Personal Finance (A slip into my financial knowledge)
So I've set my 2021 financial goals. I even told myself to plan on saving money until the end of the year. But the bottom line is, I was stuck with those goals and I do not know how to start executing my plans so I set it aside again. I was trying to save but I keep on spending money anyway. And yet, I always wonder where my money goes because it feels like I lost all my money in a snap.
"It's not your salary that makes you rich, it's your spending habits," Charles A. Jaffe
As a breadwinner who stopped schooling due to pandemic and lives with extended family, the money I earn goes into my bank account only to barely cover my basic monthly expenses. It is a huge red flag and I'm scared that I might overextend myself with too much debt, have an irregular income, or lose my job. So, I decided to read more and track my expenses again.
One thing that I learn from reading a lot of articles online is the lifestyle inflation. As my income goes up, there is also significant increase on spending which we all can relate. I don't really focus on this before because I was too preoccupied with work. However, I realized that if I went back to having irregular income, it would be tougher for me to minimize my expenses and I would most likely fall into a huge debt.
How can I combat lifestyle inflation?
Adjust your budget
It is best to make your financial obligations met by having household budget. In my case, I divide my expenses into two categories: non-discretionary and discretionary expenses. This allows you to be aware of your spending choices and whether you're spending more than you earn. It also helps you give more room to save money especially when you've been wanting to build up your emergency savings funds.
Non-discretionary expenses- considered as mandatory or essentials (food, housing, taxes, debt, transportation, medicine and educational expenses)
Discretionary Expenses - non-essential expense or luxuries (gadgets, travel, dining out, trips to malls)
Build an emergency fund
I had an unplanned travel last month and I wasn't financially prepared. Luckily, I was able to save 10% of my monthly income for three consecutive months taking me out from that stressful situation. Emergency fund covers the things you don't budget such as job loss, medical emergency and unexpected home repairs.
Simple Guide in Building Emergency Fund
STEP 1: Track your expenses -determine how much you spend each month
Once you know your total expenses, determine how much you will need to save each month. I usually save 10% of my monthly income in a regular basis but it really depends on how much money you want to save. Just make sure that you won't regret every single penny you keep. As long as you keep yourself busy and you focus on your financial goals, you will not feel like spending it.
STEP 2: Decide where you'll keep it -you might want a separate account for this if you want it to be out of your reach (Just in case you consider yourself as extravagant person). If you constantly check your fund, you would most probably think of spending it making you ruin your goal.
STEP 3: Start saving - Again, it doesn't matter how much you save as long as you continuously save money. Make it your priority to save money before you even spend the rest of your salary. Otherwise, you will get stressed when you find out that you include all your cash to your expenses.
STEP 4: Continue saving and invest - Once you reach your short-term goals, it would be easy for you to make it a habit, start purchasing your assets and eventually turn them into investments.
Note: An asset is anything that has value which includes house, car and your money. On the other hand, investment is an asset that is purchased hoping that it will bring you income. Not all assets are investments though. My house is an asset but it is not an investment. However, if I decided to rent it, then it would be my investment. This is one of the ways to generate passive income in order to achieve financial freedom.
Add great changes to your budget gradually
I always have this urge to go on shopping spree as a way of relieving my stress. But when I started educating myself financially, I got conscious and learned how to find a balance on how I will spend cash for fun and reaching my short and long-term financial goals. Budgeting is a great help on that. I also think of how much extra income I need to work with before I decide to upgrade my lifestyle. In fact, I think so hard that I finally gave up jumping into expenses at once.
I can say that I am still a beginner in the world of investments. But one thing for sure, I invest in things that I understand. I find a way to broaden my horizon such as joining groups and getting help from mentors. There is no harm in trying. You have to eliminate fears and excuses if you want to learn and be successful.
