It’s always surprising to me when anyone with an income doesn’t have a budget. If you read my review of The Millionaire Next Door, you probably know that even millionaires budget. That’s how they stay millionaires.

Sometimes I even hear people say “I have a budget, I know it in my head, I just don’t write it down.” But if you don’t write it down, how do you compare it with your actual expenses? How do you stick to it? This brings us to today’s task…

Today’s Task: Plan Your Budget

If you don’t have a written monthly budget yet, you need to start one now. As in today, if you can. You may need more information regarding your expenses, but at least start with an estimation and tweak it in the next two months as you watch your spending habits. The important thing is to take at least the smallest step as soon as possible.

Some basic pointers for drafting a budget:

• If you’re unsure about estimating monthly expenses, especially with food, groceries, and other “fluid” items, track your expenses by writing them down in a small notebook as you spend or by collecting bills and receipts. Then, at the end of the month, use these to estimate what your expenses will be for the following month.
• Try zero-based budgeting. It’s easier to stick to because you’ve already committed each peso of your income to an expense – even if it’s only on paper. I wrote about zero-based budgeting in a previous post.
• Include savings in your budget. Because saying “I-save ko na lang kung ano ang matira” really, really doesn’t work.

Should you need any extra help, I’ve listed below some budgeting tips from other blogs. I chose the simplest and easiest tips I could find so that “It’s too hard!” or “I don’t have the time!” won’t be used as excuses.

• Budgeting 101: How a Simple Budget Helped Me – And Can Help You, Too and Make a Simple Budget – A First Timer’s Guide from TheSimpleDollar
• Budgeting for Non-budgeters from GetRichSlowly.org
• Envelope Budgeting System from FrugalDad

Also, feel free to use the budgeting spreadsheet I made for Frugal Pinoy readers. It allows you to compare your budget to your actual expenses, and your expected income to your actual income. Don’t forget to watch the video tutorial on how to use it (in Tagalog).

Alternative Task: Improving an Existing Budget

If you already have a monthly budget, try to fine-tune it and spot areas that need improvement. Here are some things you can consider:

What expenses do you have every other month? Every third month? Twice a year? When we budget our money, we usually watch for monthly patterns (rent, utilities, etc.) when there are other expenses that creep up on us less regularly. This may include gas for the stove (for my family it’s every three months or so), car maintenance, dental checkups, etc. Factor in these  items in the appropriate months for a more realistic budget.

In what areas are you usually underbudgeting or overbudgeting? One of my early problems was that I allotted P2,000 worth of groceries per month for my “family” (not technically relatives, but they live with me). As my family grew and as the cost of commodities rose, I kept the budget at P2,000. Soon, it was obvious that it was not a realistic figure.

How do you spend windfalls? Unexpected income or windfalls such as bonuses or cash gifts (insert PGMA joke here) can be both a blessing and a problem. People spend them as soon as they receive them. They say things like “Marami naman akong natanggap, eh” or “Siyempre kailangan magcelebrate”. I hate pointing this out, but here goes: “Eh ano ngayon kung marami kang natanggap, nawala naman agad!”

While there’s nothing wrong with enjoying extra cash, just make sure you can afford it. It’s kind of silly for those who complain that they don’t have enough money, yet they manage to spend their windfalls in one go.

Parting words:

Now that you’ve either come up with a budget or improved an existing one, your work hasn’t finished. It’s only begun. The hard part is committing to it and tweaking it based on your needs as you go along. Then, when living within your means and saving your money becomes a habit, maybe you won’t need that budget anymore.

Image by iprole from sxc.hu

I made something special for you, Frugal Pinoy readers. It’s a spreadsheet that allows you to budget your money, track daily expenses, and track your income as well. Here’s a screenshot of it:

I made it with Open Office Calc, the free alternative to Microsoft Excel. I’m not sure if the file will work with Excel, so you might have to download Open Office first if you don’t have it yet (click here for the website). I’m sorry that I don’t have a version in Excel, since I don’t have a copy of the program. You’re free to convert this spreadsheet into an Excel file, though, if you know how.

