Tuesday, 25 November 2014

Managing Your Finances

Ever since I moved out (see: The Highs and Lows of Moving Out ), I have learned the value of money. And since I am close to reaching my Save Big Challenge (read post here: The Save Big Challenge), I thought I'd a post an entry on what steps I took to reach it.

I started working after I graduated and I know that liberating feeling of knowing that you have your own money to spend however you like. After all, you worked your ass off and you deserve to reward yourself with a little something, right?

Sure, but the question is how little is that something? Is it going to slash a huge chunk off of your paycheck and spend the rest on your everyday expenses? Then whatever is left goes to your savings?

During the years I have worked, that’s how I managed my finances. I was able to save a small amount but that didn’t bother. I foresaw no huge expenditure that I would need to spend my money on. And until I got hospitalized. I am not a sickly person, I barely get sick and if I do get the cough and colds, it’s just usually for two to three days. I have never thought that I’d be confined and in a matter of days, all money I have saved went down the drain. I have come to a point wherein I had only Php 250.00 (almost $5.00) to my name until the next paycheck. I had to resort to borrowing money in order to pay for my daily expenses. And that’s something I never want to go through again.

1. List down your spending in a month.

I kept a spending diary and wrote down everything I pay for cab, coffee, iced tea, takeout food, clothes, make-up, books, etc. I mean EVERYTHING. This gives me an idea on where my money goes and my spending habits. By doing so, I have a clear image of what kind of spender I am. By having a visual list, it’s easy to pinpoint what are spur of the moment purchases and other unnecessary purchases.

This is how I feel every time. Lol.

2. Create a budget and learn stick to it.

I choose to stick with a 50/25/20/5 plan. 50% of my income goes to payments that do not change month by month like my rent, electric and water bills, and my life insurance payments. 25% goes to  day to day expenses that can vary every month like groceries, movie tickets, dining out, gas, and clothes. I set aside 20% of my take home pay to go towards my savings then the remaining 5% is allotted for emergency fund. You never know when you’ll need extra cash and I learned that if you take money out of your savings when you’re tight on cash, it’ll turn into a habit and, before you know it, your savings have ran out.                                                                                                                                                              

Make it your spending mantra.

3. Trim what you can or if you can’t, find alternatives.

Take time to check what items on your expenditure list you can cross out. And if you can’t find cheaper alternatives, you’ll be surprised how much you can save by doing so. Do you really need to buy a Php 100.00 ($2.00) cup worth of coffee before going to work? Most offices offer free coffee or invest in a to-go thermos and carry your own coffee to work. Do you need to buy bottled water every time you hit the gym? Gyms provide free water to avoid dehydration during workouts so fish out your to-go thermos/tumbler and refill it when you need to.

Clothes and shoe shopping? I scour sale aisles and thrift stores. Fashion comes and goes but there are staple ones that never go out of style. Going to a formal event? Consider buying a dress that you know you’ll DEFINITELY use again. You could also try renting instead, or better yet borrow from a friend or a relative.
Groceries? I do my grocery shopping at outlet stores and buy them items, especially toiletries and laundry items, in bulk. They’re cheaper and efficient because it save you multiple trips to the grocery store. And if they are offering a reward point system, take advantage of it. Those points may not seem helpful but if you do grocery enough those points will accumulate and you’ll be surprised by how much it helps when you redeem those points.

Skip the items that you don't really need.

4. Have a short, a long term goal and a little in between.

Have faith in yourself. You can do it!

You want to save a certain amount within 6 months and that’s good. But let’s face it, 6 months is well 6 months. It’s easy to say you’ll just double your saving allotment come next pay check but that’s not really the case because you never really know what may come up that needs spending.

They say it takes 21 days to make or break a habit. Short goal: Set an amount on a weekly basis first. If you are able to keep it up without any misses then you’re on your way to meeting your long term goal.

5. Credit Cards are not evil.

Shake off the notion that credit cards are bad and only leads to huge debts. I had a credit card and I did end up in debt for a time. My friends told that I should have never had applied for it in the first place because it lets you buy every single thing. That’s wrong, IT does not let you buy every single thing, YOU let it buy every single thing. Credit cards do not simply walk away and buy stuff for you. You fish it out of your wallet and hand it over to the cashier. And if you swipe it every single time, you end up spending money you don’t have. 

Simply put, credit cards only lead to debts if you do not control the way you spend. Otherwise, they are useful, especially in case of an emergency like when you run of cash and there’s no ATM in sight. Also, most credit card companies offer rebates, deals and air miles. Instead of using money to pay for my groceries, I use my credit card and the money allotted for grocery shopping is used when the credit card bill arrives. That way I get my grocery shopping done and earn points at the same time.  And as long as you’re a good payer, it’s also a great way  to establish your credit standing which is good in case you need a loan to buy a house, car, or mobile phone plan.

Easier said than done, right? That’s what I thought too. And believe me when I say a little self-control goes a long way and this is coming from me, a girl who loves buying her books, shopping for shoes, ordering pizzas, eating ice cream, and travelling places. I struggled for a bit during the first few months but I got through and I am proud of myself because of it. 

All photo credits go to respective owners.

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