personal finance

Mar

2023

“Rich Dad, Poor Dad” and Your Money Mindset

Reading Time: 5 minutes

Have you read the book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not! written by Robert T. Kiyosaki? This should definitely be on your list of books to read and learn from to improve your money mindset.

This book shows us a solution to getting out of the Rat Race, which Kiyosaki defines as a situation where people “work for the owners of their company, for the government paying taxes, and for the bank paying off mortgage and credit cards.” This scenario sums up most of our parents’ and our lifestyle in our 9-5 jobs. Kiyosaki proposes that we learn and practice investing as a solution to get out of this trap, retire early and live wealthier lives.

The book is full of great advise and real-life examples from the author’s own experience on how to go about investing. I will not be providing a summary of the lessons here. I think you should read the book yourself to get the full learning experience.

However, I will share some of the concepts in the book that had a great effect on me as it challenged a lot of my ideas about money and how to get rich. This book will definitely help you in transforming your money mindset into a wealth mindset.

Assets First, Luxuries Last

Most of us think that our homes are our greatest assets. Kiyosaki points out that this is the wrong way to think about assets. Assets are the things that generate income for you. If it doesn’t generate income for you, then it is a liability.

Assets include a business that generates income, an apartment that you have for rental or a car that you also lease out.

When you acquire a house or a car, unless you have them rented, these do not generate income for you. Instead, you spend more on them because you have to pay the mortgage and taxes that come with your purchase of the house or car. Thus, both of these items can be considered luxuries and you should only acquire luxuries when you have generated enough income from your assets to cover the expense of owning these items.

Pay Yourself First

Kiyosaki also stresses the concept of paying yourself first. This is an important aspects of having a good money mindset. You should have a budget for Financial Freedom and Savings. These are the portions of your budget that you should prioritize. Of course you should aim to be able to pay all your bills on time, but if money is short, you should prioritize paying yourself first.

He states that you are your greatest asset, especially your brain and body. So you should take care of your health and continue to educate yourself in order to maximize your knowledge and skills to pursue your goals. I could not agree more.

Most of us focus on working hard to gain wealth forgetting to take care of our health. In the end, we may succeed in acquiring wealth but we end up spending that on hospital bills to recover from our health issues instead of being able to enjoy our wealth for our goals such as buying a house, travel, running our own business, etc.

Always Look for Opportunities and Act on Them

Kiyosaki also advises that even when things look bad, you should always look for opportunities to turn around the situation. The way to do this is to use your creativity to think of solutions on the best way to handle the situation. This is how someone with a good money mindset will approach a seemingly negative financial situation.

A classic example is, if you feel you are not earning enough and you want to have your own business. You shouldn’t wait until you have saved enough to quit your job and start your business. Instead, keep your job, keep saving for your business and start it on the side while you are earning from your day job. This can be done more easily now with the rise of online platforms to start your online business.

The goal is to look for opportunities to earn more income without incurring major risks. If you quit your job to start your business, you will not have another source of income if the business venture fails or if it needs to be funded with more money. Most of us would commonly try to get a loan to fund a business but Kiyosaki discourages this.

Start Early, Learn Along the Way

One of the best advise in the book which I wished I had learned when I was young was to start early. Most of us already know that we should start saving for our retirement early. But we often do not think of investing early. Instead, what most of us do is start acquiring credit card debt or loans early on in our careers.

By starting early, he suggests not only learning to save early but investing in yourself early as well by taking classes that may not be useful in your main profession but will be useful to you when you start investing and start your own business.

By learning, he doesn’t only mean thru books but also seminars, classes as well as actually taking jobs and from mentors that would help you learn business skills such as in sales or marketing or how to work with and manage other people. These are all skills that you will need in order to work smarter, not harder and they will be useful when you finally start your own business.

Don’t Forget to Give

Kiyosaki encourages us to be greedy in our pursuit of building wealth but he does not mean doing so without taking into consideration our relationships with people in the process. That’s why he encourages that employers should get the best people to help them run their business and pay them what they deserve instead of focusing on how to cut costs. He shares that when his staff get a big paycheck, he feels happy because it means that his business is going to get big profits too.