To get the spreadsheet, right click the link below and click “Save target as” or “Save link as”:

• Frugal Pinoy Budgeting and Expenses Spreadsheet

The spreadsheet may be a bit confusing, so I made a tutorial video (presented in Tagalog – thanks for pointing it out dyoonet!). It’s 16 minutes long. If I’m explaining things too fast in the video, you can pause it and play it back. To see it in detail, you can view it in full screen by clicking the button on the bottom right of the player below.

To make sure that the video plays smoothly, play it first with the sound off so that the video loads completely. Then, watch it with the sound on.

If you have any questions/feedback about the spreadsheet or the video, feel free to comment below.

Do you use a spreadsheet to track your income and expenses? If so, share your tips with us.

Don’t buy everything from one grocery. For my family, I usually buy from a nearby SaveMore supermarket, a Parco supermarket, and Makro. Since I visit these places regularly, I have an idea about which items are cheaper when bought at a specific grocery.

Of course, this only makes sense if all the supermarkets you buy from aren’t out of the way. Otherwise, transportation costs might make your overall grocery expenses the same, or even more expensive, than if you shopped at the grocery nearest your home.

Go on fewer grocery trips. Since I visit 3 groceries, it might sound like I do my grocery shopping too often. The truth is, I only make 2 major grocery trips each month, and probably an additional 2 trips if I want to cook something special that I didn’t plan for. But for these additional trips, I only buy the ingredients I need. Generally, though, I prefer to plan for everything ahead of time so I can visit the grocery less often.

How will this save you money? If you go to the grocery less, there’s less temptation for you to buy unnecessary items that you weren’t planning to buy in the first place. Also, your transportation costs will be lower.

Compare and test different brands. Since I want to choose the brands that give me the best value for my money, I test different brands until I find “the one”. Sometimes “the one” turns out to be the cheapest brand or a generic product (such as the Savepak dishwashing liquid), sometimes it’s the most expensive brand, and sometimes it’s somewhere in the middle. But you can never know which brands give you the best value unless you try them out.

Buy in bulk, if it makes sense. In a previous post, I wrote about how to buy in bulk wisely (click here to read it). Usually, if you buy items in bulk you can save a bit of money – but only if you maintain your usual consumption rate of the bulk products you buy. See, some people tend to overuse items that they bought in bulk because “Marami pa naman eh”. Know your own habits and do the math to ensure that bulk purchases really save you money.

Stick to your list. It helps to have a list of items to buy before you go to the grocery, and to stick to buying only the items that are on your list. This prevents you from buying unexpected items on a whim. But if you find yourself looking at an item that isn’t in your list…

…apply the 10-second rule. This means that before you buy an item that isn’t on your list, think about it for 10 solid seconds before deciding to put it in your shopping cart. This will allow you to evaluate your purchase more thoroughly, rather than automatically chucking items in your cart without thought.

Use a rewards card. This is for those groceries that you’re often visiting. Savemore, Parco, Shopwise, and Rustan’s all offer their own rewards cards to customers. The rewards card will allow you to earn points for your purchases, which you can redeem in the future.

Do you have any tips to share about saving money on groceries? Please share them to the other readers via the comments section.

Image by Davide Guglielmo

I’m receiving a sizable amount of unexpected income this month. Almost like a freelancer’s 13th month pay.  This isn’t unusual during Christmas, where people get paid more, businesses generally have more income, and students receive money as gifts from their ninongs and ninangs.  This extra money you receive is called “a windfall”.

What exactly is a windfall?  A windfall is an unexpected extra amount of income or business revenue.  Some examples include: inheritance payouts, Christmas bonuses, extra revenue, cash winnings, and cash gifts (the ones from relatives, not illegal ones form Malacanang hehe).

Although windfalls are common during the Christmas season, they also happen in other months during the year.  Anything you receive above your average income may be considered a windfall, if the money has not been budgeted yet.

