It’s a new month again, which means that it’s a new opportunity for you to find other ways to save money. If you don’t know where you can get extra money for your savings, check out these five tips and see if they apply to you:

Have a daily quota for using cellphone credits. If you find yourself calling and texting often,  exercise a bit of discrimination when sending out messages. Avoid sending out forwarded messages the entire month. My cousin once asked me to be honest about how much I load my cellphone each week, expecting that I’d tell him a large amount. He was shocked to find out that I usually just spend P30 per month, and I almost never spend more than P90.

While I understand that there are some professionals that may find this difficult, at least try to cut back on using your cellphone for texting or calling friends and relatives. Opt for free ways to communicate instead, such as via instant messaging, landline-to-landline calls, Facebook, or email. (Of course, this isn’t applicable if you don’t have easy access to the internet, or if you need to call long distance.)

Don’t buy new clothes this month. Unless your house was accidentally set on fire or your clothes were stolen as you left them hanging out on the clothesline, don’t buy any new clothes this month. I know quite a few people whose monthly income is mostly spent on clothes shopping, and as they tell me they can’t find any money to save, I just want to slap my forehead in disappointment. Just eliminate shopping for clothes or shoes this month. It won’t kill you, I promise.

Discontinue newspaper and magazine subscriptions. I don’t subscribe to any newspapers, mostly because I just read them online. The Philippine Daily Inquirer, The Philippine Star, and The Manila Times all have online editions. Apart from the subscription savings, you’ll also have access to breaking news, and you won’t have old newspapers cluttering up your house.

I also don’t subscribe to magazines, but this doesn’t mean I won’t buy the occasional magazine that catches my eye. I just happen to be very choosy and I make sure that the content and value that I get from the magazine won’t be found for free elsewhere.

Cut dining and drinking out by half. If you find yourself going out often, such as more than once a week, cut this by half. This includes going out for coffee or lunch during the regular workday. Brew your own coffee or pack your own lunch instead. If friends invite you out and you don’t want to let them down, try my suggestions for making a gimik more affordable.

Automatically send at least P500 to your savings account as soon as you receive your paycheck. It’s wise to keep a  separate account for your savings, apart from your payroll account (as I’ve mentioned in a previous post). By setting aside your savings as soon as you receive your income, you have a lower chance of spending it.

Do you have additional money saving tips? Please share them in the comments.

Image by asterisco from sxc.hu

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?

Saving comes easy for some, but it’s an impossible task for others.  When I ask some friends about their savings, they sometimes cringe or tell me “I don’t want to think about that!” as if I asked them about a life-threatening disease.

The act of saving doesn’t have to be difficult or painful.  If done right, saving can be a wonderful thing you can look forward to each month.  A few years ago, I didn’t really take saving seriously, but after implementing some techniques, it’s something I now look forward to with each paycheck.

So how can we make saving easier to do?

Automate it.  Most banks will allow you to automate your payroll account to deposit monthly to a savings account.  Check with your bank to see if you can do this with your payroll account.  Saving can be much easier if you don’t have to remind yourself to do it regularly.

Focus on the benefits.  I’m currently saving up to buy a house within the next 2 years.  Of course, the way to motivate myself is to think about that house, which I’ll consider as my sanctuary.  I also think of the pride of home ownership and the beauty of living in the province.  This makes me wants to say “Yes! I absolutely want to put money into that dream every month!”

However, other types of savings such as for an emergency fund or a retirement fund tend to be harder.  Maybe because their purpose and benefits still seem  a bit abstract.  For these types of savings that you aren’t particularly fond of, focus on the feeling of security you’ll have when these savings are in order.  From my experience, it feels great not to worry about losing my job or getting sick because I know my emergency fund is there to catch me when financial problems arise.  Plus, I just feel so free not being pressured to work super hard.  That feeling of freedom and security, I wouldn’t trade for the world.

Have a mantra.  During tough financial times where I was forced to live paycheck to paycheck, I used to have a mantra that I would recite in my head every time I was tempted to spend on something frivolous.  My mantra was “Every time I spend on a short term want, I give up a part of a long term dream.”  

Get visual.  It’s also more encouraging to save if you can actually see what’s going to happen when you accomplish your saving goals. For example, if you really want to save up for a trip to Paris, you can cut up pictures of France from a magazine and place them in an area you’ll look at regularly – whether it’s on your office desk or by your bed.

Note: The visualization doesn’t work for everybody, especially those who forget that action is needed to make things happen.  Some get stuck in the visualization without doing anything about it.  In those cases, it’s not visualization – it’s mere daydreaming.

Reward yourself.  Break down your savings goals into milestones and have a reward for each milestone you reach.  For example, if you want to save P100,000 in your emergency fund, you can reward yourself for every P5,000 or P10,000 you successfully stash away for it.

Rewards are important because you won’t feel too bogged down or tired, thinking that all you do with your money is save it.  Without rewards, it’s easier to fall back on old spending habits when you get too tired of saving.

How much do you save each month?  What do you do to make it easier for yourself?

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

What is 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.

Upgrading your cellphone is not an emergency. Neither is buying new clothes – unless your house happened to burn down and all your clothes went down with it.

