money goals

Mar

2023

Are You Working for Money?

Reading Time: 4 minutes

Are you working for money? Most people are. Unfortunately, only a few people work because they love what they are doing. If you are one of those people who gave up their dream job for a high paying job, don’t worry there are ways on how to turn this situation around. But first, you need to first understand how money works.

By definition, an income is the money that you received from work or from your investments. Without income, you will not be able to pay for your living expenses.

There are two types of income: active and passive income.

Active Income

Active Income is the money that you received for the work or services that you rendered. Examples of this are your salary, commissions, wages and tips. It is termed as such because you actually need to be active, do something and spend your time, effort and energy before you can receive the income. If you stop working, then your income will also stop.

All salaries of employees are considered active income. Professional earnings of lawyers, doctors, architects, engineers and other professionals who have their own clinics or offices also fall into this category. The income of a managing member of a business is also considered active income.

Kinds of Active Income

There are two kinds of Active Income:

Salary Income – is the payment that you receive as an employee.
Profit Income – this is the money earned by entrepreneurs by selling goods or services for a profit. It is considered active as long as there is material participation involved.

The poor and the middle class mostly rely on active income. That is one of the reasons why they are stuck in the rat race all their lives. They think that hard work alone is the solution to their financial worries. Problem occurs when that one source disappears; which is one of the lessons people learned during the pandemic. Many were caught off guard. Because of the lockdown, a great majority of people were not able to worry. As a result many lost their single source of income.

Never depend on a single source of income.
– Warren Buffet

Statistics will show that many successful persons during their prime ended up broke upon retirement. Even if your income is high, it is never enough. You are still restricted by your age and your health. Thus, many people go broke once it is time for them to retire.

Active income also constricts your time. There are those who earn lots of money but they never have time for their families because their time is not their own.

Don’t let making a living prevent you from making a life.
– John Wooden

Do You Work for Money?

If you go to work because you HAVE to not because you WANT to, that’s an indicator that you are working for money. Even if your income is high, that does not change the fact that you are still a slave, only a rich slave. Don’t be a slave to money. Don’t let money control you. Learn how money can work for you.

Do You Let Money Work For You?

This is one of the ways in which rich people think differently. The rich understand that to become truly wealthy, you need to create multiple streams of income. Relying on a single source is simply too risky. And besides, they know that the more sources of income they have, the faster it is for them to reach their financial goals. That is why the wealthy focus on earning passive income.

Passive Income

Passive income is money earned where there is little or no active effort on your part. It is not directly tied to a certain number of hours at work. It is what they call “earning money while you sleep.”

Kinds of Passive Income

There are five major sources of passive income that you can choose from:

Interest income – is the money that you earn when you lend your savings to someone else. You can lend your money to an individual. You can also lend it to private corporations or the government in the form of a bond.
Dividend Income – is the money that you earn from being a partner, an investor or a shareholder to a business. Company earnings are also distributed to shareholders from the that you own.
Rental Income – is the the amount of money that you collect from your tenants from leasing your properties
Capital Gains – is the profit that you earn with the appreciation or the rise of value of your investment. You can earn capital gains from your real estate properties and other investments such as antique and vintage items, art work, jewelry, foreign currencies, luxury watches, and even luxury bags and some l imited edition items. You can also earn this from the stock market when the market price surpasses the average purchase price of your stocks.
Royalty Income – is the money that you received for the use of your artistic or literary works. It could be in the form of patents, copyrights or trademarks. You can also earn royalty income from your blogs or vlogs.

A wealthy person is simply someone who has learned how to make money when they’re not working.
– Robert Kiyosaki

So do you want to work for money all your life or do you want to make money work for you? If you want to have a life where money works for you, you need to have passive income. The key is to start with active income. Then, slowly build your wealth through the money jar budgeting system. And before you know it, you will be enjoying your retirement earlier than your contemporaries.

Good luck!

Updated version. First published in Pinoy Smart Living on 05.02.2019

Feature Image by Jose Conejo Saenz from Pixabay

Feb

2022

Are You Financially Well?

