Simple animation explaining the credit crisis
Today I found this great video explaining the details of the US credit crisis. I haven’t found an explanation as clear as this – it probably helps that it’s animated. It’s well made and you can learn a lot from it if you’re not sure how the credit crisis happened.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
6 Signs That You're Living Beyond Your Means
“Live within your means” is one of the first rules of personal finance. If you think about it, this is common sense. Still, most people forget this and spend more than what they earn, getting themselves into financial trouble.
Not sure if you’re living beyond your means? Then read on to find out if you have any of the following 6 symptoms:
You don’t know how much you spend each month. If you can’t answer the question “How much are your monthly expenses?” then now’s the best time to compute it and find out. Guessing isn’t allowed. You need to know the ballpark figure for sure.
Why is this important? So you can compare it with your income and know for sure that you’re spending less than what you earn.
You’re dependent on your credit card. Whenever money’s tight, you find yourself using your credit card and just paying for those expenses after your next paycheck arrives. Usually, your credit card bill is more expensive than you thought, too. Because of that, it’s possible that you’re also afraid of opening your bill each month.
You regularly dip into your savings, if you have savings at all.Your income isn’t enough so you have to pay for some purchases with your savings.
This used to be one of my mistakes. I had “savings” but I didn’t know what they were for, I was just saving up money to be spent later. This means that whenever extra expenses came around, I would spend my savings on them whether they were needs or wants.
Your savings need to have a purpose. Are they for your emergency fund? Retirement? A new house? Without that purpose, you’ll be taking money from your savings indiscriminately.
Speaking of savings, you’re saving up less than 5% of your income on retirement or emergencies. Saving more is especially important if you want to maintain your lifestyle during times when your income is lower, you’ve lost a job, or you’re ready for retirement.
You live from paycheck to paycheck. There was a time when I would eagerly await my next paycheck – because I’d already run out of money before it arrived. This is a very stressful way to live.
You need to be confident enough about your spending habits to know that you can wait a bit longer for that next paycheck. You can only feel this way if you know for sure that you’re spending much less than what you earn.
You use new loans to pay off existing loans. It may be common for people to borrow money to pay off other loans, but it’s a clear symptom of living beyond your means. Think about it for a second – getting into more debt to pay for other debts. Not really a sign of financial health.
Have you ever experienced any of these symptoms? What have you done about them?
Image by Steve Woods
Read MoreProtecting Yourself Against Layoffs
Recent items in the news must sound depressing for Filipino employees. An outsourcing firm laid off 500 workers, many OFWs lost their jobs, and even the Intramuros Administration laid off some of its workers.
Since I work as a freelancer, there’s no danger of layoffs in the strictest sense. But I need to prepare myself in case my biggest clients close up shop or decide to cut off my services from their annual budget. In times like these, we all need to protect ourselves from sudden unemployment. Here are some ways we can do this:
Build up your emergency fund. I’ve written about emergency funds so many times, which just goes to show how important they are – especially in times of financial crisis. For the uninitiated, here’s a definition of an emergency fund:
“It’s basically a collection of money that you can access whenever there’s an emergency. And only an emergency. Emergencies may include the following: the sudden loss of a job, unforseen medical bills, a natural calamity, sudden home or vehicle repairs, etc.”
Right now, I have 6 months worth of living expenses tucked away in my emergency fund. If I lose a big client or all my clients, I can go by without work for 6 months. Of course, I won’t wait until my emergency fund runs out before I look for new jobs, but it gives me a sense of security knowing that if I have no income, I can still support myself and my family.
Have multiple streams of income. Whether you’re a freelancer or a corporate employee, it helps to have multiple ways to earn money. Freelancers should have more than one client at a time. Corporate workers should have businesses, investments, or part-time gigs that will be able to support them in some way when they get laid off.
For me, I have more than one client, but I also have other streams of income such as ad and affiliate revenue from my other blogs.
