S1E2 Pay Yourself FirstMay 5, 2020
Saving money is more than just having a reserve amount. It means prioritizing yourself! The essence of saving money is to pay yourself first.
Robert Kiyosaki, an American businessman and author of famous book Rich Dad, Poor Dad once said, “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
Once I met with a very close high school friend of mine when our discussion navigated to our savings.
Sabi ng friend ko, she has Php 100,000 money saved and don’t know what to do about it.
I just smiled but at the back of my head was so surprised because I know I make more money than her but I don’t have that much money saved yet. Not even 10% of that amount.
That moment really opened me to the importance of saving money.
How no matter how much I make, and how many side hustles I do, it all boils down to one tricky money question – How much did I save?
According to www.financialsamurai.com, the top 1% of US’s rich people save an average amount of 38% of their income.
Considering they are the wealthiest of the wealthiest, that saving percentage is HUGE.
Filipinos find it hard to save money for plenty of reasons.
1. Not having enough money.
2. Leaving things to fate aka bahala na mentality.
3. Not knowing how to save money.
4. Debt, debt and more debt.
5. Thinking it is already too late to save.
Here’s what I want you to remember: Saving money is the single most effective way to get rich.
If you can live within your means, save and invest the rest, you have done well for your(future)self. Far well than you might ever think.
There are three (3) important reasons why you have to save money:
Reason 1. Saving Money makes you sleep peacefully at night
If you don’t have reserved money you will end up becoming afraid of what tomorrow will bring.
Without enough savings you’ll pretty much worry how to survive the coming work week. Once you set yourself on having a proper savings by living within your means or taking other extra steps, your financial stress will diminish.
Picture a life wherein you continually save for your goals, wherein you have a prepared savings account for your future children’s education and wherein you are regularly investing in your retirement?
I bet you’ll have the best sleep every night.
The developing COVID-19 situation teaches us some valuable lessons about life. How much we need to save money. Those without an emergency fund prepared, will find themselves worrying how to put ends meet.
And so, the most important thing people can do now is to make sure they have an emergency fund in place.
Reason 2. Saving Money will empower you to make better financial decisions
Having proper savings will empower you to make financial decisions that will better out your life.
The more money you have, the more options you'll be getting.
If you are not happy anymore in your present career then you can easily decide to file a resignation, for you have enough emergency fund to use for your expenses. You can now slowly build your dream house, dream car and dream vacation. You can aim higher in life and have a greater chance of achieving each goal you create.
Reason 3. Saving Money can give you the option to invest and earn passive income
A powerful way to start acting for financial freedom is to Save and Invest.
Saving is the process of putting cash/money and parking it in a safe place and can be accessed easily when needed.
Investing is using money as a capital to buy an asset in which you strongly believe will bring a better return of investment or in other words will make you richer.
First, save enough money as your contingency fund a.k.a. Emergency Fund. From there, slowly save again another amount but this time ride an investment vehicle that satisfies your financial goals. You can choose a mutual fund, direct stock investment or put up your online business as your very first investment.
If you regularly save and invest then there is a better chance that you can retire at an early age. The accumulated interest that your savings and investments will earn is what we call passive income.
Again, start as early as possible because the earlier your start the larger your money can get through compounding.
How do you save money?
1. Review Your Finances
What it takes to get financial discipline and save money each month is a constant proper financial review.
The more you undergo a financial review, the more you become aware on what areas of your financial life needs to improvement.
Awareness is the knowledge or perception of a situation or fact. It is being conscious, being able to recognize and to realize things. When we become more aware, we become wiser when it comes to spending our money.
Examples on how Awareness will teach you to save your Money:
- Be aware that you have debt.
- Be aware that you need to work in order to live.
- Be aware that you are overspending.
2. Track Your Spending
Are you tired of living from paycheck to paycheck? Do you want to save more money?
If yes, then you might want to try tracking your expenses. Most of us spend our money unconsciously, we get our paycheck on the 15th and in just a week all the money is already gone. And the saddest part of it is we have no idea where our money went.
Tracking your expenses can take away a fraction of your time but it’ll be worth it. As soon as you make it a habit you will find it easier to do. Here are the benefits of tracking your daily expenses:
- Identify right away what kind of spender you are. Are you someone who spend mostly on your wants or on your needs?
- Avoid mindless spending. Because you are keeping a record on where you spend your money, areas where you can save money each month is easier to detect.
- Allows you to take control. Taking notes of your spending give you a better control on your money. You can easily change your lifestyle so you can save each month.
I realized when I started tracking my expenses, I became a better budgeter. It became easier for me to keep my budget at work. A budget and an expense tracker goes hand in hand to help you save money.
3. Create a budget
Budgeting plays a crucial part on how to save money each month. If you don’t create a spending plan, you will easily spend more than what can and what you are allowed to spend.
To make it easier for you I encourage you to follow the 50-20-30 Budget Rule. I see this as the easiest and the most flexible budget template that can adapt to who and how you are with money.