Reading Time: 2 minutes

Money cannot buy happiness but let’s face it, we need money in order to survive. How can we buy our food without money? How do we pay our bills and how are we going to send our children to school? Whether we like it or not, money is an important factor in our lives. The lack of money can greatly influence our wellness. Many people get sick and many relationships are shattered because of the problem with money. Thus, it is important that we take care of this dimension of wellness. So ask yourself, are you financially well?

Financial Wellness

What is financial wellness? Financial wellness is being able to meet financial obligations and manage finances effectively. When you are financially well, you don’t worry about putting food on the table and paying your bills. You feel secure about your financial future. You are also not worried about losing your job because you have enough passive income to keep you afloat. But most importantly, you can make choices that will allow you to enjoy your life. You will not settle for a job that you do not enjoy. In a nutshell, it is all about having peace of mind when it comes to money.

Sadly, statistics reveal that more than half of the world’s population are living from paycheck to paycheck. Many people don’t even have money set aside for emergency use. And many more are buried in credit card debt. It is a never ending cycle called the rat race. Surprisingly, even those high-income individuals are part of the rat race.

It is not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
-Robert Kiyosaki

This means that even if you have a high income, it does not necessarily mean that you are financially well. Financial wellness includes the ability to manage finances effectively. It includes paying your bills in time. It involves not only saving but investing as well. Thus, financial literacy is an important factor in achieving financial wellness.

Road to Financial Wellness

Contrary to popular belief, financial wellness is not reserved only for those people who are born rich or those with a high-paying job. Anyone can achieve financial wellness, regardless of background, age, gender, occupation, race, country and occupation. It is all about the mindset. Having a wealthy mindset is the only road towards financial wellness. Change your p overty mindset to wealth mindset and soon you will find yourself financially well.

Are You Financially Well?

To kick off your journey towards financial wellness, it is important to first assess the state of your financial wellness by answering the following questions:

Do you keep track of your expenses?
Are you spending less than your monthly income?
Do you have and follow your monthly budget?
Do you pay all your bills in full and on time?
Do you have an emergency fund that can cover at least 6 months of your monthly expenses?
Do you have a well-defined long-term financial goal?
Is the amount of your debt manageable?
Do you have insurance that is enough to support your financial needs in case of emergencies?
Can you sleep soundly at night without having to worry about money?
Do you have the ability buy anything that you want and the freedom to choose what you want to do with your time without money issues?

If you answered YES to at least 7 of the questions, then, congratulations! You are financially well!

Sep

2021

Why You Should Set Fun Money in Your Budget

Reading Time: 3 minutes

It is important to track our spending so we know how to adjust our budget. Sticking to a budget takes a lot of discipline and determination. It will also help us reach our financial goals faster. With this description, budgeting may sound like a dreary process. With mostly people’s budget going to expenses, is there a more rewarding way to budget our money? Actually, there is!

While most of our income goes to our living expenses, we should also make a budget for fun and play. A “play fund” or “fun money” is what you use to indulge in things that you enjoy. This includes purchases that you do on impulse without ruining your monthly budget for the important things.

We Shouldn’t Deprive Ourselves

Sticking to a budget can be difficult at first. You may feel like you’re just working to pay off bills and life is no fun at all. Have you experienced craving for a specific food item but you can’t find it anywhere? Then you ended up overeating on other food items instead? The same thing will happen if you deprive yourself of some fun; you will feel so deprived that you end up over indulging in whatever takes your fancy at the moment. Setting aside fun money in your budget ensures that you don’t go overboard with indulging yourself. Think of it as a little reward for sticking to your major budget goals.

Guilt-Free Spending

Another advantage of having fun money or play money in your budget is that you don’t feel guilty about it. This is because you know that you’ve taken care of the major, more important stuff already.