Why not hit two birds with one stone by having streams of income that you can add to your resume? Apart from getting extra income for yourself, you’ll also increase your worth as an employee or freelancer by having income streams that will reflect well in your resume. Did you write and sell an ebook about your industry? Did you work as a virtual assistant for an internet mogul? Did you start your own business? Having these experiences usually gives you the right to charge a bit more than others who only depended on their corporate jobs to learn new skills.
Cut down expenses. This is always a must, even if there’s no financial crisis. Be aware of how much you spend each day and see if there are areas you can cut back on.
Have a plan. If you do get laid off, what are you planning to do with your time? Sure, you can take a couple of days to rest, but after that, you need to take some action even if you have an emergency fund that covers your expenses. Why? Because it’s never a good thing for the mind to be idle.
This would be the perfect time for you to polish your resume, get an online presence (such as your own professional website or blog, or even just a LinkedIn account), and find other ways to make money.
Use your brain, not your heart. Most money decisions are emotional decisions. This is why many people fall prey to scams, get-rick-quick schemes that don’t work, and failed investments. Don’t just jump at every possible income source you can think of without being informed first. If you just join every PTC (paid-to-click) site, invest in stocks you know nothing about, and participate in multi-level marketing schemes, you’ll just be wasting both your time and your money. Making logical, informed decisions is the only way for anyone to survive job loss.
Usually, layoffs are sudden and outside your control. But this doesn’t mean that you should be financially powerless if you lose your job. By doing the 5 things listed above, you’ll be able to cushion yourself from some of the financial effects of being laid-off.
How secure do you feel with your job? Are you doing anything to protect yourself from job loss?
Read MoreMy Biggest Money Mistakes
I’m proud to say that I made only a few money mistakes ever since I started earning. It was my mother who made all the money mistakes in our family, and I mostly learned what not to do by just watching her. She hasn’t saved enough for her retirement, she incurred so much debt that it’s impossible to repay, and she lived beyond her means even when she had no job. Her mistakes were a financial nightmare for the entire family.
I guess you could say that I became smart with money because I was so afraid of ending up like her. This fear made me educate myself about saving and earning so that I would not have to repeat her mistakes and make my children pay for them.
But this doesn’t mean that I’m free from mistakes. I am perfectly human. I’ve made some money and business mistakes that I wish I never made. Here they are:
Lending money to others. Sometimes, even when it comes to relatives, lending money actually means giving it without expecting anything in return. For years I said “yes” to lending money to family members, and I rarely saw a centavo of my money back. This led to tense family relations, which weren’t worth the money I “gave away”.
The bottom line? Involving money in your family relationships tends to be messy and destructive. Learning from my mistake, I’ll be avoiding this situation again.
Doing everything myself. When I started my online business, I did everything myself. It’s perfectly normal to start a business as a one-woman show. The problem was that it stayed that way for 3 years.
One of the most important things about running a business is that you should work on it, not in it. I got this idea from a book called The E-Myth Revisited. You should get others to work with you, whether it’s a business partner, a contractor, or in-house employees. This allows you to focus on the more important aspects of the business as well as the tasks you enjoy.
What does this have to do with money? Well, if you do everything yourself, your time will be consumed by tasks that anyone else can do. You won’t have the time or energy to do other tasks that will bring in more money such as expanding your business, doing guerrilla marketing, and creating other means to diversify your income.
Undercharging for my services. I used to be afraid to charge higher for my writing services, thinking that clients would hire some $1 writer from other countries. I used to charge $5 to $20/article. It took a very generous client before I realized that I could charge much more than that. Now I get paid around $30 to $100 for most of my work. This means that I get paid more per hour and can actually relax about work a bit, rather than spending every single waking moment writing articles. I may love my work, but there are other things I want to do as well.
Also, getting paid more made me become more serious about improving the quality of my work. I guess both my clients and I won in the end 
Not applying the 80/20 principle. One of my biggest business mistakes was giving all my clients and projects equal time and effort. Why is this a mistake? Because some ventures, clients, and projects will be worth more than others. What should you spend more time on, the difficult and demanding client who pays you at a low rate, or the low-maintenance client who pays well? It took me a few years to learn to focus on the latter.