1. First, input your net income. This is income less tax, government fees and tithes.
2. Second, divide your net income on three important categories – essential expenses, financial freedom and lifestyle fund. You can allocate your desired percentage. The most common is 50-20-30 hence, the name of the budget rule.
3. Third, try not to go beyond the percentage you set. Always aim to be as close or lower.
Related: I wrote an exact post on The 50-20-30 Budget Rule Works and How It’ll Save Your Finances you might want to check out.
4. Think of your goals
I urge you to set your yearly and monthly financial goals now. Goals work as motivational tool that will keep you from building wealth instead of the other way around.
Once you have a set of clear financial goals it will be easier for you to assess your next action. Here are sample goals that can give you the financial discipline to save each month:
1. Pay-off 50% of my credit card debt in the next six months.
2. Start a side-hustle and generate my first 10,000pesos extra income.
3. Put up an emergency fund with at least 60,000pesos before the year ends. Once you start thinking and remembering your goals you will be encouraged to save more.
5. Start small
You don’t have to make it big at first. Always start with small and doable amount.
Psyche yourself and your wallet on saving 1000pesos every month for example. At the end of the year you’ll have 12,000pesos more on your savings fund.
Do not force yourself to save a lot of money at once, make it as gradual as possible so you won’t slack off midway.
6. Reduce your monthly bills
Now, if you really want to save money each month then you need to reduce your monthly bills. A sudden decrease on your monthly bills give you the means to save automatically.
- Cut back on your energy consumption. Unplug electronics not in use. Spend less time on watching TV or being on the computer. Turn-off the lights especially at night time. Find appliances that have energy-saving features.
- Reduce monthly subscriptions from cable TV, Netflix, magazine, gym membership or beauty box. Just focus on what you truly need.
- Focus in paying your debt. Debt hinders you in saving money each month. Pay-off high interest slowly but surely. Avoid using your credit card and being more in debt. For personal loans try to negotiate with a lower monthly pay so not all your money go in paying.
7. Join a saving challenge
A good way to force yourself to save money each month is to join challenges. You see those testimonial pictures and videos of successful individual who manifest financial discipline and was able to save. Among my favorite saving challenge are as follows:
- The 52-week Money Challenge – Rhea Mocorro of Kuripot Pinay localized the 52-week money challenge and became widely popular every year. The idea is very simple, on week 1 you save 50pesos, week 2 100pesos, week 3 150pesos and this continues to increase based on your starting amount until week 52. If you succeed your total savings for the whole year will be as high as 68,900pesos! You can read more about this in Different Ways You Can Apply the 52-Week Money Challenge
- Invisible Money Challenge – I’ve done this challenge last year and is continuing it for 2017. It is very doable for those who want to save money each month. You choose an amount you will treat as an invisible money. For example every 50pesos that come in your hand/wallet are automatically considered as invisible money. You need to put those bills directly on your savings or alkansiya.
- The Jar/ Bote Money Challenge – Another viral saving challenge at the moment is the jar/bote. You basically dedicate a separate jar/bote for each of your saving goals. Put every amount you have from loose change to proper savings to each jar/bote as part of your short-term or long-term money cushion.
8. Make Extra Income
Engage yourself in extra income projects that you are passionate about. Choose a side-hustle you can work on along with your full-time job.
You can begin by selling your pre-loved items. Go through items you no longer need but still has applicable market value and sell them online or through garage sale.
If there is an area you consider yourself an expert then try teaching to others. Whether you teach English online, tutor Math or Science subjects to lower year or coaching a specific type of instrument.
There are a lot of ways you can make extra income and save automatically. I created a list of best side hustles to try you can check for ideas.
9. Diversify your finances
It should be your ultimate goal to make money work for you. Create multiple income streams that will set your savings into autopilot mode.
Mind the gap between the money you have and the money you save.
Earn more, spend less, and save the rest.
The money you earn from your hobbies and passions can get you closer to your dreams. You have more means to save, to invest and to share.
Extra income no matter how small or big it is opens opportunity for you to achieve more.
All the side hustles I did and I still do helped me to become the person I am today.
It definitely increased my knowledge, widen my network and explored my potentials. Now I am not afraid to turn my idea into something for I know that if only I believe and I do the proper action I can definitely generate extra income with it.
10. Do it Automatically
Apply for e-banking to easily save automatically. the saving automatically. Talk to your bank on how you can automatically transfer x amount of pesos to your separate bank account every x number of days. I did this before I closed my BPI Direct Save Up Plus Insurance and it is certainly helpful.
Why you should pay yourself first?
You did the hard work, why not pay yourself first this time?
Remember the Golden Formula of Wealth Income minus Savings equals Expenses.
The moment you see your money on the ATM Payroll or Envelop, take away a reasonable amount for your savings.
Don’t even delay this step as temptations occur faster than expected!
Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at email@example.com