Day#17: Know the things you don't care to spend on.

Posted by FrugalPinoy on Dec 6, 2009 in 25 Days to Healthier Finances, Frugal Tips | 0 comments

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.

Image by doctor-a from sxc.hu

Day #1 : Define Wealth and Financial Freedom

Posted by FrugalPinoy on Nov 20, 2009 in 25 Days to Healthier Finances | 5 comments

For the next 25 days, I’ll be posting one actionable item per day for myself and you, the readers of Frugal Pinoy.

It’s best to start off these daily actions with a definition. How do you define healthy finances? Wealth? Financial freedom? We need to know what we mean by these words if we want to achieve them.

Today’s Task: Define wealth and financial freedom.

If your definition is a specific number, why that number? Why 10 million pesos as opposed to 15 million? Is your definition based on income? Savings? Or is it a specific lifestyle? Properties such as real estate and businesses? Or is it just a state of mind?

It helps to write the definition somewhere – it could be your blog, journal, financial notebook, etc. Writing this down makes it more concrete.  Also, you can easily refer to it in the future. Remember to be as specific as possible.

As for me, here’s the definition I’ve come up with: both wealth and financial freedom means that I won’t be worrying about my family’s finances, since I know that we’ll be okay. I can only do this if the following criteria are met:

1. I have no debt whatsoever.
2. I have an emergency fund worth 1 year of living expenses.
3. I own a small house with a garden.
4. My monthly passive income covers our monthly living expenses.
5. I have a healthy “retirement” fund. (Since I’ve never been employed in the traditional sense, my definition of retirement is the time when I’m no longer physically and mentally able to work as a writer – I plan to keep working as long as I can.)

Right now, only criteria #1 is met in full. Although I live in a house, it is legally in my mother’s name. Still, I am already saving up for a house of my own. I’m halfway through #2. As for my retirement fund, it’s still small but I’m working on building it and keeping it in stronger investments (it’s still in a savings account).

How about you? How do you define these words?

Image by winjohn from sxc.hu

Do you have what it takes to be a millionaire?

Posted by FrugalPinoy on Feb 16, 2008 in Books, Financial Tips | 0 comments

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.