What to do with a windfall

Most people spend windfalls by buying treating themselves or taking out their friends and family to lunch.  While nothing is wrong with rewarding yourself, leaving the rewards unchecked or unmonitored often means the money will disappear sooner than you think.  This is why I always have a plan for windfalls.

In case of unexpected extra income (which I usually have each month, since my income is not set in stone), I always have a hierarchical game plan on what to do with my extra money. Here’s where I stash them (in order):

1. Fund for house in the farm.
2. Fund for repairing my mother’s house.
3. Retirement fund.
4. Emergency fund.
5. Travel fund.

How I divide the money into those 5 funds depends on how much my windfall is.  If it’s only P5,000 or below, I usually put all of it in Fund #1, or I divide it between Fund #1 and Fund #2.

You can also do the same thing, set up a list of 3 to 5 things where you can put the windfall.  Make sure your list is in order so you would know what to prioritize. Keep this list handy – whether in your budget notebook or as a file in your computer – so that you can easily refer to it before the temptation to splurge sets in.  Don’t worry, you can always include “Personal Reward” in your list of windfall funds so you can enjoy that extra money a bit.  Just make sure that your entire windfall doesn’t go there.

It may seem like I’m too disciplined or I’m not rewarding myself enough, but that’s not the case.  Having the farm house built as early as possible will be a great reward for me.  I prefer to live in the farm and have some place to retreat to when things are going too crazy in the city.  It’s really all about setting your priorities based on the things you want to do and the dreams you want to fulfill.

Will you be receiving extra money this Christmas?  What will you do with it?

In the first part of this series, we discussed how we can be frugal with our food, household needs, and utilities (if you haven’t read it yet, click here). Basically, the post is my personal response to the news about inflation reaching 9.6% this month. There’s also an interesting discussion on the effects of inflation over at the MoneySmarts blog, which you might want to check out.

I generally don’t like those who proclaim that the end of the world upon us, but the rising cost of living presents the perfect opportunity for people to look at their expenses, savings, and income. In this installment, we’ll discuss how to save money on entertainment and transportation to minimize the effect of inflation on our expenses.

Entertainment

Although computations for inflation doesn’t really cover entertainment, cutting a few corners in this aspect can help stretch your income to pay for the rising costs of food and energy.

Movie and book swapping. We discussed the benefits of book swapping in a previous post. The same could be applied to DVDs, VCDs, and video games.  Not only is it cheaper than buying things brand new, but it’s a good excuse to meet up with friends and acquaintances.

Look for cheap/free screenings. The UP Film Institute holds several screenings each month, and the tickets are often cheaper (if not free) than regular movie houses. Of course, they don’t show the latest blockbusters, but they have great alternatives in case you want to see something different from what everyone else is watching.

Wait for blockbusters to come out in video or cable. Not only is it cheaper, but many people can watch at the same time without the cost adding up.

Of course, there are some movies where watching in the big screen makes a difference. These are generally movies with a lot of special effects, such as Lord of the Rings or war/sci-fi epics. It’s okay to watch these movies in the theater, but not all movies lessen in effect/impact when watched in the small screen.

Transportation.

Walk or bike.  I have a friend who bikes extensively and doesn’t really commute that much.  If you’re going somewhere nearby and have time/energy to spare, walking or biking there might be a good alternative.

Practice frugal travel.  We recently posted some frugal travel tips, which you can consider when taking an out of town trip.

Tomorrow, we’ll discuss some ideas on increasing income and managing investments and savings.

How are you dealing with inflation? 

Related post:

• Stretching the peso against the high cost of living – Part 3

The news about inflation rising to 9.6% is alarming, giving people more reason to learn how to live frugally and invest wisely. Over the next few days, Frugal Pinoy will be publishing a series of blog posts about how to lessen inflation’s effect on your wallet.

In this series, Stretching the Peso Against the High Cost of Living, we’ll be covering a variety of topics:

• Food and Household Needs,
• Utilities,
• Entertainment,
• Transportation,
• and Income.

