Day#19: Quit an expensive habit.
This is Day #19 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
Today’s Task: Quit an expensive habit.
We all have habits. Some of them are healthy while others can be destructive if we do them mindlessly. The truth is that some habits have negative consequences on our finances. While we can live with most of these consequences, there are some cases where we can’t afford them. Here are some examples:
- That (almost) daily morning coffee.
- Smoking.
- Going shopping as therapy.
- Sending forwarded text messages to your entire contact list multiple times a day.
- Dining out with family or friends during payday.
- Buying lunch from fast food chains rather than bringing your own lunch.
But how do you quit a habit? The first thing you should try is to figure out how much it’s costing you. How much do you spend on that habit per week? Per month? Per year?
After doing the math, find out if your income allows for this kind of expense. For example, when I was still a student, I noticed that I bought bottled water and other drinks each day during lunch. This cost me P30 per day, and since I was usually at school 6 times a week, this seemingly minor daily expense cost me at least P700/month. At that time I was probably earning only P9,000/month since I was just starting out as a freelance writer. I was also the breadwinner, which meant that the P700/month was more than I could afford for something as simple as water. Realizing this, I just brought my own bottle to school every day and refilled it at the water fountain.
If your expensive habit is something you can’t give up completely, then consider simply cutting back. Instead of the daily cup of coffee, why not reduce it to three times a week? Even this simple change can give you a lot of “extra” money which you can funnel into your savings, emergency fund, or an item that matters more to you.
What expensive habits do you have? Can you afford to have them?
Image by vivekchugh from sxc.hu
Read MoreDay#18: Pick a hobby you can monetize.
This is Day #18 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
Let me start today’s task with some background information about my main source of income – writing. I started working as a writer when I was still in college. I needed money to support myself and pay for tuition, but also needed a flexible schedule so I could attend my classes. Writing was my favorite hobby, something I did non-stop since I learned how to do it. Ever since I was twelve I’ve been keeping journals and writing notebooks as a habit. This made me think that maybe I should start doing that for a living. Something I truly enjoy. Something I’m obsessed about. Something I was doing anyway.
So I started working as a freelance writer. This has been my major source of income and I’ve never had the need to apply for a regular office job because of it. It feeds and houses a family of four, keeps me debt free, and allows me to have a stable emergency fund. Plus, it’s personally fulfilling.
Not bad for something that was “just a hobby”.
Today’s Task: Pick a hobby you can monetize.
Hobbies. We all have them. They can provide relaxation and escape, or they can become a lifelong passion. If you plan it well enough, it can be a source of income too.
List your hobbies, every single one of them, no matter how trivial or insignificant some may seem. Cooking counts, even if most people can cook. Yes, riding a motorcycle counts too, so does drawing. If you’re obsessed with a certain genre of books/film/music, there might be opportunities there too. If you like to collect things such as stamps, dolls, etc., that counts as well.
Then, looking at your list of hobbies, pick two or three that you spend the most time on. Explore and jot down ideas on how you can possibly monetize them. Here are some examples:
- Sell products and services related to your hobby. If you like making jewelry, why not try to sell some of your work via eBay or Sulit? Alternatively you can supply materials related to your hobby if they are hard to buy locally. I have a friend who made thousands of pesos from just selling special Magic: The Gathering cards.
- Write a blog about it. Many people are now monetizing their blogs. If done well, your blog can become a great source of additional income (see The Personal Blogging Degree for more information on making money from a blog.)
- Teach others how to do it. This can be in a form of a class, a book/ebook that people can pay for, or even just a lecture or speaking engagement.When I was young my mother made extra income by teaching a baking class from our home, and I once got paid to teach a summer art workshop for kids.
Your hobby doesn’t need to develop into a complete business, buy you need to entertain (and act on) any urge you may have of monetizing it. Even a few hundred pesos each month won’t hurt, especially if you’re doing something you love anyway. Not everything you start will be successful, but you can always do enough research/planning/practice/testing to minimize that risk.
Have you ever made money from a hobby? How did it turn out for you?
Read MoreDay#17: Know the things you don't care to spend on.
