Wednesday, May 30, 2012

Manage Your Money - Step# 3: Reality Check

"Life's experiences are intended to make you eventually face yourself. Face reality!" -- Harold Sherman

Lesson number three. Get the sum of your allocated funds, and compare it with your take home pay or net income (less deductions) per month..

When Kulas received his first paycheck after college, he felt so proud of himself. Finally, he could solve all his family money problems; he could buy anything he had wanted. Immediately, Kulas went to SM Mall together with his family to shop and eat. He spent here and there and before he knew it, he had no more money midway to the next payday. He wondered where did all that money go, but he couldn't trace anymore. So he had to ask for fare and food allowance from his parents again just like his college days.

Sounds familiar? How about this?

Pedro was a real estate agent who earned by commission. One day, luck stroke him and he sold two condominium units in one day. When he received his hefty 5-digit commission, all the things that he had wanted to buy and the places that he had wanted to go flashed before his very eyes. Money was no longer a problem! Soon there after, Pedro gathered his wife and children and off they went to shop and dine. The next day they went to Boracay. (Money was no longer a problem!) He felt that he had so much money that he just spent and spent. But one day his ATM receipt showed P2000 balance. He began to wonder, where did all that money go? He shrugged his shoulder and went his way to sell more real estate.

Pedro and Kulas made a lot of mistakes in handling their money. One clear sign that they somehow mismanage their money is when they ask the question, "Where did all that money go?"

Do step# 1. Do step# 2. Then compare the sum of your allocated funds to your net income, net commission or take home pay. This is a reality check -- can you really afford your current lifestyle? Oh, yes! Your list from step# 1 and step# 2 represents you lifestyle today.

If your income is lesser than your current lifestyle, say you earn only 15K/month and you normally spend around 20k/month based on your allocation, then you have three options:

(1) Scale down your lifestyle
(2) Look for additional income, pronto
(3) Scale down your lifestyle temporarily and look for additional income

Pause for a moment. Take a hard look at the difference between your net income and your lifestyle today. If it's negative then you need to act quickly before you'll get buried in debt. My suggestion is, go for option (3).

Monday, May 28, 2012

Manage Your Money - Step# 2: Allocate Funds

"If you can measure your problem then you solve half of it already."

Lesson number two. Allocate fund to each regular monthly expense.

I hope you have your regular monthly expense list with you by now. If none yet, please go back to 'Step# 1: Identify Your Expenses' and finish it. Spend time on
it because it is the essential first step toward managing your money.

Pull out your regular monthly expense list and on the right side write the cost of each expense per month. But before you start working on your list, just a few of guidelines:

(1) Give your best estimate of the current monthly cost of each expense
(2) Modify your list over time

Below is an example of how it will look like once you're done.

(1) Rice - P2000
(2) Food - P4000
(3) Purified water for drinking - P200
(4) House expenses - P1000
(5) Vitamins - P2000
(6) Milk and diaper - P2000
(7) Tuition fees - P2000
(8) Gas - P3500
(9)  Electricity bill - P2000
(10) Water bill - P600
(11) Telephone and mobile phone bill - P1300
(12) Car/house amortization - P8000
And so on and so forth.

Don't worry if your figure is different from the sample above. Don't worry also whether you put the right amount because you can adjust later. In fact, this document should be updated from time to time.

Good! You are now ready for Step# 3.

Sunday, May 27, 2012

Manage Your Money - Step# 1: Identify Your Expenses

"Fighting something that you cannot see is a losing battle."

Lesson number one. Identify all your regular monthly expenses.

When I first started managing my money, that was 10 years ago, I never thought it possible to write all of my expenses. Maybe you fell the same way. Let me tell that it's very possible, and if you really want to manage your money, you have to. In a battle, this is like sizing your opponent. You can't just charge forward without knowing what your up against in.

Grab a pencil and a piece of paper or open a Microsoft Excel spreadsheet. But before you start working on your list, just a few of guidelines:

(1) Write only regular monthly expenses
(2) Be as detailed as possible
(3) Modify your list over time

Below is a 'basic' example of a monthly expense list to give you an idea.

(1) Rice (for Asians like me)
(2) Food (minus the rice, of course)
(3) Purified water for drinking
(4) House expenses (soap, detergent, insecticides, etc.)
(5) Vitamins
(6) Milk and diaper (specially for those with children like me)
(7) Tuition fees (specially for those studying or with children)
(8) Gas (for those with cars)
(9)  Electricity bill
(10) Water bill
(11) Telephone and mobile phone bill
(12) Car/house amortization
And so on and so forth.

Your list could be very different from the sample list above. It's OK as long as these are all your regular monthly expenses.

Don't worry if you couldn't list all of your expenses the first time. This list is normally updated from time to time.

Now play your favorite music - I am playing 'Soldier in the Rain' now - , and start working.


Thursday, May 10, 2012

Getting Out of Debt: Rule# 5

"Don't use a basket to hold your water."

In short, manage your money well.

As a little boy, one of my favorite pastime was to play with marbles with my neighborhood buddies. What we did was to dig five holes, each hole was small enough for a marble to fit in. Then we took turn tossing a marble into the direction of the holes. The one who could make his marble fall into one of the five holes was declared the winner, and as one song says, "...the winner takes it all." (At least one marble from each losing players.)

For a while my days were filled with fun. Because I was fairly good at it.

But then a new family arrived in our neighborhood tugging along a boy by the name Rico (not his real name).

One afternoon, I saw Rico playing marbles with my old buddies. With a plastic bag full of marbles in one hand, I confidently challenged him. We played the whole afternoon. By the time I decided to quit, I had only a few marbles left. (I cut my losses, but it was a little too late.)

Each step I took my heart sank a little deeper as I graved the loss of my treasures; I had played hard to collect those. I couldn't believe I lost them. The sight of Rico bouncing on his way home, a plastic bag bulging with marbles dangling in his hand, made me feel more miserable. As one song says, " (she) used be mine, oh mine."

Don't put your confidence on your money! Simply because you are sitting on a stack of cash doesn't mean that there is no chance on earth that you would sit on the dirt again. If you spend you cash with your eyes closed then I won't be surprised that the thousands (or millions) you have today will be gone soon.

Mismanaging your finances is like putting water on a basket. No matter how many barrels you pour in, it won't hold. So maybe the solution to your financial problem today is a new way to manage your finances. I couldn't imagine my life today if I didn't put in place a system that would help me manage my finances. I'm sure it saved me from a lot of unnecessary headache.

In my next posts, I will share with you little by little my system. If you are in financial trouble, then consider it my way of helping you. It's simple; it's not really revolutionary, but it keeps me and my family floating so far. And yes, I do have of bills coming each month just like you.