(as published in Business Mirror http://www.businessmirror.com.ph/home/opinion/15936-how-to-solve-the-greatest-financial-mystery.html)
For all corporate employees, the feeling of seeing your ATM (paycheck is so old-fashioned) account filled with your salary is so empowering. The surge of endorphins gives you that sense of jubilation for the next two weeks (or until you receive you next pay again). You start to think about buying those clothes, shoes or gadgets that you swear you really need. And so even before that money is withdrawn, it is already spent.
This applies to all levels of income. That is why a mystery as enigmatic as the Loch Ness Monster, Big Foot and the Easter Island Statues haunts young professionals, two weeks from the payout-”Where did all my money go?”
Just like any other mystery, this one has its own variations. At times, it is “Why haven’t my savings gone up despite my salary increase?” or “Why did I end up short this month?”
Sounds all too familiar?
Fortunately, while it seems like money is just disappearing out of thin air, there is a way to solve the enigma, and it doesn’t need complex mathematical formulas or scientific equations. It just takes common sense and discipline.
1.) Spend for savings. Treat savings as if they are another item to spend on. They are, in fact, a luxury that you all are entitled to. Once you get your salary, immediately deposit that into another bank account because leaving it in your payroll account would just make it be easily withdrawn and spent. If you have none, entrust that with someone for the time being until you open one. If possible, arrange an auto-debit transaction with your bank to link the savings account to an investment account.
The point is if you can’t see it, you can’t spend it, and treating the savings as an expense means you just spent on it. It is now gone! Remember the income-less-savings-equals-spending approach? This is just another way of applying it.
2.) Clearly classify priorities. Expenses are classified as either necessities or luxuries. The two are often used interchangeably. My advice: Don’t! There is no concrete definition for the two. What can be considered as a necessity for one is a luxury for another. The hint: If you can live without it, chances are it is a luxury.
Naturally, necessities take the first bite out of your salary sans the savings. After that, you’re entitled to luxuries. A word of caution, though-luxuries that are bought often tend to become necessities (a mocha frap in Starbucks is not a necessity). Don’t fall into that trap.
3.) Collect and list all purchase receipts. Keeping track of your purchases mentally can be easily forgotten either on purpose or not. The solution is to collect all the receipts and list them at the end of the day or the week. The key here is to determine the amount being spent on miscellaneous items, which can easily run to thousands of pesos. You want to avoid that.
What you want is to know how much the miscellaneous items are costing you. Then make the conscious effort to curb them down to a more manageable level.
4.) Save the money saved from discounts. Discounts are great! They are designed to help you save money but did you really save it, or were the savings used to buy other items? Chances are it is the latter.
Savings on discounts can be tricky if they are stashed inside your wallet with all the other bills. Instead, put them in another one (an envelope can also do the trick) which will house your savings from discounts. Accumulate them and deposit them in your other savings account. You’d be surprised at how much you saved from all the discounts.
5.) Apply daily rewards. At the end of each day, you normally can assess how you fared. Then, rate and reward yourself accordingly. Monetary rewards can be as low as P5 and as high as P20. Put this reward in a coin bank and leave it there.
The amount for daily rewards should be small enough so that you won’t miss it but big enough that it can accumulate to something significant. That is why P5 and P20 are good amounts to set as the minimum and maximum, respectively. Just do the math, if on the average you reward yourself P10 for the next 365 days that will immediately total to P3, 650. You can spend this any way you like it.
The road to financial freedom is not a difficult path to take. Oftentimes it even gets easier as you go along. The most difficult is to take the first step. And that first step is debunking all myths and solving the greatest financial mystery, which you just did.