In the past, I’ve used my emergency fund for medical bills, both for myself or relatives. However, because I was hospitalized last year (for amoebiasis), and had other unexpected medical expenses (I don’t even want to talk about those) my emergency fund suffered a big dent. I need to build it up again.

Where should you put the emergency fund?

Not under your mattress, that’s for sure. Here are some options:

• Savings account with ATM access. Because emergencies seldom happen during banking hours. In terms of accessibility, this is a good choice. However, this may be difficult for those who spend money impulsively. Having your emergency fund accessible might tempt you into using it for unnecessary purchases, and before you know it, it’s almost completely depleted.
• Savings account with only passbook access. Since passbook withdrawals are a bigger hassle, some people prefer this so they won’t be tempted to use the funds. Part of my emergency fund is in this kind of account.
• Time deposit. These tend to have better interest rates than savings account. The downside is that if you don’t have access to it until the maturity date – unless you want to give back part of the interest you earned to the bank. Most of my emergency funds are here.
• Investments. This may include money market funds, mutual funds, and other investments. The return of these investments tend to be high, but you need to educate yourself a lot to get your investments right. Since most of these investments aren’t insured by the PDIC or BSP, if you invest in the wrong areas you might not get all of your principal investment back. This is only good for people with high-risk tolerance and who already have at least 3 months worth of living expenses stashed away (anything above the 3 months you can invest in without feeling unsafe). Personally, I’m still trying to educate myself with investing, so I haven’t taken this route yet.

Also, keep in mind that a credit card is NOT an emergency fund. Using a credit card to pay for huge emergency expenses might cost more in the long run because of the interest and extra fees you need to pay.
There may be other ideas that I haven’t mentioned above. The point is that you should know your risk tolerance and temptation to spend when deciding where to put your emergency fund.

How much should be in the emergency fund?

That all depends on your feeling of financial security and what your monthly living expenses are.

If you work in a high-demand field and you know that it’s almost impossible for you to be unemployed for too long (because of experience, skills, or connections) or you have multiple income streams, then perhaps 3 months worth of living expenses should be enough.

If you’re the sole wage-earner in the household and you have many dependents, or if you have non-regular work (such as a freelance illustrator, independent filmmaker, etc.) it’s good to set aside at least 6 months to 1 year’s worth of living expenses.

How am I doing with my own emergency fund?

My personal goal is to save at least 1 year’s worth of living expenses. This is because I have many dependents and still have to pay for my school expenses. I’m 1/3 through that goal.

My main problem was the medical expenses I spent last year – they really ate away my emergency fund. I still feel safe with the amount left, but I’d feel better and I can take more financial risks (such as investments, riskier business decisions, etc.) if I know that I have a year’s worth of living expenses stashed away.

Do you have an emergency fund? Where do you keep it? How many months of living expenses do you keep stashed away?

I’ve been listening to David Bach’s “The Automatic Millionaire” audio book. At the beginning of the audio book, he wants you to find out if you have what it takes to be a millionaire. You can find out if you do by answering these questions:

1) Do you pay yourself first?

David Bach recommends that as soon as you get your paycheck, you should pay yourself first. Not the government, not the electric company, YOU. He also recommends that you pay yourself at least 10% of your income.

Personally, I think it’s important to pay yourself. After all, it doesn’t make sense to work really hard and have someone else take your money.You need to make it possible that YOU receive a percentage of your income. He recommends that you set it aside on your savings or retirement account.

However, it’s not as easy as David Bach portrays it. When PLDT sends you that notice of disconnection, you can’t exactly tell them “I’m sorry, I can’t pay you now because I had to pay myself first.” It’s very, very important to pay yourself, but make sure that you can survive with what’s left. I’ve had my own experiences where I had to pass up paying myself first to pay the “Big Guys” (PLDT, Meralco) and for other necessities (food, school supplies).

2) Do you have an emergency basket of cash?

I’ve talked about emergency funds in the past (specifically, in my pinoy money talk post). David Bach recommends that you have at least 6 month’s worth of living expenses stashed away in an emergency fund. Personally, I have 3-4 months worth of living expenses in mine. My goal is to have a year’s worth of expenses.

Why is an emergency fund important? To prevent you from digging yourself into a financial hole, should emergencies arise. If you want to learn about emergency funds, click here to read the post I wrote about it.

3) Do you know what your latte factor is?

Throughout his books, David Bach often talks about the “latte factor”. This is the small amount of money that we spend regularly for little things. An example – if you buy a latte every morning before going to work. Let’s say that latte costs P150. For an entire work week of 5 days, you spend P750 on that latte. After a month, you would’ve spent P3,000 on lattes alone. You need to figure out what unnecessary regular expense accumulates to a lot over time.

For me, my latte factor is fast food chains. That’s why I have a No Fast Food Goal for the entire month. For other people, it might be their cellphone credits, idle chatting on internet cafes, etc. Figure out what your latte factor is by writing down your daily expenses as you’re paying for them. that way, nothing slips by your radar.

There are 3 more questions you need to ask yourself if you want to know whether you have what it takes to be a millionaire. Click here for part 2 of this article.