchasing a share to hold it over time and gain a recurrent income through dividends.

You can invest in a single stock directly, hoping for the big deal but betting your money on one and only opportunity. This represents a riskier strategy, because it is strongly related to the performance of that company.

You can also choose from a bunch of stocks, through a mutual fund or an ETF (Exchanged Traded Fund), where you may have higher protection against the market volatility, but lower potential return.

The main Mexican stock index, MSCI Mexico, has performed a 2.38% annualized net yield over the past 5 years, with a great volatility from one year to the other. For example: a 15.97% growth in 2017, a 15.53% decrease in 2018.

Equity market might be a good strategy for investing your savings, but it is really risky because everything depends on the market’s volatility and on the economic conditions at the time of purchasing. Therefore, it is not a stable way to secure your wealth for the future.

4. Real estate

The best way to create and accumulate a stable and profitable wealth is by using your savings to buy a home, either as a down payment or as a full payment of the purchase price. Through this kind of decision, you can achieve the three goals of every investment strategy:  protect your capital, grow your wealth, and gain a recurrent income.

• Purchasing a home usually makes you the only owner of your property, unlike buying bonds, where you are only lending money to governments or corporations. Or when you purchase stocks, where you will get the ownership of a rather smaller part of that business.

Being the real estate property’s landlord by using your savings, gives you the opportunity to create wealth that can grow in the future.

• In financial terms, owning real estate offers investors the opportunity to accumulate wealth over time in a steady way and avoid the stock market’s ups and downs. Real Estate represents the best investment if you want to create and grow a personal equity for yours and your family’s future, relying on a regular rental income and/or a rising appreciation in the property’s value over time.

This is particularly true if you decide to purchase a property in a high-growth location like the Mayan Riviera.

From the beginning you can be certain about the potential investment’s return of a specific property. In fact, it is enough to know some historical data available:

– Expected rental income in the location you choose.

– Operating expenses you will bear with your property.

–  Net operating income of your investment, calculated by subtracting operating expenses from the expected rental income (the EBITDA in a financial report analysis).

– Average appreciation of comparable properties.

There are financial models that, by using the data above, may calculate the different real estate yield related to each property.

• Unlike stock and bond investors, as a real estate owner you can use leverage to buy a property by paying a portion of the total cost upfront by using a down payment; and then paying off the balance, plus interest, over time.

There are financial metrics which can calculate your return on the investment based on different levels of funding percentage, and, therefore, of savings used as down payment.

In particular, we can use the Internal Rate of Return (IRR), through which you can find the annual return considering a 3 or 5 years property’s holding period of time.

Assuming a 3.5% annual rent growth and a 10% appreciation per year, a 5-year IRR of a modern property located in the Playa del Carmen downtown, may be at 17% unleveraged, that is fully paid without financing.

But, if we consider funding the 50% of the purchase price, the IRR might increase to 30%:  because the IRR, and your return on the cash invested, is higher when the leverage increases, despite this strategy can represent a greater financial risk.

With Maya Ocean Real Estate, you can choose to be a long or a short term investor, because in Riviera Maya, the market is so vivid that it is very easy to gain profit through long term or vacation rentals, or by selling your property after gaining major natural appreciation over time.