He also encourages giving without the thought of getting something back. That’s why so many rich people make it a habit to contribute to their favorite charities or have created charitable institutions of their own. Being able to help others is a big part of having a good money mindset.

A simple form of this is to share your knowledge with other people. It is a great feeling when someone you shared your knowledge with comes back to you and tells you how it improved their life. In the process, you also gain new friends and expand your network for future opportunities.

It’s Never Too Late

This being said, it is not too late to start learning and investing and looking for opportunities to build your wealth. Kiyosaki provides several examples of people who started building their success after they have retired or after losing much of what assets they previously had.

As long as you have an open-mind, are willing to keep learning and are bold enough to go after opportunities as they come, then you will always spot opportunities to build your wealth. In the process you will keep honing your money mindset until you acquire a wealth mindset. The key word here is to build gradually instead of indulging in get-rich-overnight schemes. It may happen to a lucky few but it may not happen to you, so its better to do it slowly but surely as long as you keep on doing it.

Learn, earn, learn some more, earn some more. That’s how Kiyosaki did it since his younger years. He was lucky to have a rich dad and a poor dad who showed him contrasting beliefs and attitudes about money and wealth and he was able to learn from them. Now, we are lucky that he has provided us the chance to learn what he has learned and it is a great opportunity that we should not pass up.

Go and get the book yourself and start reading. I will be reading it again to see what nuggets I can learn that I missed before.

Updated. First published on Pinoy Smart Living as “Thoughts After Reading Rich Dad, Poor Dad” on 2018.07.31.

Feature Image: Original Photo by Joshua Mayo on Unsplash.

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

Sep

2022

4 Ways to Deal with Rising Inflation

Reading Time: 3 minutes

If you feel that the prices of goods you are able to buy is increasing; you are not alone. This is the effect of inflation. While most of us don’t really understand how it works; we feel it whenever we notice that our monthly income doesn’t seem to cover all the expenses we had as it did before. That is why you have to care about inflation so you can do something to reduce its effect on your finances. Prices are always rising but your income is not following that trend. So how do we deal with inflation? Here are 4 ways you can deal with rising inflation and maybe even beat it.

1. Reduce Your Expenses

Of course, the first thing you can do to beat or keep up with the rising cost of goods and services is to try to find ways to reduce your expenses. Inflation is a silent budget killer. It is a money leak that you have no control over. Thus, it is important to take the time to go over your budget and review your expenses as well as your financial strategy. See which of your regular expenses you can reduce spending on, replace with a less pricey option, or eliminate entirely. This way, you can still afford to pay for your regular expenses without having to dip into your emergency fund or savings account.

2. Increase Your Income

Increasing your source of income is always a good idea with or without inflation. Of course, the fastest way is to get a promotion in your current job. You can also create a business out of your hobbies or accept projects related to your job or expertise as a side hustle. Collaborating with other people on projects can also help. If you have non-performing assets just lying around; these are also good sources of minimal income. Try to declutter your space or declutter your entire home. See which items you have in your closet and cabinets that you’re not using and you can sell for some extra cash.

3. Keep on Saving

A good savings fund will not only give you peace of mind that you can survive inflation; it will also be a good buffer if you do need to spend more on important things. You might have to pause on some of your big-money savings goals until your income is more stable again to support your lifestyle. But you should not stop saving for your future while you’re struggling with inflation. You might need to pause for a while to review and renew your financial strategies and to adjust your budget. But don’t quit on saving.

4. Diversify Investments

Just as you continue saving; you should not stop investing as well. Learn more about other investment instruments that can help you diversify your portfolio to help you beat inflation. That means opening up new investments in stocks or industries that might be less risky to ensure long-term investment growth. This also means being open to investing in instruments that are more risky for short-term gains that you can use to fund your long-term investments. Depending on your money personality; choose what investments you are more comfortable with. Learn as much as you can about them so you can reduce your losses and maximize your earnings.