Today’s installment lists basic frugality tips for Food, Household Needs, and Utilities.

Food and Household Needs

Buy vegetables, meat, fish, and poultry from the palengke, not the grocery. Grocery prices tend to be more expensive, and if you’re unlucky, the products won’t be as fresh either. I made this mistake when I was starting to be financially independent.

Eat more veggies than meat. Vegetables are generally cheaper than meat. Generally, because I’m pretty sure hydroponic zucchini is more expensive than one kilo of pork. When I say ‘veggies’, I mean your average kamatis, talong, repolyo, etc. It’s amazing how versatile these vegetables can be if you experiment. This month, I’ll be featuring some vegetable recipes you can use.

Buy non-perishables in bulk. This includes toilet paper, dishwashing liquid, detergent, soap, and other things that take a long time to spoil. My favorite place for these bulk purchases is Makro, but an inexpensive grocery store such as SM Savemore will do. REMEMBER: Do the math. Just because something is in bulk, it doesn’t mean it’s cheaper than it would be if you bought it in smaller portions. Your cellphone has a calculator – use it.

Plan your meals. If you can plan your meals throughout the month, you’ll be able to monitor the ingredients you use and how much you consume.  You can also apply batch cooking, if you can.  I don’t plan my meals strictly, but I think this is something I’ll be doing in light of the cost of food nowadays.

Do your groceries only once or twice a month. This forces you to be creative with what you have, rather than buying things at your every whim.  We usually just buy the ‘staples’ of our diet – including  bread, margarine, cheese, cream, broth cubes, and tomato sauce.  It’s amazing what you can do with these seemingly ordinary things.  You can use them with a variety of vegetables, meat, and fish products.

Use generic products, but only when it makes sense.  Generic, store-brand products are usually less expensive than branded counterparts.  But make sure that when you opt for generic, you’re getting a good quality product.  So what if it’s cheaper if it doesn’t work, right?  Like in the case of the SM Bonus Dishwasher I mentioned before, it wasn’t worth the money at all (but an effective generic product from Savepak was perfect).  Try generics, but don’t stick with them if they’re not worth it.

Utilities.

Review your bills and cut back on what’s unnecessary.  When I realized that my cable TV bill was unnecessary, I unsubscribed from the service, which was costing me roughly P800.00 per month.  Instead, I spent that money on a DSL subscription, which pays for itself because I work online.  Plus, with YouTube and SurftheChannel, who needs cable?  I haven’t had cable TV in over one year, and honestly, it’s made my life better.

Also, if you realize that you spend so much money on your prepaid or postpaid cellphone service, try to cut back.  I don’t think I spend more than P100.00 of load each month.

Learn how to conserve water and electricity. This can help you spend less on your water and electric bill.

• Unplug appliances that are not in use.
• If you’re using a washing machine, wash your clothes in big batches rather than in small batches.  You generally use less water this way.
• Handwash underwear and light clothing.
• Maximize windows for lighting during the day.
• Use a rain barrel.  Since it’s been raining a lot recently, it wouldn’t hurt to store that “free” water in a barrel for future use (such as watering plants, washing your car, flushing the toilet, etc.)  Just keep it covered to avoid turning it into a home of dengue-carrying mosquitoes.

Here are some other water and electricity conservation tips:

• 49 Ways to Save Water
• 20 Things You Can Do to Conserve Energy
• How to Conserve Energy

In the next installment, we’ll talk about being frugal with Entertainment and Transportation. Stay tuned!

 How did you react with the startling news on inflation?  Are you taking any measures to spend less or earn more?

Related Posts:

• Stretching the peso against the high cost of living – Part 2
• Stretching the peso against the high cost of living – Part3

The phrase “zero based budgeting” is used in both business and personal finance budgets. However, I’m going to discuss how it applies to personal finance rather than business.

So what is a zero based budget?

A zero based budget, simply put, is a budget where your income minus your expenses = zero.

Income – Expenses = 0

What this means is that you’ve assigned every single peso of your income to some kind of expense, which includes your utilities, miscellaneous expenses, living expenses, and savings.

