Wednesday, January 18, 2012

Saving for the future

We all know how important it is to save for our future and it is never too late to save. When I got my first paycheck from my first job I bought anything that I can afford and saving nothing. Don't get me wrong I'm no millionaire, I'm just an average Joe earning an average "doe". That cycle continued on for quite sometime, until I realized that I'm not getting any younger and still I have nothing for the future.

Good thing our office held a free seminar regarding money management and my office mates told me about Bo Sanchez, you can Google him if you want. Now I want to share what I have learned from him regarding money management.

This may not apply to all but this is the general idea. Savings is  

NOT
SALARY - EXPENSES = SAVINGS;  
IT SHOULD BE  
SALARY - SAVINGS = EXPENSES
This means that once we receive our salary we should immediately deduct our savings from our salary and live off the remaining money. "How much savings should be cut off?" you might ask? Well generally it should be 10% but Bo has another scheme. He said that we should live on 70% of our salary and save the 20%. Some might react that 20% is too big to cut from their salary but you would be surprised that it is possible. It might be hard at first specially if you eat out a lot, party all the time and buy unnecessary stuff; guilty, guilty, guilty! It is doable but sacrifices must be made. The 10% goes to tithes as written in Proverbs 3:9. If 10% is too much then give what you openly want give.Then you divide the 20% into three parts, one for paying debts, one for your emergency fund (3 to 6 times your salary), one for investing on something (stocks, bonds, mutual funds etc.). Sounds complicated? It's not.

Here is an example:

MONTHLY SALARY = 10,000
70% OF SALARY = 7,000
10% OF SALARY = 1,000
20% OF SALARY = 2,000
 3 / 2000 = 666.66 or to avoid decimal numbers, 700, 650, 650

So live on 7000 per month then give the 1000 to your church.

Use your 700 to pay your debts until all your debts are paid.
Save your 650 for your emergency fund until you reach your goal.
Save your 650 for investing (depends on how much is the minimum)
When you have no more debts move your 700 to your emergency fund (600 + 750 = 1350) until you reach your goal.
When you have reached your emergency fund target. Save all your 20% for investments.

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Hope this helps.

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