This is where the 80/20 principle comes in. A short definition of this principle is that 80% of your output/income, should come from 20% of your input/effort. Of course, you don’t follow this idea literally, counting every percentage. The point is that you should focus on the things that give you the best results with the smallest amount of effort.
These are only the top 4 mistakes I can remember off the top of my head. How about you? What financial mistakes have you made in the past? What could you have done to avoid them?
Read More"You Don't Really Want Money" by Ron Davis
Today I found this great video by Ron Davis, whose personal development blog, Distinctions For Life, contains great advice on living better.
I thought I’d share this video entitled “You Don’t Really Want Money”, mostly because it points out several things I believe in:
- That when people want money, they don’t really want the money per se, rather, they want what they think the money will bring.
- You don’t necessarily need more money to get what you want.
You can play the video below:
You Don’t Really Want Money from Ron Davis on Vimeo.
At the end of the video, Ron tells us to ask ourselves the following questions:
- Why do you want money?
- How will you know when you have enough money?
- What picture appears in your head when you think about having enough money?
- Can you have that moment or feeling without money?
Think about them.
Read More5 Money Lessons I've Learned from Freelancing
I’ve been a freelance writer for the past four years, making money almost exclusively online. The corporate world is definitely not for my personality, so I did everything I could to avoid it. Along the way, I’ve learned several useful money lessons that I wouldn’t have learned otherwise.
Bill early, pay late. This took me a while to learn, and it’s more important especially if you have very busy clients who remember to pay you only a week after you send your invoice. Now, I bill them on the 1st of the month, while I pay for business expenses (contractors, web hosting, subscriptions, etc.) mid-month. By practicing this, you’re making sure that you already have enough funds when it’s time to pay for business expenses.
Diversify skills and sources of income. I didn’t just depend on my writing, especially when I was starting out. I also did a lot of design work, search engine optimization, edited videos, some data entry jobs, sold some of my artwork, and joined ad networks such as Google Adsense. Having various sources of income ensures that you always had an alternative venture in case your main gig ran a bit dry.
Also, as a freelancer, the diverse skill set allowed me to upsell services to clients (“Do you want some new graphics to go with the articles I’m writing for you?”), and I would become their go-to person for most of their web needs.
Be frugal with your time, not just money. One of the big problems I had with my first years of freelancing was that I let it consume so much of my time. I would work longer and harder than 9 to 5 ‘ers, thinking that this was the only way for me to make enough money. Eventually, I became a productivity blogger over at Pimp Your Work, and had to learn some time management skills. Now, I have made myself efficient enough to only work 9 to 15 hours a week, and can now enjoy the freedom that freelancing promises.
Have a padded emergency fund. I probably sound like a broken record since I talk about emergency funds over and over. But it was a real lifesaver during those months when I would earn only P12,000 and had to feed and pay for a household of 3 people, and my tuition too.
Don’t undersell yourself. I used to charge $5.00 for a 500 word article. That’s okay as a starting point just to build up your folio, but I stayed around that price range for one or two years, even after I was getting so many happy testimonials from clients who kept referring me to others (meaning: my work was worth more than $5). Hindi ka talaga mabubuhay kung $5.00 per hour ang singil mo. Especially since I had dependents. It took me a while to realize that people aren’t just paying for the words I write, they’re paying for an hour of my life and the unique insight I bring to the table. Does that really just cost $5?
Competing with others on the basis of price alone isn’t a sound business model. Someone will always be cheaper than you! So I competed on quality and experience, and can now turn down work that I don’t find interesting.
Every job title, every industry presents its own unique money lessons. What are the money lessons you’ve learned as a result of your work? Please share them with other Frugal Pinoy readers
Help Iligan and CDO
Reader Discussions: