Day#23: Do a financial review of your year so far.
This is Day #23 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:
It’s nearing the end of 2009 so it’s just the right time to look back on the past year and review our experiences – whether they are positive or negative.
Today’s Task: Do a financial review of your year so far.
Collect your documents. These would be your latest bank and credit card statements, payslips, and other documents that are relevant to your finances. If you have a budget notebook or spreadsheet, take those out too.
Get a pen and paper or open a new document in your computer. You’ll need to write down your financial review so that it’s concrete, and you can review it next year to see how well you’ve improved.
Note the following information:
- Debt status. If you currently have outstanding loans and debt, look at your most recent statements and see how much you still owe. How much longer do you need to repay all your debt?
- Income. How much gross income did you earn this year? How much is it after deducting taxes? Apart from the pay you get from your regular job, don’t forget to include any subsidiary income you received such as money from side gigs, selling, or investments.
- Savings. Look at the statements from your savings accounts. How much did you end up with this 2009? How are you allocating these savings? (In other words, how much is for your emergency fund, retirement, or other items?)
- Spending. If you collect detailed expenses like I do, look back at all the information you gathered last year. What major expenses could’ve been avoided? Where did you succeed in minimizing expenses?
- Investments. If you invest any money in bonds, stocks, mutual funds, or businesses, how did your investments do by the end of this year?
Your financial review can be as simple or as detailed as you want. You don’t need to jot down your month-by-month activity if you don’t have to. Just start with the basics above, and if something seems wrong or if there’s a specific part you’d want to improve for next year, that’s when you can choose to be more detailed. Also: if there are certain aspects of your finances that you’re not too proud of, don’t dwell on it! Just make an action plan to avoid making the same mistakes next year. Let’s keep this exercise positive.
Have you reviewed your 2009 finances yet? Which areas did you do well in? Which ones need more improvement?
Read MoreDay#22: Discuss finances with a friend or relative.
This is Day #22 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:
For most people, it’s taboo or bad manners to talk about money. But sometimes, not discussing money properly leads to even deeper problems. For example, married couples often disagree on their financial status. In one survey, 86% of couples admitted that they regularly fought over money. Another survey revealed that more than 2/3 of Americans learn about money management from home rather than school. Whether we like it or not, discussing money with others has a significant impact on how we perceive or handle it.
Today’s Task: Discuss finances with a friend or relative.
Your discussion doesn’t have to be deep or complex. Here are some examples of some simple starting points:
- Ask an older relative what they wish they started saving up on when they were your age.
- Give your kids glass jars where they can collect loose change and tell them why doing this is important.
- If you’re interested in starting your own business, you can ask advice from a friend who has done it before.
- Ask your parents what they wish their parents taught them about money.
- Go on your social networking sites (Facebook, Friendster, Multiply) and make a post about how you’re interested in learning how to manage your money, invest, or whatever aspect of personal finance you’re most interested in. Ask openly if your contacts have any books or blogs to recommend.
Of course, before you start any conversation about money, assess your relationship with the person first. How close are you? What do you expect to gain from the discussion? Have you discussed finances in the past? If you’re having trouble gauging their comfort level , keep these pointers in mind:
- People are more open to discussing things like cost of living (bills, rent, etc.) and budgeting/planning methods rather than specific price tags on purchases or how much their salary and savings are. Ask “how” rather than “how much”. “Do you know a cheaper grocery store or market nearby?” is better than “How much do you spend on groceries each month?”
- Friends and relatives in the finance sector tend to be more open about these kinds of discussions, so if you have a close friend who works in that field, talking to them is a good start.
Why is this important?
For me, talking about money – especially with my partner – is an exercise in getting real. It allows me to express and evaluate my ideas about what money is and how I treat it as a resource. Without my regular discussions with my partner, I might not be as disciplined about managing my money well. Also, doing this can be a learning experience. I have some friends that I ask financial tips and advice from. They allow me to see things in new ways that I haven’t explored before. It’s certainly much better than keeping all your thoughts and ideas inside without the input of others.
How often do you talk about money? What is your experience with talking to your spouse or parents about it?
Read MoreDay #2: Fine-tune Your Budget – Or Start One
Here’s today’s installment:
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.
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 MoreMy Personal Financial Goals for 2009
It’s the start of a new year again, and it’s time for planning one’s finances for the rest of the year. I spent the past few weeks working on my financial goals for 2009, so that I can increase my chances of being financially stable in 2009.
I find that it’s important to make your goals as specific as possible. For example, “save more money” is a bit vague. How much will you save and what are you saving it for? Also, write down the actions you need to take for each goal. If you intend to make more money, how will you do that? What are the steps you need to take to make it happen?
I encourage you to do the same thing. Let’s make this year a year of better financial responsibility. List your financial goals on your blog, and send me a link to your post (either through the contact form or the comments section of this post). At the end of the month, I’ll compile all your links and share them to other Frugal Pinoy readers.
Note: For privacy, I won’t be including actual figures here, just percentages and placeholders.
My financial goals for 2009
Earn at least P xx,xxx per month. I’ve raised this by 63% from my previous goal last 2008. This is my most important goal, because without it, I won’t be as successful with my other goals. Here’s how I plan to accomplish this goal:
- Be consistent with my work output. At least 13 articles per month for one client,
- Explore other moneymaking opportunities. This includes a passive income stream (more about this later), applying to travel writing gigs, launching my illustration studio, and earning more from my web content service.
- Put my money in accounts with better returns. This means I’ll look into special deposit accounts, time deposits with higher interest rates, and maybe even other investments.
Finish saving up for my 1-year emergency fund. Right now, I only have the money for a 6-month emergency fund. I’d like the security of knowing that I can pay for my current lifestyle even if I don’t earn anything for a year. This is especially important since I have dependents. Based on my calculations,I’ll finish saving up for my emergency fund by September.
Reach a certain amount of savings for my retirement fund. My retirement fund is doing okay, but every year I have a goal of how much I should set aside for retirement. Note that my definition of retirement is the time when I am no longer physically or mentally able to work. I love my work, and I want to do it for as long as I can. Also, since I don’t have a corporate job, my definition of retirement is different from the traditional definition.
Save up at least P xxx,xxx for Pangasinan house. I’ve already mentioned before that one of my goals is to build a house in a farm in Pangasinan by 2011. To do that, I need to save a certain amount of money this year.
Prepare a will and have it notarized. Remember Heath Ledger? When he died, he did not update his will, so there was nothing in it about his daughter and his ex-wife. I want to make sure that my partner gets the bulk of my savings and personal effects, and the only way to do that legally is through a will. I’ve seen many Filipino families get torn apart just because people didn’t agree about who was entitled to what. Something as legally binding as a will prevents these unnecessary arguments.
Here’s a sample of a will that is valid in the Philippines. Feel free to browse that site as it also has templates of other legal documents, such as deeds of sale and special power of attorney.
Donate more money to causes I support. I already donate to an animal shelter, but I want to donate to PAWS, Haribon, and maybe an educational NGO. I welcome suggestions here. If you also plan on donating to causes in 2009, click here for a list of organizations you can donate to.
Establish a passive income stream. To ensure that I have an income even if don’t have any clients, I need to establish an income stream that requires little input and maintenance. I’m thinking of working on an ebook (for an international audience) or online mentorship (for Filipinos). I haven’t fleshed out this idea yet, but I’ve scheduled the planning stages in my calendar.
I’ll be updating you on my goals each month, to show you whether I’m on track or not. That’s the point of blogging about your goals – so that there’s public accountability. If you’re writing a list of goals that only you can see, it’s very easy to remove some items or throw the list away altogether.
Now, it’s your turn. How about you? What are your financial goals for the year ahead?
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