This is Day #17 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
When it comes to time and money, we usually focus on the things we have to do. Paying the bills, finishing up that report, cleaning the house. While these things are important, we should be equally mindful of the things we shouldn’t do.
Today’s Task: Know the things that you don’t care to spend on.
It’s simple. Just jot down the expenses that really don’t matter to you. Here’s a short list of some things that don’t matter to me:
- Dining out
- Watching most films in the cinema
- Clothes and accessories (as a side effect of rarely going out)
- Cable TV
Things that matter to me:
- Books
- Good quality of food
- Maintaining a solid but beautiful house
- Hobbies such as woodworking and gardening
What does this mean? By making the list of the things that don’t matter to you, you’ll know what expense traps to avoid. For example, why would I spend P500 to try out a new restaurant when I can use that money to buy high-quality ingredients for a home cooked meal? Or, why would I spend P200 to watch a movie in a mall dahil wala lang akong magawa, when I can usually buy 5 books with that at my favorite used books store? It’s like building a list of “not-priorities”.
You can also do this exercise for a major purchase so that you won’t be distracted. When buying a new car, this may be your list of not-priorities:
- Color
- Exterior design
- Quality of speakers
By making this list before you look at cars to buy, you won’t be distracted by the bells and whistles that don’t matter to you. You won’t go “Shit, panget pala gas mileage nito, nadistract ako sa sleek, chromed-up design.” Conversely, if the exterior design matters to you the most, you won’t be distracted by sales pitches about payment terms or storage space.
When we have limited resources, we need to know the things we can “sacrifice”, and the things we don’t care about should be the first to go. That way, we know that we’re left with the things that matter.
Read MoreDay#16: Make a debt repayment plan.
This is Day #16 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
If you performed the task for Day 11 (computing your net worth), you already know how much your debt is. Now it’s time to try and eliminate it. Of course, those without any debt can skip this task.
Today’s Task: Make a debt repayment plan.
You’ll need some pen and paper, a calculator, and any paperwork referring to your debt (credit card statements, loan agreements, etc.) If you’re using a budget, it may come in handy too.
The thing about repaying debt is that there are many different ways to do it. There’s no such thing as “The Solution”, there’s only what works for you. Here are some common methods you should think about:
The Highest-Interest Method
- Make a list of all your debt including credit cards, mortgages, and other kinds of loans. Remember to include personal loans such as money lent to you by relatives or friends.
- For every item on that list, write down the following: remaining repayment balance, current interest rate, and the minimum monthly payment.
- Spot the debt with the highest interest rate, then rank the rest of your debt accordingly. (The one with the second-highest rate is #2, the third-highest rate is #3, and so on.)
- Any extra money you save or earn each month should be channeled to repaying the debt with the highest interest first until it is fully paid. Keep paying your minimum payments to your other debts, but the extra cash should go to the one with the highest interest debt until you’ve eliminated it from your list.
- Repeat as needed until you’ve repaid all your debts.
The benefit of this approach is that it tends to be faster. If you have the discipline to do this, you won’t accumulate more debt via large interest rates.
The Debt Snowball Method
This method, popularized by Dave Ramsey, is a more psychological approach to debt repayment. Instead of paying off the loan with the highest interest rate first, you start with the one with the smallest balance. By crossing out one debt from your list, you’ll get an emotional boost and hopefully become more inspired to get out of debt. Here are the steps to do it:
- List all your debt in ascending order, with the smallest balance first.
- Each month, commit to pay the minimum payment on all your debts while channeling extra saved/earned money to the debt with the lowest balance.
- Once you’ve paid off the first debt, the money that used to go to that debt (at least the minimum payment) should now go to repaying the debt with the second smallest balance.
- Repeat until you’ve repaid all your debts.
Usually, if your debt with the smallest balance isn’t the one with the highest interest, it may take you longer (and a bit more money) to pay it back. The math just doesn’t side with the debt snowball method. But if you know yourself well enough to know that you’ll need the inspirational boost to cross off one debt from your list, then this is the approach to take.
