One
important lesson I’ve learned from Robert Kiyosaki is: You should already start saving once you receive your first salary,
even if it seems teeny weeny to you.
Because if you don’t, chances are, you’ll
never get around to doing it. Your income might increase as you go up the
career ladder, but so will your expenses if you don’t learn how to manage them
at the onset.
In this
article, I’m sharing some saving and budgeting strategies I’ve noted from books
and seminars. Pick one as your starting point if you don’t have yet a system in
place, subject to the following golden rules:
- Budget each paycheck before you spend the first peso.
- Divide and conquer your salary; fill each envelope/jar with the money accordingly.
- When an allotted amount is gone, it’s gone; don’t be tempted to get/borrow from the other envelopes/jar.
1. The Basic 10-20-70 Rule
The classic prosperity formula is: Income – 10% Tithe – 20%
Savings and Investment = Expenses
Tithing is not only a means for us to share our blessings,
it’s also one way to grow in our “abundance mentality.” For a good explanation
on the wonders of tithing, you can read http://bosanchez.ph/do-you-tip-or-tithe/.
2. The 5-Envelope System
This is based from Bo
Sanchez’s book My Maid Invests in the
Stock Market, where he taught his maids to divide their salary into the
following five envelopes:
• First Envelope: Tithe Fund
- For supporting
God’s work
• Second Envelope: Expense Fund
- For your daily
needs
• Third Envelope: Support Fund
- For your family or
relatives, especially if you are the breadwinner
• Fourth Envelope: Emergency Fund
- For your peace of
mind in times of unexpected circumstances
• Fifth Envelope: Retirement Fund
- For your real savings, to be devoted to your
investments
3. The 7-Jar System
a. Investment/Retirement Fund: 20%
For your
long-term savings. But instead of plunking them in the bank (to be eaten by the
inflation rate), put them instead in good investment vehicles that will exponentially
multiply their worth over the years.
2. Emergency Fund
You can
build this gradually over time, but this must equal 3 to 6 months of your
monthly income for err…emergencies.
Examples:
you suddenly lose your job (and they say it takes an average of 3 to 6 months
to find another one), something needs to be fixed, someone gets sick, etc. By
having this amount ready, you will not be forced to dip your fingers into your Investment/Retirement Fund.
3. Everyday Fund: 70% or less
For your
daily expenses. If it’s hard to live on just 70% of your income, then it’s advisable to audit where you are spending your money, and figure out where you can cut
costs.
You can list
all your income and expenses for a particular period (monthly, every payday,
etc.). Record even the tiniest expenditures. This allows you to check if there are any
hidden spending affecting your ability to gain a healthy cash flow.
4. Empower Fund: 5 to 10%
For your
medium-term expenses, devoted to things you want to buy but cannot afford yet,
like cars, houses, etc.
As much as
possible, better pay cash (that you have saved) than credit. You also save the
money which otherwise would have gone into paying the interest of your loan.
5. Enjoyment Fund: 5%
For life’s
little luxuries. Remember, you don’t have to spend a lot to enjoy and have fun.
6. Education Fund: 5%
Learning is
continuous, right? Invest in yourself.
You can ask
around for free seminars (a lot of NGOs and even private organizations are giving them),
visit your local library for books, surf the Internet for free courses, if you
lack the extra funds. The important thing is that you must continuously strive
to empower and develop yourself.
7. Eternity Fund: 10%
For you to help
God’s ministry while growing in your abundance mentality.
Final Notes
If you will
tally the percentages for the 7-jar system, they won’t add up to 100%. I
believe that is because the major jars which do add up are the Eternity Fund
(10%), Retirement Fund (20%), and Everyday Fund (70% or less). How you allocate
to the other jars would depend on your priorities.
One very
important step before you can commit to the 7 jars is to eliminate all your debts first. You will not be able to save if you
have pending debts since the debt interest will just grow greater than your
savings.
Personal finance is 80% behavior and
20% technical. It
can be hard to build the habit at first, so it’s important to surround yourself
with people who’ll support you in your journey towards financial stability.
Especially friends who’ll remind you that delayed gratification works because
#YOLO is overrated. (I do believe that we must live every moment to
the fullest, but we millennials must also have the foresight to prepare for our
future instead of focusing on fleeting pleasures.)
Lastly, if
you feel your income is not enough and/or you want to earn more so you can
share more to others, then it’s time to increase your cashflow by working on
your cash machines. Next step: be an entrepreneur, preferably a social entrepreneur. :)
Labels: Financial Literacy
One
important lesson I’ve learned from Robert Kiyosaki is: You should already start saving once you receive your first salary,
even if it seems teeny weeny to you.