Manage Your Money - Step# 6: Monitoring Your Regular Expenses

"I can make more generals, but horses cost money." ~ Abraham Lincoln

Hello! Today, our topic is about monitoring regular expenses.

There are three important expenses that you would like to monitor.

(1) Regular expenses
(2) Credit card expenses
(3) Non-regular expenses

In this post I will show you quickly how to monitor your regular expenses using a spreadsheet. In this example, I use Microsoft Excel since it is readily available in most PC's. You can you use other spreadsheets available in your PC, too.

Table 1 Regular Expense Monitoring

The first column is for the list of regular expenses while the rest of the columns are for the scheduled dates when you put money into the envelopes. I suggest to divide the payment into two if you receive your income on a bimonthly basis. In this example, I choose the 5th and the 20th days of the month. You can also choose the 15th and the 30th days of the month if this coincide with your paydays.

The bottom row is for the total expense per column.

There are at least two benefits of monitoring your regular expenses. These are as follows.

(1) You know where your money went.
(2) You know whether you are overspending or living just within your budget.

OK! Start creating your own spreadsheet.

NOTE: As much as possible update the spreadsheet at the same time you put your money into the envelopes. Don't forget to update the piece of paper inside the envelope; this will come handy later.

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Manage Your Money - Step# 5: Depositing Allocated Funds to Your Personal Bank

"I have learnt to seek my happiness in limiting my desires, rather than attempting to satisfy them." ~ John Stuart Mill

Now let's proceed to the next step - Depositing Allocated Funds to Your Personal Bank.

So it's your payday! You've been scrimping for the past few days prior to your payday, and now you can't wait to get your hands on those cash. But wait! Before you rush to the mall to dispose your money do the following first.

(1) Withdraw cash from your ATM equivalent to your allocated funds
      Do not withdraw your cash one time. Make multiple withdrawals in terms of P400 or P900 or P1400 or P1900 so that it's easy for you to divide it among the envelopes.  

(2) Go straight home and deposit the money to the envelopes
      By going to the mall with your allocated funds inside your pocket or wallet you risk losing it. Click here to know why.

(3) Write the date and amount of your deposit to the piece of paper that can be found inside each envelope
      This will help you track down you deposits and withdrawals.

(4) Put the envelopes back to the cabinet, lock it
      Consider the money inside the envelopes as not longer your own. You no longer have the freedom to spend it; it's gone.

(5) You can now go out to spend the rest of the money in your ATM
      Now, it is safe to go shopping.

Fairly, simple right? Anybody can do it. But don't let the simplicity of this system makes you underestimate it because it's a very powerful tool in managing your money.

REMINDER: Do not spend the money inside the envelopes for something other than what it's intended for. However, in cases of emergency and you really need money then make sure that you log the amount as borrowed money that you really need to pay ASAP. Remember that it is not your money anymore! However, avoid doing this lest you develop a bad habit in managing your money.

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Manage Your Money - Step# 4: Make Your Own Personal Bank

"Respect your efforts, respect yourself. Self-respect leads to self-discipline. When you have both firmly under your belt, that's real power." -- Clint Eastwood

 

At this point, I am assuming that you already adjusted your allocations to match your actual take home pay. If not yet, please go back to step# 3.

Basically, you are making a lifestyle change, although momentarily until you can afford your desired lifestyle. What's next?

The next step is to make your own personal bank to where your allocated funds will be deposited. (Who says only big time businessmen can create banks.) How? This is very simple.

1st: Buy long mailing envelopes, your personal banks
2nd: Label the envelopes - 'RICE' for rice allocation, 'ELECTRICITY' for electricity bill allocation, etc.
3rd: Get a lengthwise piece of papers and put one inside each envelop
4th: Keep the envelopes in a cabinet and locked it.

That's it! Now you are ready to roll. All we have to do now is wait for your next payday.

I learned this simple yet very effective technique of managing my money during our Pre-Cana Seminar with my wife. The couple speakers that afternoon were not really teaching us how to budget, but when the wife mentioned how she used envelopes to store her husband's money, I did not forget it. I have been using it for 10 years now! It's very effective.

The advantage of the envelope over the real bank, and cooperative is that you can withdraw from your personal bank very quickly. The downside is that you should be very disciplined in your withdrawal; you should only withdraw money for the intended expense. Otherwise, your budget will not become effective. So it's very important that the person holding the keys to the cabinet should be more of a Spartan than a Monarch.

We will talk later when we can use banks and cooperatives to manage our fund. Yes, these are part of our money management strategies.

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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).

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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.

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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.

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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, "...it (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.

Getting Out of Debt: Rule# 4

"Pay off your debt!"

My mother owns a small sari-sari store. As what usually happens in this type of business, a lot of people owe money from her. There are some who don't pay their debt and instead start avoiding my mother and patronizing other sari-sari stores, my mother's business competitors. This really upsets her...who can blame her?

When my mother is upset with a debtor she would usually tell me, "...if only Mr./Ms. So-And-So would pay me P20 per day I would be fine with that rather than seeing him/her pass by my store as if nothing happens, and with no explanation why he/she couldn't pay as promised."

No matter how big or small your debt the only way to get out of it is to pay it off. Ignoring your debt is not only very irresponsible, but also immoral. You don't only owe money to your creditor, but you also have moral obligation to him/her. Don't forget that during your times of need your creditor was able to help you, so it's only right, and fair that you treat him well by paying off.

However, if you have too much in your plate then instead of avoiding your creditor, why not talk to him/her. Apologize if you have to -- you owe that also to your creditor if you can't pay as 'you' promised -- and negotiate for a easier payment term, something that you can afford while not spending more than you earned.

