Living Solo: Spending Money The Right Way, part 2 of 2

money management, made better with Renzie Baluyut.

In the last post, Part 1 of  Spending Money the Right Way, we discussed a simple money management technique recommended by “Secrets of the Millionaire Mind” author T. Harv Eker.

Eker recommends that whenever money comes our way, we should make it a habit to divide it up into six different accounts, each with a particular purpose.

• 10% goes solely for investments (the FFF fund)
• 10% is for big-ticket items you’re saving up for (the LTSS fund)
• 10% goes to your continuing growth and education (EDUC)
• 50-55% goes to your bills and necessities like rent, utilities, food, clothes, etc. (the NEC fund)
• 10% goes to rest and recreation (the PLAY fund)
• 5-10% goes to gifts, donations and charities (the GIFT fund)

So for every Php1000.00 I have, it would be broken down accordingly:

• Php100 goes to a fund for future investments, particularly for acquiring more passive income.
• Php100 goes to saving up for, say, brand new appliances at home, or that new laptop I wanted for myself.
• Php100 goes to a fund that will support my digital photography lessons, or business workshops, or more books on marketing.
• Php500 goes to doing groceries, or paying off bills, or for buying a new shirt or something.
• Php100 goes to my “movie-and-coffee” fund, or “dinner-and-drinks-out-with-friends” fund.
• Php100 goes to feeding those stray cats outside the apartment.

Which means if I had received a check for, say, Php18,000.00…

• Php1800 goes to the Financial Freedom Fund,
• Php1800 goes to Long-Term Savings for Spending,
• Php1800 goes to my continuing Education,
• Php9900 goes to paying off day-to-day Necessities,
• Php1800 goes to my Play fund,
• and the remaining Php900 into the Gift fund.

This habitual allocation of funds should be in effect regardless of amount, no matter if you receive, say, Php100 or Php20,000.

Now bear in mind that the percentages may vary according to your need, and can therefore be adjusted according to your current situation.  But the most important thing is getting into the habit of putting money into EACH of these separate accounts, no matter what.

The system works so that it allows for more controlled spending.  If my friends invite me out for beers, I know that I can spend up to Php1800 and nothing more.  Otherwise, we can find ways to just party at home so we can spend less.

Putting a cap on my Necessities Fund also conditions me to live a simpler lifestyle, as I now have to find ways to cut down on unnecessary bills (why subscribe to cable TV when I have a fairly efficient internet connection?) as well as to save money.

It might be hard at first, but just like forming any habit, it becomes second nature as you go through the motions on a regular basis.

Personally, I think it’s great advice; something that would have been a lot more useful 15 or 20 years ago when I was just starting out.  But hey, there’s no better time to start than right now.

You can expect a lot more articles on the topic of money management and personal finance on this blog in the future.

Special thanks to Andy, and his post on the Financial Freedom Formula, and to Chase of Barfield Management.  You guys were great help on the topic.

Hope this helps all you chicks and dudes living solo, all you entrereneurs, and pretty much everybody else who’s looking at taking their money management a bit more seriously.

Cheers, everyone.