Inflation is always going to be around so the best way to prepare for it is to keep increasing your income and learning and adjusting your financial strategies. This way you can maintain the lifestyle that you want to enjoy and be able to keep up with rising prices without too much of a dent to your budget.

Feature Image: Original Photo by Jp Valery on Unsplash.

Sep

2022

Why Should You Care About Inflation

Reading Time: 2 minutes

You often hear about inflation on TV or read about it in newspapers these days.. However, chances are you don’t really understand what it is all about. Even if you did study economics in college, you would have already forgotten about it. Who cares! You are just too happy to finally have gotten over the course. After all, economics has been constantly voted as one of the most boring subjects ever created. But, what is it really? Why should you care about inflation?

Inflation is a very important economic concept. It should be one of your concerns. Why should you care? The answer is simple, because it affects you. It affects your wallet. It affects your finances. And ultimately, it affects your life.

What is Inflation?

In economics, when you talk about inflation, you talk about the relationship of the prices of goods and services with the purchasing power of your money. Inflation happens when there is a persistent increase in the prices of goods and services, which will ultimately lead to the fall of the purchasing power of your money.

The inflation rate pertains to the percentage increase of the general prices of goods and services. It also means the rate in which the purchasing power of your money is decreasing. In other words, if a chewing gum costs $1 (one dollar) 10; a 7.4% inflation rate means the $ 1 chewing gum will now cost $ 1.074 It also explains why your favorite food in a restaurant is either increasing in price or shrinking in size.

Inflation is a global phenomenon. No country is exempted from inflation. This means that everyone on the planet is affected by inflation, no matter where you are.

So, the next time you see the news reporting the inflation rate, listen and take a good look.

Although we cannot control inflation, there is a way on how we can cope with it. All you need to do is invest your money in investments that give a higher yield than the inflation rate.

Feature Image by Alexandra_Koch from Pixabay

Sep

2022

Emergency Fund: Why It Matters

Reading Time: 3 minutes

You are the head of the family. The company that you are working for is downsizing because of the recession. Your name is included in the list. You have no savings in place. What will you do? This is the use of the emergency fund, why it matters.

What is an Emergency Fund?

As the name itself connotes, an emergency fund is a sum of money kept aside in cases of emergencies. emergencies include a loss of job, illness, car breaking down, a major purchase. It can be anything that will cover life’s uncertainties. It is there as a kind of financial protection for the unexpected.

Why Does An Emergency Fund Matters?

An emergency fund serves as a financial buffer to keep you afloat in times of emergencies. This will prevent you from borrowing money from others. There is also no need for you to use your high-interest rates credit cards. And thus, it will prevent you from going into credit card debt.

Just take a look at what happened during the COVID-19 pandemic. Because of the lockdowns, many companies suffered and a lot of people lost their jobs. Those with emergency funds were able to go through the hard times. Unfortunately, those without emergency fund struggled with their basic needs. Thus, one lessons that we learned on the pandemic is the importance of an emergency fund.

How Much Should You Save In An Emergency Fund?

There is no fixed amount on how much money you should have in your emergency fund. It all depends on the individual. Each person has his/her own needs based on their lifestyle. But as a general rule of thumb, an emergency fund should have at least six months of your monthly expenses. The logic behind it is for example, you lost your job, you have a buffer of six months to find another job. Your monthly expenses will not be a problem, at least for the next six months.

What Counts As An Emergency?

There are many scenarios that can be counted as an emergency. At the same time, there are those things that are not counted as emergencies.

Sample emergencies include:

Loss of employment
Medical emergencies
Car Repair
Major appliance breaking down

On the other hand, the following expenses are not considered emergencies:

Travel for leisure
Buying the latest model of cellphone to keep up with trends
Birthday Parties / Fiestas
Plastic Surgeries

Emergency expenses are those expenses in which you have no choice. It involves basic necessities while discretionary expenses do not qualify as emergency expenses.

Where To Place Your Emergency Fund?

Emergency Funds should be highly liquid and easily accessible. It is not recommended to keep it at home because that is too easily accessible and too tempting not to access. In the same way, it is also not advisable to invest it in investment vehicles such as bonds, funds and stocks. More often, these kinds of investments have terms and expiration dates. You will just end up paying for pre-termination fees if you need the money before it matures.