Most of the time, we regret buying something on impulse. We know we have to make up for it on our next paycheck. We end up having to scrimp on the other items on our budget to seal the money leak. If you’re spending on what you like without the guilt, then you can truly enjoy the experience to the fullest.

Setting a Limit, Encouraging Discipline

Having a budget for everything means that you also set a limit on your spending. That’s why it is important to put everything in your budget including fun money. It makes it easier to track your spending. It also ensures that you don’t spend over what you can actually afford to pay with your actual income.

There is a saying that goes, “If you can’t buy it twice, then you can’t afford it.” So if that favorite pair of sneakers (even though you already have several pairs) has a price tag that’s way beyond your fun budget, then you need to discipline yourself to assess if you really need it or to save this month’s budget and add it to next month’s fun budget so you can afford the price.

Remember though that fun money in your budget is not your emergency fund. Household items that you actually need at home do not go under this budget. A fun budget is for things that you don’t indulge in regularly; things that you only do when the mood strikes you. These include experiences that you want to enjoy from time to time. Your fun budget can include a manicure and pedicure, a massage, trying out a new restaurant, or getting yourself coffee from your favorite cafe.

Of course, not everybody’s budget is the same. For some people, their fun money may be used for travel or gadgets to supplement a hobby. Your fun budget should just be enough to allow you to have fun experiences without living beyond your means.

Do you have fun money in your budget? What would you like to spend it on?

Updated. First published on Pinoy Smart Living on 2019.10.23.
Feature Image: Original Image by StockSnap from Pixabay.

Aug

2021

5 Reasons Why You Can’t Stick to Your Budget and How to Fix It

Reading Time: 3 minutes

Is sticking to your budget a big problem for you? Perhaps you are plagued by one or more of the common reasons why a budget is not working for you. Good news is, there’s a way to fix them.

1. Looking for Perfection

You want to create the perfect budget that will work for you personally so you keep crunching numbers; unable to decide what percentage to allocate for which category in your budget. Overthinking leads to analysis-paralysis hindering you from making any progress towards a solution because you keep going over the flaws in your budget system.

The Fix: Just create a budget and stick to it for a set duration. Don’t try to think of a permanent solution. Think of your budget as a work in progress and adjust it along the way as you learn more about your spending habits. Remember that it’s a system and it may have bugs at the start; so testing it in actual practice is the best way to achieve your ideal budget system. It might help to learn more about your money personality and make your budget accordingly.

2. Thinking It’s Too Complicated

Keeping track of your spending doesn’t have to be complicated. There are many applications on your computer or mobile device that you can use. You do need to test which one is the right fit for you and your lifestyle. But you really don’t want to test all of them do you?

The Fix: Keep it simple by going back to the basics. A pen and notebook is always handy so you can immediately jot down any expense you may have. This way, it will be easier for you to identify your money leaks. If you have to use an application, keep it as a back-up or a secondary method to monitor your expenses.

3. Indulging in Online Shopping

Online shopping is one of the easiest way to ruin your budget. All the sale items give you the illusion that you are buying them for cheap so you tell yourself that you can go over budget this time and just spend less on your next salary. But since you’re not paying in cash immediately or you’re paying via credit card, you don’t really feel how much it takes out from your budget.

The Fix: Always consult your budget. If it’s not in your budget, consider saving up for it. If it’s on sale, ask yourself if you really need it. Another solution is to take a break from your computer for awhile and think about it. You may realize that you can make do without it. Being aware of your spending helps you better stick to your budget.

4. You’re Good at Giving

Generosity is a good virtue but it is also most often abused. There are a lot of people who are frugal and are able to stick to a budget for their personal expenses but when it comes to their family and friends, they are unable to say no. This is especially true when it comes to giving gifts during birthdays for example, or when monetary assistance is requested by a relative or friend.

The Fix: Put “giving” in your budget. This way, you are still able to give them gifts or provide them monetary assistance and still stay within your budget.

5. Unexpected Events

Life happens and most of them are not in our budget. A medical expense, a job loss, a sudden change of residence, etc. Most people create a budget based on what they experience on a daily basis. They only see what’s currently in front of them and fail to plan for life’s unexpected surprises.