What are the benefits of this kind of system?

• Every peso is accounted for.
• You’ve already ‘spent’ your money on paper, before you actually spend it. So there’s less temptation to re-allocate money that was intended for bills into something frivolous (like a new, but unnecessary cell phone). For me, at least.
• If you get some extra income you didn’t expect (such as winning the lottery, a cash gift – not from Malacanang, I hope), it’s easier to spend that money on where you really want/need it (savings, retirement, travel, or entertainment), instead of watching the money fade away with unfocused spending.
• The problem with traditional budgets is that you often don’t account for the “fun” things. Since you have to spend all your money in zero based budgeting, you can set aside money for fun things – which hopefully makes you enjoy the budgeting process more.

How do you start with the zero based budget?

1) Write down and total all your income sources. This includes your paycheck, remittances from relatives (if any), and all the other places where you get your money from. I often don’t include interest from investments and accounts, because I spend the interest in the same place where they came from – such as my emergency fund or retirement savings.

If you’re a freelancer like me, your income probably varies month to month – so every time you budget you’ll be facing completely different figures.

You can use either net or gross income. Personally, I use my net income (after taxes, transaction fees, etc have been deducted – also known as ‘take home pay’).

So, basically, your list should look something like this:

• Paycheck 1 – P12,000
• Paycheck 2 -P8,000
• Garage Sale – P1,500

And so on. Since there are numbers involved, I highly recommend using a spreadsheet so that it’s easy to add and subtract numbers.

2) Write down and total all of your expenses. This means everything, side by side with the amounts. For me it would be something like this (I didn’t write all the amounts, as it would be irrelevant, but youg et the point):

• Meralco – P 1,750.00 (or whatever figure is on my bill that month)
• PLDT – P 1,600.00 (again, it depends on the figure)
• Water Bill – P 400.00
• Retirement Savings
• Emergency Fund
• Palengke
• Groceries
• Dining Out
• Entertainment (movies, theater tickets, etc.)
• Medical
• Savings for the Laptop I Want to Buy
• Savings for Travel
• Expenses for my Scooter (includes gas, accessories, and add-ons)
• Real Estate Taxes
• Hobbies
• Miscellaneous

Here are some other categories you might need, just take what applies to you:

• Taxes (if you used gross income and didn’t deduct them already)
• Mortgage Payments
• Car Payments
• Savings for gadgets/things you want to buy in the future
• House repairs/maintenance
• Donations to charity
• Subscriptions
• Car maintenance
• Debt Payment

Of course, you have to set your fixed expenses first (the ones that are the same amount every month). After that, you allocate money to your variable expenses (the ones that vary from month to month).

3) See if Income – Expenses = 0. If this is the case, celebrate. You’re lucky to get your first attempt at zero budgeting right. If not, here’s what you can do:

• If your income is more than your expenses, find other ways to spend the money. You can either allocate more money to an existing expense (such as savings or debt payment), or to find some new way to spend it such as:
  • a new investment you want to try
  • a gift for a loved one you’ve been neglecting
  • a gift for yourself

  If you don’t have any debt and you’ve got a well-padded emergency fund and savings, I think it’s safe to say you can do whatever you like with your extra income.

• If your income is less than your expenses, identify which of your expenses aren’t necessities or which of the amounts are self-imposed. If you have a spouse or family, it’s best to discuss what the ‘non-necessities’ are, because these tend to vary from person to person. Once you’ve identified the non-necessities, subtract some of the money alloted for them until your total income equals your total expenses.

My Experience With Zero Based Budgeting

Personally, it’s the only budgeting system that has stuck with me for a long time. It might not be the most accurate in the sense that every peso that goes out of your pocket is accounted for, but knowing that I have some ‘sure’ money for all my expenses makes me feel financially secure. I like this system because it compares expenses with your income, rather than just listing all your expenses.

Have you tried this budgeting system before? How do you budget? Do you think this type of system will work for you?