The best place to put your emergency fund is through a bank. Open a regular savings account that is interest bearing. Please take note that this should not be mixed with your regular savings / checking account. Remember it should be readily accessible but not too accessible at the same time.

How Do I Build It?

The money jar budgeting system recommends that we allocate 10% of our monthly income to build our emergency fund. Once we have fulfilled the 6 months minimum requirement, it is recommended that the 10% allocation continues to build our savings account.

Secure your financial future. Start building your emergency fund now.

Feature Image by 3D Animation Production Company from Pixabay

Sep

2022

Where Does Your Money Go?

Reading Time: 2 minutes

You are not buying anything lavish. You don’t have the latest gadgets. Eating at upscale restaurants is not even your thing. You don’t even drive a fancy car. So, where does your money go?

The truth of the matter is that even though you are not extravagant, ‘money leaks‘ crop out every now and then and slowly drain your wallet. Before you know it; it is not yet the end of the month but you have already overspent your monthly budget.

What is a Money Leak?

Money leaks are small but regular unplanned spending on non-necessities on your budget. For example, instead of drinking instant coffee, many people would opt to buy coffee at premium coffee shops like Starbucks despite the huge price difference. Add up all that daily little expenses and it all sum up to a big amount. Problem is towards the end of the month, you don’t even remember where you spent all that money.

Everyone has different sources of leaks. Money leaks differ from one person to the other. Common budget leaks include:

Fees like bank transaction fees, ATM withdrawal fees, late payment fees
Little purchase or impulse buys
Take-outs, fast-food and other convenience food
Coupons and other sale items
Expensive brands

The bottom line is, it all comes down to choices. After all, these are all discretionary expenses. Discretionary expenses are costs for non-essential items. Simply put, these are your “wants” and not your “needs”.

It is not wrong to indulge yourself with wants. What is wrong is spending more than you can afford. It is easy to be complacent with your finances especially if the money leaks are just little drops on the budget. However, sum them all up together and you may end up with an overwhelming credit card debt.

Too much money leaks can be disastrous to your financial state.

How to Get Rid of Money Leaks?

In order for you to get rid of money leaks, it is important to identify where the leak is coming from. First, you need to track down all of your expenses. Keep all receipts and write them down. You can also use any of the financial or budget applications available out there. You need to do this for a month. It is difficult to gain control of your expenses if you do not know where your money is going.

Once you have come up with your summary of expenses, compare this with your monthly budget. The highest discrepancy is where your leak is.

After identifying your money leak, it is now easier to avoid it. For example, if the main leak is shopping, avoid going to malls especially when they are on sale. If the money leaks come from activities, look for alternative activities that are not as expensive. If your leak comes from late payment charges, then make a timetable and set reminders on when you are supposed to pay your bills on time.

In a nutshell, money leaks, even small ones can lead to financial worries. Don’t let it happen. Take control of your finances now. Track your expenses and stick to your budget. You will be surprised on how much money you can actually save by simply avoiding all your money leaks.

First published in Pinoy Smart Living on 10.17.2018

Feature Image by Steve Buissinne from Pixabay

Apr

2022

Is Having a Credit Card Good or Bad?

Reading Time: 4 minutes

Have you ever wondered whether having a credit card is good or bad for you? For most newbies in their first jobs, getting a credit card is a sign that they are finally independent! It is a cause for celebration and may cause many to eagerly take the irresponsible first swipe.

Being approved for one might seem like an achievement. It’s like announcement to the world that you can now pay for your own bills. But when you see your first bill or several unpaid bills afterwards; your feelings might change and you might feel less independent and more helpless.

For those already mired in debt, it becomes the object of many negative feelings. They might event want to just get rid of it. The usual advise for newbies is to not acquire one in the first place because it’s a debt trap.

The reality is, you can have a credit card and not be trapped in debt. Many have learned this the hard way and have now learned how to handle this financial tool more responsibly. Here are some reasons and lessons on why and how it can be bad or good for you.

