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S1EP1 Learn To Live Within Your Means

April 27, 2020

savingspinay-podcast-s1-ep1When I had my first job and started earning money on my own, I became very blind of my spending habits.

 

I hardly know how to budget so I always end up spending more than what I actually earn.

 

Laging petsa de peligro. Feeling ko hinahabol ko yung sweldo. Although I didn’t have personal debt, I had no money saved.

 

The worst part was, I ended up asking my parents for “baon” even though I was already working and earning on my own.

 

One of the Most Important Lessons to Learn in Personal Finance is to Live Within Your Means.

 

Living within your means doesn't mean limiting yourself. To live within your means is simply making necessary adjustments to maximize the limited money/asset you have.

 

Here are some steps that will help you live within your means:

1. Start by knowing your current net worth

The idea is to become more aware of where you are exactly in your financial journey. Paano ma so-solve ang isang math problem kung di mo alam yung given di ba?! The same goes with our finances. Once you have an idea of how much assets vs. liabilities you have, it will be easier for you to make changes.

 

How do You Calculate Your Net Worth

Step 1. List down the valuable items that you have (has market value) together with the amount

Step 2. Make a list of your liabilities (credit card debts, physical debts etc.)

Step 3. Finally, just subtract your total debt from your total assets. The resulting number is your net worth.

Study your numbers. Which areas do you need to undergo operation? Do you have enough savings?! How about your credit card debts? Is it too much?! Do you own a thing that you don’t use anymore but still has a competitive market value?!

A lot will be revealed as you calculate your net worth. It will definitely lead you to decide better on where and what you will spend your hard-earned money.

 




2. Make a Budget

A lot procrastinate in making their first budget. The key here is to start now. Do not make excuses such as “next sweldo na lang”, or “tsaka na lang pag month-end”. There’s no really good or bad time to budget your money. Just do it now.

So how do you create a budget?

Step 1. Choose the method you want. There are many ways you can create a budget. Either you use an old school pen and paper, budget apps or Excel templates. You only need to search on the internet and you will surely find something that works for you.

 

I personally use a combination of Excel Templates and analog budgeting. I have my overview budget in an Excel Template. Then every day I record my expenses using my bullet journal. I also use the same journal to jot down my financial goals for the following month and week.

 

Step 2. Record your net income This is the first thing you need to encode in your budget. How much is your net income. This will be your take home pay less government fees and taxes. This money will act as your starting point.

 

Step 3. List down your budget categories Budget categories refer to the items where you’ll allocate your money. This includes Tithe, utility bills, house rent, food, grocery, etc. It is important to have a budget category that works for you. Keep it as simple as possible so you won’t go crazy budgeting every end of the month.

 

Step 4. Calculate your spending percentage I recommend you use the 50-20-30 Rule of Budgeting to calculate how much of your income goes to each category. You can also use other budget allocation depending on your comfort level. If you are curious about the 50-20-30 Rule of Budgeting you can read it at www.savingspinay.ph/50-20-30-budget-rule

 

Step 5. Start budgeting. Put an amount dedicated to each category and stick to your budget. Don’t forget to adjust your budget if needed.

 

In case your budget reveals that you have more amount set on your expenses than your current income then you need to harshly cut-off on items that can be cut-off.

 

Following your budget is a good way you can live within your means.

 

3. Track where your money goes

A budget will show you where to put your money. But, if you want it to be more effective I suggest tracking where your money goes. This additional step is easier said than done but it will definitely change the way you allocate your money.

 

As mentioned in the beginning what I do is write down in the section of my bullet journal as it goes. You can also use a free notes app on your phone or any budget apps that let you record your expenses.

 

Why do you need to track where your money goes? Because it helps you understand how you are doing with your money, and make you in control of your finances.

 

If I do budget Php 1000 for lunch in the next 10 days but still don’t track whether that Php 1000 budget really goes to where it should be then I’m definitely prone to overspend.

 




5. Stop impressing others

As Will Rogers once said, Too many people spend money they haven't earned to buy things they don't want to impress people they don't like.

 

Wow, what a powerful quote. Tagos sa buto.

 

I think we are now living in a world where everything we see online just causes us to become paranoid and pressured to buy. Trust me, impressing others will cost you more than you could ever afford. Just stop worrying about how others will perceive you.

 

As long as you have the basics done like good hygiene, good attitude and good relationship then you’re off to good start. Trying hard to please your classmates, friends or workmates will not only ruin your finances but will also stress you out soon.

 

6. Become a smart shopper

Make a list before you shop. When you have a clear view of what you need to buy you can better assess the second step.

Separate the needs with the wants. Create a criteria for each item. Decide whether the item on the list is a need or a want.

Research and Ask from Others. Before buying that needed or wanted item, you might want to research first how others are finding the said product. Again as a personal example, before I buy a product especially if its high priced I search first on comments in forums and other beauty blog.

Find Alternative. If you can’t afford it then try to find alternatives and other solutions available but in the lower bracket.

 

7. Cut Down on expenses you can control

If you really want to live within your means then you have to sacrifice your wants in order to fulfill your needs. Any expenses you can cut down? Monthly subscriptions you can let go? Alternative routes for your commute in order to save money?

 

8. Increase your Income

Either apply for a better paying job or do freelance work in order for you to adjust accordingly to your spending plan.

 

Remember, living within your means is more than just balancing your budget. It means being aware of the difference between what you need and what you want. Have an idea of how much money you are truly making and make sure that your expenses are way less than it.

 

Links from this episode:

How to Calculate Your Net Worth

The 50-20-30 Rule of Budgeting

How to Be a Smart Shopper

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Clariza Glino

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 izza@savingspinay.ph

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