Manage Your Money! Saving and Budgeting Strategies

Money for Emergencies
Life can be full of surprises, and having extra money saved can be a financial lifesaver during these times. Whether it is a medical emergency, car repairs, or sudden job loss, having a safety net to fall back on can provide much-needed stability.

Have Peace of Mind
Having some money tucked away is like having a cozy blanket of safety. When you save money, you can feel less worried about what might happen. Having savings allows you to navigate life's uncertainties with greater confidence.

Money for Investing
Savings serve as the foundation for future investments. When you save money, you can later invest in stocks, real estate, or starting a business. A solid savings base gives you the capital to explore new opportunities.

Learn Discipline
Saving money teaches you to be responsible and make good choices with your money. Saving money requires discipline and self-control. It is like training your brain to make smart decisions, a valuable skill for your future.

Tracking Your Spending
Before you start saving, seeing where your money goes is helpful. By writing down what you spend money on, you can figure out where to save more. It also helps you understand your spending habits.

Needs vs. Wants
We all have needs, like food and a place to live. Other things, like video games or fancy clothes, are wants. Knowing the difference is crucial so you can use your money wisely. It is essential to know your spending priorities.

Automatic Savings
Automating your savings makes it easier to do regularly. You do not even need to think about it anymore in most cases. Decide how much you want to save each money and set up an automated transfer of that portion of your income to a separate savings account.

Budgeting
Imagine a crossroad with no traffic lights. It would be chaos with cars and buses coming and going from all directions. Setting a budget directs your money where it should be. It is the traffic lights for your cash flow.

Debt Management
Debt is a tool like a hammer or a saw. If you do not know how to use it properly, you could hurt yourself. But once you learn the skill, you can build things with it. Debt management is learning how to handle debt so you can avoid money troubles in the future.

The Savings Formula
Saving money is simple. You just need to make sure you do not spend all the money you get. And the key is to save at the start, even before you spend. Follow the Savings Formula: Income minus Savings equals Expenses.

Why save first before spending?
Prioritizing your savings over your spending is also called "paying yourself first." And doing so makes it a non-negotiable aspect of your financial routine.

This way, you go about your month and even spend all your money in your wallet or salary account without stress and worry because you already tucked away money for your savings at the start.

Saving Strategy: Budgeting

Importance of Learning How to Budget
Budgeting empowers you to make the most out of your hard-earned money. Following a budget prevents overspending and ensures you have cash for all your necessities. No more asking yourself, "Where did all my money go?"

A Simple Way to Budget

Step 1: Account for all income.
Begin by accounting for every source of income you receive in a month.

Step 2: Pay yourself first.
Set aside a portion for savings before anything else.

Step 3: Set aside money for Needs
Allocate funds for necessary expenses such as rent, utilities, groceries, and transportation.

Step 4: Assign what is left for Wants
Allocate funds for discretionary expenses such as entertainment and dining out.

Budgeting Tools
• Pen and Notebook: It is old school, but it is nevertheless an effective way to develop and manage your budget.
• Spreadsheet Software: Microsoft Excel or Google Sheets provides better organization and even automated calculations for creating and managing your budget.
• Budgeting Apps: Numerous mobile apps are designed to assist in budgeting, offering features such as expense tracking, goal setting, and spending analysis.
• Financial Software: Advanced financial software can provide comprehensive insights into your financial health and offer more sophisticated budgeting options.
Budgeting Techniques
• Pay Yourself First Method: This is the method we described above. It prioritizes savings and ensures that your needs are met.
• 50/30/20 Method: Simply, this method allocates 50% of your income to Needs, 30% to Wants, and 20% to savings and debt repayment.
• Envelope Method: A popular method for those who prefer visual and tactile strategies. This involves using cash envelopes with specific budget categories and allocating your income among them. Once an envelope is empty, it means you stop spending in that category for the month.
• Daily Budget Method: Perhaps the simplest among these budgeting techniques. Just allot a fixed amount for daily spending and stick to it. Any unused funds can roll over to the next day or be saved.

Budgeting Tips

Be patient and make it a habit.
Budgeting is a skill that develops over time. Be patient. Make it a habit, and it will slowly become easier and faster.

Track and analyze your spending.
Check your previous spending to see where you are doing well and where you can do better. You can also study historical patterns to anticipate and manage peak spending months like the Christmas season.

Find the budgeting strategy that works best for YOU.
There are many budgeting strategies. Experiment with different ones until you find one that fits your lifestyle and is easy to follow.

Is borrowing money bad?
Borrowing money and going into debt is not bad, but it requires careful consideration. Think carefully before applying for a loan or using your credit card. Ensure that the money will be used for a need and that your budget can afford the monthly payments.

The Three Types of Debt
• Good Debt: When you use the money for Needs
• Bad Debt: When you use the money for Wants.
• Ugly Debt: When you used the money for Wants and borrowed it at an abnormally high interest rate.

Questions to ask yourself before borrowing money
• Is this a need? Think if what you want to borrow is necessary.
• Do I need this today? Consider if you can wait and just save money to buy it.
• Can I afford to pay for this? Make sure you can make regular payments without straining your budget.

How debts affect your future

When you borrow money, you are essentially getting your future income and using it today.

Be careful because you might end up using all your future income, and you will not have enough for your future needs. Having too much debt will cause not just financial but also emotional stress tomorrow. So, always borrow responsibly.

Tips to get out of debt

Consolidate your debts.
Check if it makes sense to consolidate your debts. This will help streamline payments and potentially reduce interest rates.

Increase your means.
Find additional or extra sources of income with the sole purpose of paying off your debts faster.

Address the root cause of the problem.
Identify the reasons and circumstances that led to debt and work on them to prevent it from happening again.

Lay a solid foundation

Budgeting and saving are not just about money management. It is also about laying the foundation on where you will build your wealth. When you have a solid financial foundation, you can grow your wealth faster and higher until you reach your goals and dreams for yourself and your family.

About the author:

Fitz Gerard Villafuerte is a civil engineer who decided to quit the corporate world back in 2003 to pursue freelancing and entrepreneurship. His blog, Ready To Be Rich, has won several awards including the Best Business and Finance Blog at the Philippine Blog Awards. He is recognized by Moneysense Magazine as among the Top 12 Most Influential People in Personal Finance in the Philippines. He is an author; an online content creator; a Registered Financial Planner; a resource guest for various television and radio programs; and a corporate speaker and trainer for several socio-civic organizations in the country. Lastly, he is the President of Wealth Arki, Inc., an investment consultancy, and financial planning firm that helps Filipino families achieve their financial goals.

Read more of his FL content here: Ready To Be Rich by Fitz Villafuerte - Business, Investments, and Personal Finance