When it comes to financial responsibility, you gotta learn how to kick all kinds of buts.
“But life is so expensive”. “But I don’t make enough to start an emergency fund or invest in stocks”. “But I can always save for the future later”. But nothing! Life is expensive. Which is exactly why you need to learn how to make your money work for you. Otherwise, the cost of living will catch up to you and dropkick you out a window.
It’s kind of a dick like that.
How to Make Your Money Work For You
#1 Keep track
Many people think money is magical. Which is probably due to its ability to vanish into thin air. But don’t be fooled. Money is more trickster than wizard, and its disappearing act is all illusion and prestige. Break this escape artist’s spell by keeping track of everything it’s doing. The more conscientious you are, the more difficult it’ll be for money to fool you.
What I do: Each week I take note of what’s in my bank accounts, stock portfolio, wallet and credit card. I also include a detailed daily breakdown of where I get my money and how I spend it. This keeps me accountable for my finances and helps me come up with a budget plan for my earnings.
It also keeps me from buying things I don’t really want or need.
#2 Set goals, make budgets
Budgets are road maps to success. But you can’t map out your route if you don’t know where you’re going. Which is why you need to set goals.
My suggestion: Calculate your income and subtract cost of necessary expenses. Take what’s left and determine how much to allot for casual spending, saving and investing. This will help you understand your spending habits, which you can improve through well thought out budget plans.
#3 Get a compound interest account
Interest is the cost of borrowing money.
Banks earn income by charging interest to borrowers. To get the capital for money lending, banks borrow from their depositors. Which is why depositors are paid interest for keeping their money in bank accounts.
The standard bank account yields simple interest (usually paid per annum). The amount of interest earned is fixed. So if your principal (how much you have in your account) is Php 100,000 and the interest rate is 3% per annum, you end up with Php 3000 per year, every year (Study Maths).
Whereas compound interest factors in how much interest you’ve already earned: Principal amount Php 100,000 + interest Php 3000 x interest rate 3% = Php 3090.
It may not seem like much of a difference, but compound interest can do amazing things to your money if you let it mature. In 30 years, for example, a simple interest account of Php100,000 at 3% interest will yield Php 190,000 (earnings: Php 90,000). While a compound interest account will yield Php 242,726.45 (earnings: Php 142,726.45).
My suggestion: Keep your standard account for money you need easy access to, but start a compound interest account ASAP -even if you only have Php 10,000 to start with. This will serve as your emergency fund. Add to it whenever you have extra cash. And don’t you dare withdraw from it for any reason less than a medical emergency or surprise pregnancy.
#4 Invest in stocks and/or bonds
Stocks and bonds can be risky but do it right and you’ll get much more out of your money. The key is to do a lot of research. Know what’s up! It’s as simple as regularly reading the business paper (I like Business World).
If you’re still uncertain, you can always invest in a mutual fund or unit investment trust fund.
#5 Deposit often
Keep feeding your bank account until it becomes a beast account.
My suggestion: Think of the future. Save to raise capital to start your own business. It’s good to help people build their dreams, but it’s sad if you let that keep you from making yours come true.
#6 Bring food to work
Little things like this result in huge savings. It takes more effort to prepare your meals ahead of time, but it’s so worth it. You can prepare something healthier than what you find at restaurants near your workplace and at only a fraction of the cost.
#8 Stay at home every once in a while
It’s a dangerous world out there. Full of things that want to eat up your funds. Keep them safe by staying at home every once in a while. You don’t have to be a loser about it either. Invite people over and do chill things. Bonus points if they bring food. Now you have something to make baon.
#9 Be creative
Save your cash for super cool things like skydiving. Use your imagination for everything else. Instead of doing the movie, dinner, coffee* routine go kite flying, have a picnic in the polo field, do charity work! Or why not have a backyard BBQ? There are so many fun things you can do without having to spend quite as much.
Note: I have a personal bias against coffee. I don’t like the idea of having to depend on something to fuel me on a daily basis. Especially when it adds up to (what I see as) unnecessary expense.
#10 Do NOT lend people money
People who always borrow money aren’t kawawa. They’re financially irresponsible. Don’t enable them!
#11 Be generous
Of course, it’s not good to be too kuripot either. Buy food for the homeless. Help pay your helpers’ tuition fees. Give back when you can. Because what’s the point of having money when you can’t use it to help other people?
#12 Be good to yourself too
It’s all about balance. Save as much as you can, but allow yourself to spend on things you want but don’t necessarily need. Last year, I made the mistake of being too strict with myself. I ended up blowing through a devastating amount of money in a month, just because I felt so deprived. It was an expensive lesson, but one that helped me manage my funds better.
I hope this entry helps you manage your funds better too. Good luck, and happy saving!
FEATURED ARTWORK: Every piece except for the Archie comic was illustrated by Kim Herbst -an amazing artist who found success by being herself and doing her own thing.