Variations of the Above Methods
You can do a combination of both of the above methods, of course. One way to do it is to “snowball” your first complete repayment – pay the one with the lowest balance first. Once you’ve repaid that, maybe you can pay the rest of your debts according to their interest rates. Whatever happens, you must make the minimum payment for each debt each month. Otherwise, you’ll usually incur more interest and additional fees.
If you’ve gotten out of debt (or stayed out of it to begin with, like I have), please share your story with other Frugal Pinoy readers by submitting a comment.
Day#15: Carry only one credit card in your wallet.
This is Day #15 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
Impulsive spending is one of the more common reasons why some can’t seem to take hold of their finances. I only have to look at the blogs and Facebook/Twitter updates of my peers to see how impulsive spending is a common problem, especially among young people:
“Sweldo na naman! Kaso maauubos ko lang pambayad credit card
“
“Hirap magtipid! Hirap magipon! Dapat di nauso yang credit card na yan e!”
If these sentiments sound familiar to you, read on. If you’re one of those people without credit card debt, then congratulations! You don’t have to worry about this:
Today’s Task: Carry only one credit card in your wallet.
But it’s even better if you don’t carry one at all.
So that’s it, remove all your excess credit cards from your wallet and hide them under a drawer. Or cut them up. It all depends on how deep in debt you are and how desperate you are to get out of it. Don’t just do this for today, do it for as long as you can.
Here’s a bonus task: on your credit card, stick a post-it note that reminds you to use your card less. It could be any of the following:
- A reminder of what you’re saving up for, whether it’s a house, car, or even a “want” such as a gadget or a trip.
- A motivational quote that will discourage your from using your card impulsively. Some examples:
- “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith
- “Every time you spend on a short term want, you lose part of a long term dream.” (I can’t remember where I got this.)
- Or just the word “Don’t” or “No!”.
This task may sound too simple or even cheesy, but if you find that it works for you, then it’s worth it. Personally, I don’t have a credit card – but I know myself well enough to predict that if I had one, I wouldn’t be as financially stable as I am today.
Image by LotusHead from sxc.hu
Read MoreDay#14: Organize Your Financial Paperwork
This is Day #14 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow. Here’s today’s installment:
Financial health isn’t just about the numbers, it’s also about organization. You need to keep your documents handy so that you can pull them out easily whenever you need to refer to them, rather than go on a week-long excavation.
Today’s Task: Organize Your Financial Paperwork
First, some general tips:
- You don’t need to buy accessories. Look for any old boxes, manila envelopes, and folders. You can start with those. My first financial document storage system was just my old collapsible folder from high school.
- If you don’t have the time to organize all your paperwork in one day, take baby steps. Taking even the smallest actions every day until you’re completely organized is better than putting off the activity forever.
- Be consistent. Once you start your system, stick with it. Don’t wait for bank statements and bills to accumulate. Store them properly as you’re done processing them. Doing this each time is better than going through half-organized, half-messy piles of documents later on.
- Purge regularly. Every two years or so, you can probably shred and throw away some of the documents such as bills, credit card statements, etc.
- In the end, do what works for you. Your organization system doesn’t have to be pretty, you just have to be able to pull out the right document in 2 seconds. Focus on what works rather than what looks neat or clean.
Here are some categories you can use to organize your files:
- Bills (you can organize them by company or by month)
- Bank statements and letters
- Home paperwork (title, deed of sale, real estate tax receipts, etc.)
- Receipt collection (if you’re tracking your monthly expenses this way)
- Investment paperwork (records of your investments, dividends paid, etc.)
- Credit card statements
- Insurance paperwork
- Tax-related documents
- Employment-related documents
- Paperwork for loans and other debts
- Family documents (wills, marriage certificates, birth certificates, etc.)
- Your IDs (passport, postal ID, etc.)
- Medical records
I only use some of these categories, but I keep all the documents in a single collapsible folder. Apart from the ease of finding documents, this will also make them easier to save during natural calamities and emergencies – I just have to grab one folder and I have all my important documents with me. The key, of course, is not to lose it. You should also keep photocopies of the most important documents (IDs, property titles, etc.) in a separate folder if you’re worried about losing the originals.
If you’ve already done this, feel free to share your tips and experiences in the comments section. Your suggestions may help other readers organize their own documents.
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