Wednesday, 18 September 2013

financial freedom: let's aim for the moon!

"If you cannot control your emotions, you cannot control your money." - Warren Buffet

The Problem


I am dangerous when i'm stressed or having issues with my self-esteem. I swipe my card and I slash my savings.

Good things those moments come few and far between.

But the main culprit that hinders me from attaining financial freedom is the 'upgrade' in lifestyle and that need (or more aptly - want) to 'reward' myself for a day's hard work in the form of food.

Kapag na-stress - kain tayo sa masarap! Kailangan masarap. Bawal magutom, marami pa akong gagawin.

I can't believe I have been spending more than 10% of my net pay on food! But my growing waistline is enough proof.


I feel the need to be up-to-date when it comes to gadgets which explains the recent impulsive purchase of Samsung Galaxy S4 even though I still have an iPhone 4s that works just fine. Ewan ko ba. Then the news of iPhone 5c and iPhone 5s came out. I wanted to trade-in my S4! And I still have hopeless moments pining over the macbook air. Hay, hopeless.


I also feel this constant need to buy myself a new bag, new pair of shoes, new set of clothes, etc.

You get the picture. I am an impulsive buyer. I know that. I just don't know what to do about it.

Is that even bad at all? Our previous conditioning (culture, upbringing) determine the way we look at spending and saving. We may admire a spend-thrifty person or look at her with pity for being a miser. We may be envious of people who flaunt their purchases or hate them for their extravagance.


The solution

They say, in our quest for financial freedom, it is very important to be able to differentiate a need from a want.

To quote from Entrepreneur Philippines' It's Your Money Spend It, Save It, Invest It and Lead a Debt-free Life:

The key to distinguishing needs from wants is being honest with yourself, your aspirations and what you can afford.

You must be fully aware of your:

1. existing funds
2. capacity to generate new funds
3. time horizon
4. personal values

before you can create life and financial goals that are attainable and can contribute to your well-being.


Take stock and track your expenses

Because I wanted to be fully aware of my existing funds and understand my spending ways, I resumed using the Home Budget App on iPad/iPhone. It is not free but I bought it 3 years ago to jumpstart my supposed quest for financial freedom. It's not too late to resume it now. Yup, convincing myself. ;)

home budget app from the app store


Am I worth anything?

First step was to account for my existing accounts (assets) and bills (payables) so that i'd know where I stand financially. As soon as I did this, I felt the urge to pay my credit card bills in full. I wanted the satisfaction of having zero liabilities.

Total Assets - Total Liabilities = Net Worth


Am I living within my means?

Second step was to set a budget for my monthly expenses and start tracking my every day spending. By the end of the month, I should be able to compare my expenses against budget and expenses against income.

The trick here is to strictly account for each and every spending, no matter how small or trivial. This way, I can honestly determine how much I really spend and on what items.

In case you want to track your own expenses, there are a lot of free money monitoring apps in the app store (for apple) and play store (for android).

App Advice has a list of budgeting apps you can choose from.

Lifehacker also has their own list here.

If you're not tech-savvy, you can use basic excel or the tried and tested jotting down of notes on pen and paper.

At the end of the month, if I determine that I am living beyond my means, then I will have to revisit my expenses and cut down on wants.

Total Income - Total Expenses = Cash Flow

The goal is to score a positive cash flow to have extra money for savings.


Action Plan

Create action plan on how to change money's role in your life so you can live happy and become content with what you have.
(Source: Entrepreneur Philippines' It's Your Money Spend It, Save It, Invest It and Lead a Debt-free Life)

Tips

Paradigm Shift.

Know yourself and what drives your spending. Then make a commitment to stick to the plan and have your eyes on the goal.

Reality check: You spend to feel good after a bad day or a stressful week. How about a walk in the park? Sing a song? Dance like no one's watching? Run? Exercise?


Downgrade. Cut down on expenses.

There are two ways to increase savings, increase income or decrease spending.

If you want an upgrade in lifestyle, continue to hone your technical skills and competence, get promoted, get a higher paying job, win the lotto, work harder, work more, sleep less.

Or you can cut down on unnecessary expenses.

Hmmmm....

Reality check: You may want it but you don't need it. Maybe, you just like the idea of having it. Or maybe you are pressured by peers or by this irrational need to feel loved or appreciated by owning material things.


Start saving NOW. Immediately. Today. ASAP.

Pay yourself first. Instead of saving what is left from your income after all of your expenses, do it the other way around.

I am a member of the cooperative in our office and my 10% savings is automatically deducted from my net pay. I can not spend what I do not have so it's safe.

If you start early, you can stick with 10% but as you grow older, try to save more Remember the time value of money? It is best to save early and consistently.

Reality check: Is it even possible to attain financial freedom? Really successful people aimed for the stars. Let's aim for the moon. ;)




Managing needs and wants, and striking a healthy balance between them, often spell a person's happiness and contentment.




- Posted using BlogPress from my iPad

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