The Bad: How NOT to Use Your Credit Card

Let’s try to get the negative stuff out of the way first. Many of the negative feedback that has accumulated around credit cards is mostly due to a lack of understanding. Not knowing how credit cards work can lead to irresponsible swiping.

To avoid getting into the debt trap, educate yourself. Make sure to read the fine print and ask questions about your credit card before your first swipe. Then, make sure to not do the following:

Charge items that you can’t pay off immediately on your next salary schedule.
Exceed your credit card limit. Please don’t do this especially on your first swipe.
Paying only minimum payments.
Making late payments.
Owning too many credit cards. If you haven’t practiced managing just one, don’t assume you can manage more than one.
Lending it to somebody else.

Sadly, the last one is one of the most foolish things you can do when you get your credit card. Peer pressure is a strong influence and most people just can’t say no to a friend in need. Learn to say NO or you might get yourself trapped in debt that is not even your own. You might even lose a friend in the aftermath.

If you are already having problems; there are ways on how to get out of your credit card debt.

The Good: How to Use Your Credit Card

Now for the good news. Being a responsible credit card user means enjoying its many benefits. You don’t have to be burdened with enormous debt as long as you keep these things in mind:

Pay for your swiped items as soon as you get your salary.
Do not exceed your limit. Try not exceeding 70% of your limit. This gives you some leeway for unaccounted expenses that you need it for.
Pay more than the minimum payment. This will ensure that you lessen the principal amount and not just the interest and charges. If possible, pay your card balance in full every month.
Pay on or before the due date to avoid additional late fees and charges.
Keep yourself to one card and learn how to manage it well.
If a friend needs your credit card, ask them to pay you in cash first, then swipe. Make sure to transfer the cash payment immediately as well.

You should only use your credit card for some else because they need it to complete a transaction. This means that they should already have the cash to pay for the transaction in the first place. It should only be a “way” to facilitate the payment and not the actual payment. If it were to be the actual payment, then they should ask to borrow cash from you instead.

Remember that using your card as the actual payment includes interest fees and charges if not paid on time. So if your friend insists that they will pay for the payment using your credit card; make sure they agree to shoulder additional charges if they fail to pay on the due date.

Why Should You Have a Credit Card?

A credit card can provide you with several benefits if you learn how to use it responsibly. Here are some advantages to having one:

Spread Cost

Credit cards allows you to make purchases that may not be available another time. For example, if you don’t have cash yet, you can use your card to pay for the item. You can then pay your credit card at a later date.

Pay Online

Some online services require credit card payments such as some airline companies and other online shops. It is handy so you can pay for the transaction. You can purchase the item you want which is not available or inconvenient to get hold of offline.

Make Reservations

This also usually occurs online. Some companies require a credit card for you to make a reservation. They do this even if they don’t actually use it to receive the payment from. It just serves as a guarantee or insurance of sorts. It demonstrates to them that you are indeed capable of paying for their services or products.

Consumer Protection

This is one of the most basic but also the most taken-for-granted benefit of a credit card. Most credit cards alert you to online scammers on their black list. If you use it to make a purchase from a blacklisted seller; your credit card company may decide to cancel your transaction automatically. They may call you to warn you about the seller so you can choose to cancel the transaction immediately.

If you have issues with a transaction, or the goods you received are faulty; you can request for a refund from your credit card provider.

Get Something Back

Good credit card payers and loyal users are often rewarded with cash rebates or freebies. These can include free items when shopping like free tickets to concerts, exclusive invites to hotel buffets, special events, rebates and many more.

Of course, all these benefits can only be enjoyed if you are a responsible user. You should have a lot of time to practice as it takes some time to accumulate points.

So is credit card, good or bad? The answer depends on how responsible you are at using this financial tool. If you are fairly good at managing your card, then you are on your way to financial wellness.

Updated. First published on Pinoy Smart Living on 2019.01.22.

Feature Image: Original Photo by rupixen.com on Unsplash.

