How to Handle Your Finances Wisely
Nope. This article is NOT about the Philippines’ social security system for government employees.
But, yes, this is about how to handle your money wisely to be financially secure.
If you are like me, a common employee with so much hopes and dreams of becoming rich someday, you may have discovered that handling your monthly paycheck is not that easy. Most of the time, you end up spending everything after a week of your salary’s release.
In fact, according to Money-Summit’s latest survey on Filipino household savings and investments, 43.8 percent of respondents say that they spent more than their income, while 51.5 percent spent as much as they earned. What’s shocking is that only 4.6 percent spent less than their income!
So how do I handle my money? What is the most basic approach to managing my finances?
I have a simple answer for that. It’s all about prioritizing–where should you allocate your hard-earned money first. And I present here my simple yet effective formula on how to prioritize and manage your paycheck: Give, then Save, then Invest, then Spend. GSIS! Easy to remember, right?
How does this money allocation-prioritizing system works?
Your money should first be allocated to giving.
But wait. Before you shoot me for sounding ridiculous, let me first make my case.
I believe that it’s a universal truth that if you give, you will receive. And the more you give, the more you will receive.
Sounds ridiculous? Yes. Plausible? I bet.
Here’s a fact I’m sure you already know: most of the world’s richest give. Billionaires like Bill Gates and Warren Buffet, two of the world’s richest men in the world also tops as the world’s most generous as they have given much of their income to charities and foundations, helping millions of the poor worldwide.
Psychologically, when you give, you develop a good perception of yourself and your current financial state because you are able to help others. On the other hand, those who are stingy about their finances would tend to feel that they are always in need and are victims of a poorly managed economy.
Plus, not only does generosity makes you feel richer than those who don’t, the fact that you are capable of giving means you are rich. Think about it.
I would recommend allocating 5 to 10 percent of your income for giving. You may give to charity, sponsor someone, treat your family or co-workers, or give to your local church. Whatever form it may be, just give… And it will come back to you.
This is the most desired, yet most difficult, habit people want to develop.
In fact, according to a study done by FeedThePig.org, 62 percent among 25-to-34-year-old Americans say that saving money will most likely be their New Year’s resolution. Yet 40 percent of the same group saved nothing at all.
In the local setting, only 2 out of 10 Filipino households have a bank deposit account. And sadly, the median balance among deposit accounts in the Philippines falls under Php7,000. (Source: money-summit.com)
There are many reasons why you should save money: for future unexpected needs, retirement, for emergencies, or for purchasing specific stuff you desire to have.
For those reasons, I would say that it’s worth having the discipline of putting money aside to a deposit account. My recommendation is setting aside 10 to 20 percent of your income for savings.
This is something most Filipinos are reluctant to explore thinking that having investments is too complex to understand or that it’s only for the rich. According to PSE (Philippine Stock Exchange), less than 1 percent of Filipinos are trading in the stock market today.
Unknown to many Filipinos, though bank deposits may yield interest of about 1 percent to 4 percent, investing in the stock market may yield higher gains of up to 19 percent (money-summit.com) or if you get lucky, even more.
Investing in stocks is easy and simple nowadays. Thanks to the internet where you can do all your transactions online.
With a minimum initial fund of Php5,000 you can already start investing to the corporate giants like Ayala, PLDT, Jollibee, and call yourself a part-owner. Inquire from online brokers like Citiseconline.com or Philstocks.ph for more details on how to begin.
You can allocate 10 to 20 percent of your income to invest on a monthly basis using the cost-average method. We can discuss this in another article.
Aside from stocks, you can also invest in anything that will add value to you that will eventually help you earn more (i.e. further education, clothes that will help you get a better job or promotion, and purchasing assets that will bring you passive income such as real properties).
Now, you’re left with about 70 to 50 percent of your salary.
What do you do with that? Duh. Spend it! First for bills and obligations, then be as lavish as you want with the rest.
You might be saying, how can I spend lavishly if after giving, after saving, after investing, and after paying my monthly bills, I have so little left?
If that’s the case, you might want to consider changing your lifestyle. The problem with many is when they get an increase in their salary, they automatically upgrade their lifestyle as well. They buy a new car, a new house, new gadgets, etc. without considering the expenses that will support or maintain those things (i.e. fuel and parking fees for the car, furniture and supplies for the house, apps for the new tablet). Thus, they end up going back to the cycle of spending more than they earn.
The secret is to stick to a certain lifestyle in spite of your salary increases while resolving to yourself to be content with what you have. Being frugal is not a bad value to have if you’re serious in managing your personal finances. Be content.
Financial intelligence does not come naturally to most people. Becoming financially stable and debt-free requires discipline and diligence.
I hope that this article helped you see how you should allocate your money before spending it to maximize your earning and enjoy the fruits of your labor.
Remember–GSIS. Give. Save. Invest. Spend. (Please don’t do it in reverse!)
Do you think this will work for you? What is your “technique” in handling money? Please share your thoughts, suggestions, and comments below.
About the Poch Relucio
I am a digital marketer specializing in B2B marketing initiatives. I am currently the lead for marketing in a management consulting firm that is focused on talent management and people intelligence. I email. I tweet. I blog and retweet. I use an iPad but I love Android. I make mistakes. I see success as a journey rather than a destination.