The Fix: Accommodate the unexpected in your budget. When creating your budget, make sure to include items such as quarterly and annual expenses. Also include in your budget a fund where you can stash a portion of your income for use during special occasions and emergencies.

We hope you are able to keep to your budgeting system with these helpful tips. There’s no right or wrong way to start your budget as long as you commit to following the system and tweaking it along the way. You might want to try out the money jar budgeting system and see if it works for you.

Updated. First revised on Pinoy Smart Living on 04.30.2019.
Feature Image: Original Photo by Kelly Sikkema on Unsplash.

Jan

2020

Setting Financial Goals for a Better Tomorrow

Reading Time: 3 minutes

You have been working hard all your life yet you feel like your financial situation remains the same. You still struggle to make ends meet. What is it that you are missing? What can you do to change your financial life for the better? The answer is to define your goals. Setting financial goals is your key for a better tomorrow.

If you want to have a fresh start in your financial life, the first step is to set financial targets. Having a financial goal will help you make better financial decisions. It will also influence your day-to-day behaviour. Think of it as going on a trip. You need to know where you want to go first before you can even plan out the details of your trip. Thus, setting financial goals is important for a better tomorrow.

So, what’s your financial goal for this year? If you still don’t have one, it is for your best interest that you start having one now. No matter what age or stage you are in your life right now, even if you are already financially stable, you still need to set your financial goals.

Here are the steps on how to set your financial goals:

1. Determine what you want

In setting your financial goal, the first thing that you have to do is ask yourself. What is it that you want? Do you want to get out of debt? Do you want to have that dream house? Do you want to buy a new car? Do you want to go on that dream vacation? List down all the things that you want to have and accomplish.

2. Classify your goals into Short Term, Medium Term and Long Term

It is impossible to achieve all your goals at the same time. Thus, it is important that you arrange them according to what’s important to you. Learn to prioritise. What is it that you that you want to accomplish first?

For example, you are in your 30s. You want to retire wealthy. You have a child who will start schooling in four years time. You also have a credit card debt that is ballooning. How should you set your financial goals?

Classify your goals into:

Short Term – those that needs to be done in the near future or at least within the year. In the scenario above, your short term goal should be to settle your credit card debt first.
Medium Term – refers to a period of time that is not in immediate yet not too far in the future either. It normally pertains to those goals that you want to accomplish in 2 to 4 years time. The child’s tuition fee in the previous example is a medium term goal.
Long-term – pertains to goals in the future usually 5 years onwards. If you are in your 30s, retirement goals will obviously fall into long term goals.

3. Estimate the amount that you need

Since we are talking about financial goals, numbers are very important. You need to know the amount that you need in order to accomplish your goal. For example, your goal is to travel. Estimate the amount that you need to cover your travel expenses. Then, figure out how much you can separate each month for your travel goal. Knowing how much you need can give you an idea on how long it will take you to achieve your goals. Remember, goals must be SMART meaning specific, measurable, achievable, relevant and timely.

4. Budget

Budgeting is a must when it comes to financial goals. Budgeting allows you to have a spending plan for your income. Without a spending plan, there is a tendency to splurge on unnecessary expenses. It will also help you stay on track towards the achievement of your goals.

A good way to budget is through the money jar budgeting system. It is a system wherein you will be able to purchase what your needs and wants yet at the same time limit your spending and grow your wealth in the process.

5. Monitor your progress

Monitoring your progress is very important because it keeps you motivated. It will also allow you to adjust if not your goals but the process on how to achieve your goals.

6. Celebrate small wins

Celebrating small wins will help boosts your confidence level. It will make you feel that you are able to accomplish something and that you are now one step closer towards the achievement of your bigger goal. It will motivate you to keep on going forward.

What are you waiting for? Define your financial goals now. Setting financial goals is your passport for a better tomorrow.

Image Credit: Gerd Altmann from Pixabay Images