Apr

2022

Signs You Are Financially Stable

Reading Time: 4 minutes

All of us aim to be financially stable. We try to maintain a budget, make it a goal to maximize our savings, minimize our spending, pay off our debts and dream of the day when we can count ourselves among those who are wealthy and financially stable. But what does financial stability look like? Here are some signs you are financially stable.

1. You can pay in cash.

The first sign that you are financially stable is that you can and are comfortable paying for purchases and bills in cash. You can only pay in cash when you already have a budget set out for it. Or if it is not in the budget, paying in cash means that you have the extra cash to pay for it.

2. You use your credit cards for convenience and rewards–not out of necessity.

When you are financially stable, you will use your credit cards mostly for convenience–when you forgot to bring some extra cash; or for earning points so that you can qualify for a major reward that you can enjoy later on.

3. You pay your credit cards in full, each month.

Being financially stable also means that you are capable of paying your credit card purchases in full, each month. This means that you are only using it for convenience, as in #2 above, and you have the actual money to pay for your purchase in cash.

4. You pay all your bills monthly, in advance–never late.

As a financially stable person, you should be able to pay your bills monthly and in advance, so you don’t incur late fees or having your service cut off. You don’t pay your bills 2-3 months overdue so you don’t experience the inconvenience of having to call customer service to reconnect the service.

5. You’re a natural saver.

Saving should already be a natural habit for you. This means that you are always thoughtful about your spending. You are not inclined to keep up with other wealthier people’s lifestyles. You do not really care what other people say about the things you have or do. Your priority is saving for an even brighter financial future.

6. You comfortably live within your means.

Financially stable people are able to live comfortably and consistently below their means. This means that they have already identified what is valuable and necessary to them and they focus their spending on those things. Being able to live beneath your means also shows that you are always on budget and rarely spend your money on things that do not bring you some kind of satisfaction or reward in return.

7. You don’t feel guilty when you’re out for special occasions.

Just because you opt to save instead of spending does not mean you deprive yourself of the pleasant things in life. Because you are a natural saver, you have accumulated enough extra money that you area able to splurge once in a while on special occasions that reward you with pleasant memories and strengthen your bond with the people who are most important to you.

8. You can afford to buy the things you really want.

Just like splurging on experiences and the people you value, you also reward yourself by buying the things you really want because you can afford to do so and it is a reward to yourself for your hard work. For example, you might have been wanting a very cozy mattress ever since you started following a budgeting system. You do not feel guilty about buying it. It is also in this way that you can feel even more that you have truly succeeded in achieving financial stability.

9. You are generous with money to help others.

A financially stable person does not worry about losing the money they provide to help out other people. When you are financially stable, you will feel even wealthier every time you help out someone in financial need. Being able to do so means that you are financially capable and being able to help out is in itself a kind of blessing.

10. You can survive for months without a paycheck.

One of the goals of putting savings in your monthly budget is to allow you to still be able to keep up with your financial needs even if you lose your job or your paychecks get delayed for a few months. If you can comfortably live on what you have saved for several months while you are still looking for a new job or working on launching your business, then you can check off this item on your financially stable list. This is one of the lessons we have learned in the pandemic.

11. You have a financial plan for the unexpected.

You cannot plan for the unexpected but you can be prepared for it financially. This is where your emergency funds or insurance come in. Emergencies include losing your job (as in #10 above), delayed payments if you are project-based, sudden hospitalization for a family member, etc. This part of your financial plan also includes your insurance policies to help you survive an unexpected financial event. While sudden events may take us by surprise, our financial plan should be there to back us up.

12. You have financial freedom.

Having enough savings and diligently following a budget means that you are able to monitor where your money goes and you have the freedom to choose where the rest of it (the extra that you have accumulated) can be spent on. You are also comfortable in choosing among the options to grow your money even more whether it be maximizing your investment portfolio or going into a business or both.

Generally, you are happy with your financial situation and you do not worry about your financial future because you are totally in control of your finances. You have the freedom to pursue the the job that you want rather than a high-paying one.

If you are far from being financially stable, don’t worry. It it not yet too late to change your future. You have the power within you to redesign your life one step at a time.

