Proper money management: the 4-way test of spending


Posted at Feb 22 2009 01:02 PM | Updated as of Feb 22 2009 09:02 PM

The global financial crisis has definitely made an impact on people's spending habits. During these tough times, how can Filipinos make sure that every peso is well-spent?

According to Alvin Tabanag, a registered financial planner and author of the book "12 Steps to Build Wealth on any Income," there are four questions one must ask when purchasing an item:

1. Do I really need this item?
2. Can I afford to pay it in cash even if I don't charge it?
3. Do I really have something that serves the same purpose?
4. Have I found the best value for the item?

While doing the four-way test, Tabanag said one must also consider the consequences of buying a certain product, particularly the effect on his purchasing capacity. He added that one should not buy the item if he already owns something which serves a similar purpose.

"If you sense that your item of choice proves the best price and quality for your money then go for it, otherwise your decision might make serious repercussions in the long run," Tabanag said in an interview on ANC's "Shop Talk."

Aside from impulsive purchases, Tabanag said unnecessary spending can also come in the form of frequenting expensive cafes and vices such as smoking. A cigarette pack worth P35, for instance, would not only contribute health hazards but also a total rip in the pocket.

Tabanag said one must also learn to set aside cash for emergency and future purposes to serve as a jumpstart to positive money management. With proper spending habits and a stash of cash set aside, it would be a breeze to grapple with the current economic strain.

Save, save, save

Bank of the Philippine Islands (BPI) Senior Manager Eric Barroquillo shared the same belief, saying that saving for the future will definitely go a long way, especially in a time of crisis.

Contrary to the belief that money is the root of all evil, Barroquillo deems otherwise. Barroquillo, who is also the head of BPI's Field Sales Force Department, said that money can be good or bad, depending on how one does with it.

Barroquillo said saving money should be a habit of all Filipinos, encouraging them to save a portion of their income on a monthly basis. He cited the BPI Save-Up Account, a program which transfers money from an employee's payroll to his personal account.

"Save when you have money, not when you don't," Barroquillo said.