Like my mother, your creditor would still be upset specially if he/she needs the money, but at the same time you will earn his/her respect for doing what is right even when it's very unpleasant. Your creditor would mostly like agree to receiving smaller down payment than not receiving anything from you at all.
 
Taking legal action is too much hassle, not to mention costly, to your creditor as much as to you. But if you make him/her angry then he/she might bite the bullet and sue you. And this would only add trouble to your existing troubles.

Getting Out of Debt: Rule# 3

"Cut your losses! Stop borrowing money that you can't afford to pay."

Getting out of debt and managing money boils down to one very important human trait, self-discipline - the ability to calmly say no when your body is itching do something foolish like spending till bankruptcy.

The main reason many people are buried in debt or can't manage their money is because they cannot say no to their want or to the want of their love ones even if the want is not really a need.

I don't mean that you have to be stingy to yourself, your spouse or your children. But you have to be realistic as to what you can afford. You've got to draw a solid line that says 'stop, nothing more beyond this.' This should be clear to you and to your love ones. And you should respect this stop line with all your heart and mind.

In my family, for example, we have what we call 'Family Night' and we do this every Friday evening. In celebrating this event we follow two unwritten rules: (1) We have to spend within the allocated budget  (2) Even if we don't have money, we celebrate it anyway; there were times that we just stayed at home and watched one video because I don't want to cross the stop line.    

So before you swipe that shiny credit card or borrow money from the Bombay in motorcycle to buy something, ask yourself these questions:

If I don't buy this will I die? Will my family cease to exist? Is this really very essential?
Can I put off buying this until later, when I can afford already?
Do I have money to pay for this? Can I pay this one time once the bill arrives?

What good does a new cellphone, a new laptop, a new tab, a new home theater, etc. bring to you if your bleeding inside from debt, and the only way for you to pay it is to borrow some more?

Stop your losses! Use that credit card only if you can pay the full amount one time. If you pay only the due amount, then you're still bleed from hidden interest. You are not cutting your losses.

NOTE: To me there are only two valid reasons to borrow money: (1) When life hangs on the balance (2) When you want to grow your money by putting up a business or by investing.

Getting Out of Debt: Rule# 2

"Keep your money off your pocket!"

Once you honor Rule# 1, the next rule to honor in order to get out of debt or stay free of bad debt is 'Keep your money off your pocket!'

What do you do after you receive your salary or your income or your commission or your sales? Spend it? Keep the money in your pocket or wallet or ATM? Or do you allocate it first?

You response is very crucial to getting out of debt or staying free of bad debt.

If you keep you money in your pocket or wallet or ATM, you can kiss your money goodbye. The money in your pocket or wallet or ATM is money here today and money gone tomorrow. And usually you won't even remember where did it go! So keep only in your pocket or wallet or ATM the money that you can afford to spend.

If you choose to spend first before paying your debt then chances are that nothing will be left to pay off your debt. All the while the interest keeps piling high, burying you deeper into debt.

However, if you choose to allocate first before spending anything then you are putting yourself in a better position to pay off  your debt or stay out of bad debt.

This is my suggestion to you. Once you receive your salary, income, commission, sales, etc. allocate them right away! For example, put inside an envelope (with appropriate label on it) your payment for electricity, telephone, water, debt, etc. Don't spend this money.because these money are not yours anymore.  

Getting Out of Debt: Rule# 1

"Stop spending more than you earned!" -- My mother

If you are looking for the most important rule to follow in order to get out of debt starting today, and to stay out of bad debt, this is it! Look no farther.

The truth is that, if you subtract a big number (say 9) from small number (say 2), you will always end up with a negative answer; it's -7 in this case. This holds true anywhere you go. So to get a positive result, most people would gladly crawl into a hole called debt by borrowing.

Here is the hard truth. If you couldn't stop yourself from spending more what you earned and instead become a habitual borrower, then you would always end up gasping for more money even if you would be promoted every year. And no matter how many businesses you will put up, all of them will collapse sooner or later. The law of subtraction is universal.

So stop fooling around. If you really want to get out of debt, make that firm decision today to honor Rule# 1 and do yourself and your family a favor.


(I don't claim that my mother is the originator of this timeless wisdom, but I want to honor her for introducing this to me, and drumming it into my head usually over dinner.)

Why Manage My Peso?

Can you still remember the time when looked at the balance of your savings account in your favorite ATM machine, scratched your head, and thought out loud, "Where did my bonus and 13th month go?"

Because what was left was a small fraction of the money that used to be there, and you only have a vague idea of where did your money go.

Welcome to the world of mismanaged income!

Or how shocked you were when you opened that crisped credit card Statement of Account only to find out that your Total Due Amount was almost one half of the income you would receive by the 15th?

Welcome to the world of mismanaged spending!

How about the time you got promoted and received a substantial raise only to find out later that your income was still not enough?

Welcome to the world of mismanaged lifestyle!

From my own experience I believed that these three 'MIS' are the leading causes of the financial woes of many families most specially the average income earner, and the middle class.

It is from these beliefs and the desire to help address this that this blog is born. So the purpose of this blog is to help those Filipinos who are average income earner and those who belongs to the middle class to overcome their financial woes caused by mismanagement of financial resources like mismanaging income, mismanaging spending, mismanaging lifestyle, and others through sharing of simple, practical, and easy-to-follow ways of managing financial resources that we've learned from the school of hard knocks as well as from the Bible.

After all who knows better about managing financial resources than the Creator, the source of life? 

We don't claim to make you rich. There are other sites that specialize on this. But our simple vision is to see you get out of debt, live free of bad debt, keep and enjoy your hard-earned money, and grow your money. If this is what you have in mind then...

Welcome to How to Manage My Peso!