Edited version. First published in Pinoy Smart Living on 07.03.2018.

Feature Photo by Karolina Grabowska from Pexels

Apr

2022

What is Your Current Level of Wellness?

Reading Time: 2 minutes

One of the many frustrations many people have in their lives concern their physical health. We are obsessed with trying to achieve the perfect bodies similar to the models we see in magazines. But we are frustrated because most of us cannot afford the lifestyle required to achieve and maintain such a body. Similar to our goals of financial success, a perfect-looking body has also become a status symbol. However, the state of our bodies as well as our wallets and/or bank accounts do not provide a total picture or measure of our wellness. What is more important is your current level of wellness.

There are several dimensions of wellness and being able to pay attention to all of them should be our goal. Being able to achieve complete and holistic wellness is a major factor in your success.

The stress of the daily grind affects us mentally, physically, socially, psychologically and even economically. Before we fix anything, let us first try to get a clear picture of our current level of wellness so we can plan the best approach to improve ourselves.

Answer the questions for each of the dimensions to assess your overall wellness. It would be helpful if you make a pie chart or a graph of your results so you can compare your development and improvements in the future.

Are You Well?

A Balanced Life

After answering these questions, you should now have a better perspective of your current state of wellness. Take note of the items where you had a negative answer and think about how you can improve them in the following days.

This quiz is in no way, a comprehensive list of the things that you need to do or can do to balance out each dimension of wellness in your life. However, it can serve as a general guide on what areas of each dimension you should try to develop to achieve overall wellness.

The only way to achieve wellness in all dimensions is to live a balanced life. This can be a difficult process but it is not impossible. As long as you take the necessary preparation, planning, remain committed and consistent to your goals, then you can achieve a balanced life that allows you to enjoy holistic wellness.

Updated. First published on 2020.03.16.
Original Photo by Kristopher Allison on Unsplash.

Feb

2022

Warning Signs That You are Living Beyond your Means

Reading Time: 5 minutes

To live beyond your means simply means that you are spending more than what you can afford. Statistics show that most people are living from paycheck to paycheck without any kind of financial cushion. This was quite evident on the effect of the recent lockdowns on people’s financial lives. While we all deserve to spend our hard earned income; spending beyond our earnings, not saving enough for emergencies and racking up debt in the process are all recipes for financial disaster. To prevent this from happening, you need to watch out for some warning signs that you are living beyond your means. Even if you were doing fine before the pandemic, you might still need to reassess your finances to check if your current income can still support your previous lifestyle.

It is quite easy to fall prey in this age of consumerism. A wide range of consumer goods are available everywhere in the malls, supermarkets, social media and online stores. With heavy promotion by the media coupled with the support of the banking system through their generous credit to consumers; living beyond your means is so easy to do these days.

The FOMO (fear of missing out) and YOLO (you only live once) mentalities brought about by social media only made matters worse. These mentalities have become the new norm that they have dictated the spending habits of many. While it gives you satisfaction in the present, it gives disservice to your future well-being.

Warning Signs That You Are Living Beyond Your Means

Before it is too late, here are some key indicators that you are living beyond your means. They will serve as warning signs that it is time to scale back on your spending immediately.

1. More than 30% of your Income Goes to your House

Housing is the largest expense of most households. Most people dream of a big nice house thinking that they are buying an asset. However, most people don’t realize that their primary home is no longer considered an asset but rather a liability.

Unless you have a way of lowering your monthly expenses on other parts of your budget, you will find yourself in the poverty cycle if you are spending more than 30% of your income on your house. The allure of a bigger and better house will become a financial problem.

Now, calculate what percentage of your monthly income goes to your housing expenses. Housing expenses include your monthly amortization, real estate property taxes, association dues, house insurance, maintenance costs and utilities. If the amount exceeds more than 30% of your monthly income, you will be much better off finding a less lavish home that will fit your budget.

2. More than 15% of your Income Goes to your Car

If you can purchase your car for personal use in cash, then there is no problem. Problem arises when you borrow money in your auto loan purchase.

