As you well know, I don’t like budgets. Just thinking about them makes me wince. I have tried, but really, I cannot pretend that I already have the hang of it. Just can’t.
Before you think that I spend irresponsibly because I have junked the traditional concept of budgeting, let me tell you what works for me. I simply figure out how much I should save and invest, then spend the rest. That’s it. I enjoy the moolah. Let the money chips fall where they may. I can smile while forking over money at the restaurant because I know the purse strings keeping the savings fund are tightly shut.
That’s just me, though. I understand and absolutely admire who religiously jot down their expenses and add the figures up in nice little columns. As I always said, financial planning requires a customized approach. If that is the approach that works, then it’s the best one.
Today, however, I found a great little tip that will enhance anybody’s approach. This is like the Post-it, the Velcro, and the Zip-lock of budgeting. The clever and simple tip that would give our financial plans the punch that they need.
Our Budget 101 article today over at the Personal Finance section of INQUIRER.net says:
List down must-save-for expenses that do not occur monthly. Examples of this are annual income taxes, Christmas gifts, tuition fees. Break these down to a cost per month and factor this into the budget you will make.Do this with me now. Get your pen and paper and put your thinking caps on. What are the expenses, especially huge ones (say, more than P5,000 or whatever), that occur regularly every year. Make this a sweeping exercise. Take stock of your life and imagine yourself in situations in the past where you have struggled with payments. Hmm.. Tuition fees are probably the first on the list for parents. If you’re still paying for insurance, then add that. Mortgage payments, annual income taxes and property taxes, car tune-ups and maintenance, and vacations. Make sure you add everything. Oh, and don’t forget Christmas and birthday gifts and celebrations. Those little trinkets we give away add up to a big budget. Done? Take your time. You don’t have to rush (so don’t do this in the office by the way hehe). Give yourself time to think. Better yet, do this with your partner and your kids! If the list is complete, divide it by 12. Then add the amount to your savings plan. See what this is making us do? It’s allowing us to plan ahead. It’s helping us to stop living from paycheck to paycheck. This will keep us a step ahead of our money, and not a slimy, slippery step behind. Let me know how it goes J. Let’s share what works and doesn’t work. Good luck!
We used to have funds for education, retirement and cost of living. But I used them up for our businesses. They became fixed assets, inventories and working capital. Our personal and business assets got mixed. Good or bad?
nice strategy...
We have our life insurance, retirement savings, and just recently educational fund for our baby boy. All are invested in high risk funds. I also have bi-weekly mortgage payment with annual property tax added into it, medical and dental plan,car loan and student loan. These are in auto-debit arrangement kaya kung ano na lang ang matira, yun lang ang panggastos.
Hi pinoy investor, I read somewhere that mixing your business money and personal money is not good. That's why in your business plan, you have to write there how much percentage of your earnings in business will you pool back into your personal savings so that you'd have at least a security blanket for yourself and you are assured that your savings are increasing. if you have enough savings, put it somewhere like mutual funds. time deposit in banks are not good since they are still below the average inflation rate of 7%
@pinoyinvest: hey buddy i think you know the answer! :D i'd just say separate it gradually over next few months as your working capital turns to cash, no need to rush, i believe you know naman what you're doing :)
hi, salve! just yesterday, i created an excel file of all bills that i need to pay each payday. it gave me a big headache! i like your style, though. i think that will work for me, too, so i'll try to incorporate that as i struggle with being smart with my money!
Hi! I've been doing this for a couple years now. My biggest spender is travel so I have a travel fund to fill every month :) Same goes for the savings and investment. Sometimes the travel fund gets invested in short term money market so it grows more.
I think the idea of budgeting is taking control of your finances (and your life) so whatever works for you is great.
I use MS Money as my financial tracking tool since 2002. I started to use it to just track my expenses. After two months I already created a budget based upon my expenses and have used MS Money since then to track everything from my investments, stock, etc. One of the things that I have learned is to begin to track your expenses. After that, creating a budget will help you figure out a value that will you pay yourself first. As a personal note, I consider my savings as a high priority bill that gets deducted first on my personal account expenses.
It's kinda painful to pull money out of pocket to pay for something so i'm trying to make automate everything including savings. so all bills, insurance premiums, loan amortizations and contributions to coop fund (a part of which i withdraw periodically to put in bank savings, mutual funds etc.) are deducted from my salary. so i get my pay 'clean.'
hi salve. yes it does work. me and my husband has been doing that for years... kaya nga ang dali namin naka-pag-evaluate (at nakapag-react) that we are going to the negative fast.
i used to have an auto-deduct arrangement with my company that deducts 20% of my gross monthly salary - 10% goes to a savings and loan and association, and the other 10% to a staff providence fund. but starting this august, I'm gonna put the 20% to mutual funds and UITFs that i intend to invest in. wish i'll have the discipline to consistently do this.
"I simply figure out how much I should save and invest, then spend the rest."
