To start a business or any economic endeavor, you need capital. Some entrepreneurs start with little capital, others with millions of pesos. Ricky Reyes started with his savings of P1,000. Jovel Cipriano started with over P10,000. The need for capital varies, but the fact remains that capital is needed.

There are a number of ways to raise capital. One is winning a lottery, sweepstakes or something similar. The probability of a lucky win is low and successful Pinoy Entrepreneurs would tell you that success is mostly about hard work. Also, too much money pouring in over a short span of time may not be supported by the attitudes necessary to grow that money or, at the very least, maintain it.

Borrowing is another source of capital. Successful multi-billion businesses actually borrow money to create more wealth. There’s a world of difference, however, with that and personal borrowing. Interest expense in business borrowings is deducted from income in computing tax. The borrowed amount is also part of the income-generating capacity of business. You borrow to earn more, which is not the same when you borrow to pay for personal contingencies like hospitalization.

Another way to raise capital is through a high-paying job. A stable job, while always good, may not be enough. A stable salary would vanish if the company closes or if the worker is fired. You could work abroad where the exchange rate means you get premium in pesos, but you won’t be working abroad forever. No work, no pay, and so you’re only as good as your next paycheck. Your money should be working for you, not you chasing the next paycheck.

Another way is through savings, but this is easier said than done. NSO figures (2003) show that the lowest 20% of the population have no savings and, worse, their expenditure is actually more than their income. The next 10% of the population is breakeven, with expenditures equivalent to incomes. If we look at the next 40% (comprising the 40-70 decile), which is arguably the middle class, we’ll see that the average saving is merely 8.45% of the annual income.

Compare this to the top 30%, with an average saving rate of 22.4%. Even this saving rate is low if we consider the statement of Mr. John Gokongwei, Jr., one of the most successful Pinoy Entrepreneurs: “If I have ten pesos, I spend only one peso and save the nine pesos. That was how I ploughed back my profits. I spend very little and save a lot.”

This is Part 1 of 2. Please click here to read Part 2.