Have you heard of the 20/4/10 Rule on Auto Loan? The 20/4/10 Rule keeps your finances in check when it comes to purchasing a car. The rule says if you are going to buy a car, you need to make at least a 20% downpayment. In addition, the terms of payment should not exceed 4 years and that your monthly amortization should not exceed 10% of your monthly earnings. If you cannot follow these rule, it simply means you are buying a car that you cannot afford.

Minimum 20% downpayment
Maximum 4 years term
Monthly payment should not be greater than 10% of income

If you add up all other transportation expenses like fuel, maintenance costs, insurance and your monthly amortization; the total should not exceed more than 15% of your income. If your monthly transportation expense goes beyond that, you are simply living beyond your means.

3. Overdue Notices Fill Up your Mailbox

If you have been receiving late payment, overdue and disconnection notices, or worse you find your utilities constantly disconnected; then that’s clear sign that you are living way above your means. Your monthly budget should include payments for bills and utilities. If you can’t pay for them then it is time to reevaluate which ones are necessities and which ones you are better off without like cable subscription for example.

4. You Borrow Money from Others

If you find yourself borrowing money from friends and relatives or take out personal loans to pay your bills then that is a clear sign that you cannot afford your current lifestyle. Ideally, your income should be enough to cover your day-to-day expenses.

5. You Constantly Worry About Money

You are constantly worried about money, even with small expenses to the point that it is already keeping you awake at night. Your health is already affected. You even get into strenuous discussions and arguments with your spouse.

It is normal to worry about your finances every now and then but if you are constantly experiencing these things on a daily basis. Then, it is so obvious that you have money problems.

6. You have No Savings / Emergency Fund

You have no savings or emergency fund. Even if you have it before the pandemic, you have already used it all up. There is no money left from your current income to set aside for future savings.

Savings are needed for future use. An emergency fund is for unexpected and unfortunate events like a pandemic, unemployment, illness, disability or simply for car repair purposes. Ideally, your family should have enough money saved to cover at least six months worth of your living expenses.

7. You have Rising Credit Card Balances

If you are one of those people who only pays the minimum amount due on your credit card balance every month, then that’s a sign that you are living beyond your means.

Ideally, you should only charge what you can pay off at the end of each billing cycle. Unfortunately, many people have severe problems with credit card usage. If you don’t pay the total amount due on or before your due date, your outstanding balance will charge additional interest rates and fees, and these are carried over every month causing your debt to balloon month after month.

8. You Never Set A Budget

If you are ask questions about your budget like how much do you spend on food each month and you have no idea what the answer is, then you have a problem. A written budget is one of the first and most important steps towards financial freedom. How will you know if you are living within your means if you have no idea where your money is going? Having f inancial goals and sticking to your budgeting plan can prevent money leaks and help you live within your means.

9. You Run Out of Money Before your Next Paycheck

Do you find yourself short of cash long before the next payday? If you do, then that is another sure indicator that you need to downgrade your lifestyle. Your paycheck should be enough to cover your expenses for the period.

10. You Shop / Vacation on Credit

Credit is good when used wisely. It is very convenient because you don’t need to pay in cash for the total cost of an item or service right away. It is fine to avail of zero percent installment offers just as long as you are sure that there are no hidden charges. The rule of thumb is that your payment terms should not exceed the total life span of the item that you are buying.

It is a whole different thing for trip purchases. Yes, you can go on that well-deserved vacation only if you have saved enough for it. Make a plan to save money for that dream vacation.

You can use your credit card for protection. Like for example, some credit card offers free travel insurance if you book using their card. All other vacation expenses should be paid in cash. You can also use your credit card during vacation but for emergency purposes only. If you are one of those people who loves taking vacation all on credit, then you are living beyond your means.

If you score at least four and above, then take it as a warning sign that you are living beyond your means. You have two options, either you increase your income or downgrade your lifestyle. But whatever your choice is, it is best that you start learning financial literacy now to avoid finding yourself in the same situation later on.

Edited Version. First Published in Pinoy Smart Living on 10.30.2018

Photo by Artem Beliaikin from Pexels