managing money for bachelors and entrepreneurs, with Renzie Baluyut.
It used to be a lot simple. You make some money, you spend it, maybe set aside some for savings, or for whatever big ticket item you’re eyeing for yourself in the future.
If my spending goes up, I would be the kind of guy who would probably try to look for more side projects or gigs to cover the added expenditures.
That was when I was still working for a radio station and all that.
These past few years, I had to take a good hard look at how I spent my money. A few months back, I wrote about the expected cost of living is in Metro Manila. I also had a post on How To Make More Money, also from a few months back. A good start, but now I feel we need to write a follow-up to that post in the very near future.
Fix Your Money Blueprint
The way we see money, our spending patterns, how we’re serious about our savings- all those are manifestations of what is called our Money Blueprint.
This was all the idea of T. Harv Eker, author of Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth. Which, if I may point out, is a good read for anyone who needs a little more guidance on managing money. And I mean, anyone; not just entrepreneurs and businessmen.
In fact, had I known about this a lot earlier in my life, I probably would be a lot better off now. But hey, it’s never too late to start anything, so here I go.
In his book, Eker recommends a fairly simple money management technique: separating our income into a number of different accounts, with each account created for a specific purpose.
There are six different accounts that he recommend we create, each with a corresponding percentage value:
- Ten percent (10%) goes to an account to accumulate money for the purpose of investing and building more passive income; never to be used (withdrawn) for any other purpose. He called this the Financial Freedom Fund, or FFF.
- Another ten percent (10%) goes to an account for Long-Term Savings for Spending, or LTSS. This is what you use for whatever big-ticket items you have in mind for yourself: renovating your kitchen, that big new plasma TV, or that brand new PC you always wanted.
- Still another ten percent (10%) goes into our Education (EDUC) account: which we should spend on books, seminars and workshops, anything that allows us to keep on learning new things, which in turn, encourages our personal growth.
- Necessities (NEC) will account for fifty- to fifty-five percent (50-55%) of our income. It’s not as easy as you think; if anything, limiting your bills and day-to-day expenditures (food, transportation, phone bills, internet, etc.) challenges you to live a simpler lifestyle. A real eye-opener for me, on a personal note.
- You will definitely need to enjoy the fruits of your labor- which is where ten percent (10%) of your money goes: to the Play (PLAY) account. Anything for the purpose of rest and recreation. For best effect, spend your entire PLAY account monthly, or at least every 3-4 months (if you’re saving up for that Singapore vacation you’ve always wanted, for example).
- Lastly is the Gift (GIFT) account, which takes the remainder- five to ten percent (5-10%) of your income. This is what you use for any and all your charitable endeavors, whatever makes you happy. Remember, there are always people out there worse off than you. Giving back, therefore, is important (and is therefore a topic worthy of another post).
So now you know how to divide your money up. Eker even had gone so far as to recommend we use jars- actual, physical glass containers- to put money into, accordingly.
I say, whatever works best for you. It can be as simple as doing an electronic funds transfer from one main account into all your other accounts, maybe a bunch of envelopes you keep on hand. The point of the exercise is to get you in the habit of divvying up your income this way. Something we’ll be talking about in the next post, Spending The Money The Right Way, part 2 of 2.