MANILA, Philippines — Famous philosopher Marcus Tullios Cicero once said, “All great things start from small beginnings.”
In managing one’s finances, taking the little steps is also the way to go, registered financial planner Fitz Villafuerte said.
Balancing one’s budget and expenses is a must, especially when saving to invest. It is a task for everyone who has an income, whether it comes from one’s salary or allowance for school.
Failing to manage your finances would make your budget out of proportion to your expenses, leading to negative cash flow and even debts.
Villafuerte said there are two reasons why this happens:
a) The income is not enough. This is common to many Filipinos who receive minimum wage and are raising their families.
b) There are too much expenses. It means spending too much on things, beyond what one can afford.
If finance management gets out of hand, you may face a slow decline in the quality of your life.
"At this point, it may be tolerable. Living from paycheck to paycheck. Eventually down the line you realize you will not have enough money to send your children to a good school, and when you reach your senior age, you find yourself still needing to work. You cannot enjoy life. That’s basically the worst case scenario, you missing out on life,” he said.
In order to prevent this from happening to your life, Villafuerte shared some tips on how to balance your budget and expenses:
1. Track your expenses.
Before planning your budget, it is important that you first determine where exactly your money is going. List down all your expenses on a daily basis—every single one—from the upsize of the drink you order, to the snacks you take. By the end of the month, you’ll be surprised at how the little things add up to a significantly big amount.
2. Eliminate unnecessary expenses.
Once you know where exactly your money is going, it will be easier to plan where you want to budget your income.
After listing all your expenses, you can now classify them into categories. Which are the important ones? Which are the things you do not really need, or do not really use? Perhaps you have the habit of buying too many shoes or clothes or grocery items you do not need, or maybe you bought a cable subscription at home that you don’t really use.
Now that you know whether your spending is healthy or not, drop the unnecessary expenses.
3. Live within your means, or better, live below your means.
“Another mistake I often see is that for example, your salary is P25,000 a month. People tend to budget on that amount. Not knowing that of course there are tax deductions,” Villafuerte said.
In planning your budget, you have to budget on the take home pay. Once you know how much you are earning, and see where your money is going, then it will be easier to allocate the budget where you want your money to go.
4. Establish a concrete goal.
Saving and budgeting does not happen in a day. It is a dynamic process that can be very challenging especially to someone who is just starting to learn the habit. To encourage you to stay focused, you ask yourself, “What are you saving up for?”
Villafuerte said that when you have a specific goal in mind, even if you encounter weekend sales at malls or any other temptation to spend, your desire to achieve that goal should be much more. Doing so will help and motivate you to really save up and curb expenses.
“It’s that small victory that will eventually add up as you try to set bigger goals. When you start small, you build on your self-esteem, your confidence, and eventually, you get into the habit of saving,” he said.
5. Always be on the lookout for income opportunities.
You should not be dependent on just one source of income. It will always help to find ways to augment the money that’s coming in so that you can upgrade your lifestyle that you will be able to afford. But it all starts with budgeting because it’s easier to lessen your expenses than increase your income. So start there, and eventually graduate to creating more sources of income.
According to Villafuerte, balancing the budget and expenses is the basic step before one thinks about achieving bigger goals such as investing and leveraging debts.
“I’ve been tracking my spending for over ten years now and I can say that it’s one of the best things that I’ve learned, one of the basic personal finance skills that everybody should learn,” he said. - Report by Czer Esquejo