To those who have regular earnings, spending is an almost automatic thing.
In this edition of Money Matters, WEalthXpert Lime Navarra answers questions about income and how to spend it.
What is the common attitude about income?
Every person has what we call a “spending habit”. We already have a routine every single time we get our paychecks, and it’s hard to pinpoint a specific example. However, a big number of the income earners have a “spend first then save” habit. Whether, it’s to pay for our needs, or get our wants. This way of spending will eventually take a toll on our finances, especially if there are unexpected expenses like the car breaking down or someone in the family getting sick.
What should be the correct way in handling income?
The proper way of handling income is to “pay ourselves first”. We need to set aside at least 20% of our monthly income for an emergency fund and for health and life insurance policies, so we will not get caught off guard once emergencies happen. Then we can use the remaining 80% for our daily expenses.
It should be, INCOME minus SAVINGS equals EXPENSES. It’s easy to say, but difficult to do, especially if we have gotten used to a certain way of spending. However, it’s not impossible. We have an old Filipino adage, “Kapag gusto, may paraan. Kapag ayaw, may dahilan.” And even in handling income, it holds to be true.
How do we do household budgeting?
Different strokes, for different folks. What might be right for one person, may not be applicable to the other. In general, a budget needs to be something that is written. If it’s not written down, then it’s not a budget. We need to place it in an area in the house where the whole family can see it. The fridge, for example. This way, everyone can do their part in making sure that the family can live within, or better yet, below the set budget.
Even the kids should take part in it. They should clearly see that we have a limit for ELECTRICITY bills, WATER bills, GROCERIES, etc. When they are aware of this, they can help achieve the goal, by simply turning off the lights and unplugging electrical appliances when not in use.
The first item in our budget should be our savings, and then everything else follows. We have to create something that is right for our family. We can’t just copy it from the internet, or from someone else. It’s not one size fits all.
What should be the right priorities?
There are no right or wrong priorities. It will always depend on the finances and the need. For a business person, clothes may be considered an investment, but for someone who works from home, it is quite considered to be an expense.
Food is a priority, but food that would cost us 4 digits in a restaurant might now be an expense. Phones and load are a priority too, but we probably do not need the latest phones that would cost us an arm and a leg.
Set a time to really think about your needs and priorities. I’ll use myself as an example. My usual priorities are electricity, water, and food. But I used to add clothes for work and budget for client meetings. But during ECQ, everything changed. Instead of clothes and client meetings budget, I invested in a more stable internet connection because what we have at home isn’t fast enough for virtual meetings.
Priorities and budgets change. What remains constant is the 20% savings. If the income increases, try to maintain your standard of living, and increase your savings. If your heart is nudged, try to include a budget for sharing to needy or to your Church on a monthly basis.
What Is your message to income earners?
Make a conscious effort to start saving on a regular basis, for an emergency fund. It used to be 3 to 6 months of our monthly income. This pandemic, however, has taught me that it’s not enough. Save at least a year’s worth of monthly income for an emergency fund. Deposit it in a savings account for easy access during emergencies. The latest gadget is not an emergency.
While you are working on your emergency fund, start on health and life insurances to make sure that you and your family are covered when something unexpected happens.
And later on, when the finances are better, we can start investing.
Do not be afraid to seek the help of people who can give you sound financial advice. We cannot rely our future to something that’s DIY. A professional intervention will make it more planned out for you. I have a team called WEalthXperts Bacolod who can provide you with the info you need through a FINANCIAL NEEDS ANALYSIS session that is available to everyone at no cost. You do not have to purchase anything to avail of this free service. Just check us out on Facebook, WEalthXperts.