It was only just this year that I started being serious about saving money, and yes, Ms. Salve, this approach works great for me also :)
What I do in addition, however, is to keep my all my receipts, and review where my money goes from time to time. There are some expenses that do not have receipts (like jeepney fare) but it's not really a problem because you can always approximate.
I turn the data into a pie chart and sometimes get surprised that I am spending too much on something that I should not have (another savings opportunity there), or even that I am spending too little on something that I really should be more generous in (like giving to charity or tithing.)
pinoy investor, I think hachiko's right hehe. Anyone, however, who shares personal experiences, although they may sometimes be painful, for the education of the greater majority, is way up there in my list :-D.
JS, thanks :)
Scud, auto-debit arrangements take a lot of the pain out of saving. good strategy!
hi aileen, thanks for pitching in and sharing your thoughts!
enlightenedone: you go, girl! Its hard at the beginning, but once you already have a plan to follow, the headaches will slowly lessen. :)
hi missyme, great work! in your experience, does this effectively allow you to reduce the headache from those big, annual bills?
jasprene, thats a really good strategy and this means you have the discipline to keep at it day after day. I'm totally envious!
starter boy, you dont sound like a "starter boy" in personal finance! Great job :)
I advised this exact method to my friend before I read this article in Budget 101. I feel great knowing my advice to her was a good one. :-)
Funny me, though, I still have to implement this on my own savings habit. Haha!
Btw, thanks salve for mentioning my blog in your mark-to-market entry. Though I am a 'she' and not a 'he'.
mzkukuro, thats one of the benefits of keeping track of your spending. Knowing where you are and how much adjustments you need to make. Congratulations.
Richardson, it really is the discipline that matters. Financial planning is mostly about the resolve to do what is needed, more than the math and the technical expertise :)
armikatrina, i was trying to get hold of splash money for my blackberry. I was told Splash Money could do this job very nicely. Maybe you can get one for your phone.
"hi missyme, great work! in your experience, does this effectively allow you to reduce the headache from those big, annual bills?"
Hi Salve, yes it does. I use to send my younger sibling to college too and I think I am one of less stressed come tuition fee payment time :)
There is a good book for those who want to start working on their budget. It's called Your Money or Your Life. It does require you to list every penny you spend and earn but it is worth it. Once you get the hang of saving and spending wisely, you won't need the list but you will keep the habit :)
missyme: great work, missyme :-). Let's do a book review session every friday so we can share our learnings from great personal finance books out there.
Salve:
Book review is a great idea. For those interested in stock investing, I recommend "A random walk down wallstreet" by Burton Malkiel. This classic is a hardhitter. If stock investing is a religion, random walk is heresy.
It's a skeptical look at technical and fundamental analyses, the main tools of professional investors. Of course the believers consider it as blasphemy.
My take on random walk is if you don't do your homework, your chances of winning in the stock market is as good or as bad as winning in the casino.
Is it still possible to save even if you're just earning the daily minimum wage? ( in our area, its P243 per day, gross )
I partly support the daily expenses of my mom and my brother sometimes borrows money from me.
pinoy investor, i love the sound of that book. im going to heed your advice and read it :).
just asking, Efren Cruz once told me of a group of minimum-wage earners who saved enough money to set up their own small business. One of them will retire rather comfortably. Hopefully I can tell you about their story soon.
Those who are earning minimum wage should not lose hope. It might mean being totally careful about how you spend. It might also mean trying to find a side-line or learning to do service for others so you can have additional income. Read about the story of the janitor in one of my earlier posts who was able to do it.
just asking, yah very much you can save IF you put your mind into it. start a little for capital growth for a certain period.once you have that go into a venture where your strenghts will shine.where are you good at. invest on those. dont worry if you do not know everything you can ask help from others. think big, just go.
I got my first budget tip from a Church sermon. The tip involved using separate envelopes for each budget item and putting the exact amount in the envelopes every payday. We listed things down only once a year when we did our envelopes. We did not have to track our expenses (i.e. if the money ran out in the envelope then we stopped spending). We paid our bills on time straight from the envelopes. We knew exactly how much we were saving (envelope#1, as I recall it, we deposited our savings in the bank every month).
This was great for us back then who was just starting and lives from paycheck to paycheck.
I still remember the biggest downside to this….where to put all those coins.
Financial experts advise that it is better to keep business money and personal money separately but I find it hard to demarcate between the two. I mean of course I keep the two investments separately but what can be done when you need money to drive your business at new levels and you don't want to take loan? I know I shouldn't be mixing the two but depositing back more then what I took out sounds better to me and I also know that I have to rely on a financial advisor.
Workers comp Las Vegas
pinoy investor, i love the sound of that book. im going to heed your advice and read it :).
Best regards, Alex, CEO of youtube downloader
They became fixed assets, inventories and working capital. Our personal and business assets got mixed.
Best regards, Katya, CEO of cd rw burner, red hat iscsi initiator