How to make your salary fit

Francisco Colayco gives an astounding wealth of advice when someone asked him a question about savings. The question goes like this:

Noong maliit pa lang ang suweldo ko, talagang kapos para sa pangangailangan namin. Pero nagtataka po ako kung bakit kahit na apat na beses na akong nadagdagan ng suweldo, kulang pa rin ang suweldo ko. Paano po ba ang dapat gawin para makapagsimula ng savings?

Money or income, like water, seeks its own level. If you earn one thousand pesos a day, chances are you will spend one thousand pesos a day. But if you were earning only 800 pesos per day, pinagkakasiya mo iyon sa araw araw. This is the “secret” of money management. Adjust .. adjust… adjust your lifestyle according to you’re the level of income you are assured of on a monthly or yearly basis. There will be time enough in the future to improve your lifestyle when presumably you will be earning more income regularly.

If you accept this mindset, it will be easy enough to follow the first commandment in personal finance, i.e. Pay yourself first. Set a goal of paying yourself 20% of your regular monthly income. If you cannot do it yet, start anyway even if it means only paying yourself 5% or 10 in the beginning. Like everything else, developing the savings habit takes some time. You still need to experience it and see the benefits before you really embark on saving and investing substantial amounts. What you pay yourself is what is called savings to invest for your future.

Is this expense a need or a want?

What derails us most of the time is spending for unnecessary and postponable items. We are thus unable to pay ourselves any amount because all income goes to expenses. Think of savings as an expense. After all, it is really an expense that buys your future. Consider the case of soap. If you just buy one cake basic soap, the cost will be about Nine Pesos. Adding a germicide increases the cost to about P19.00 per cake. Add a moisturizer and the cost goes up to P33.00. Finally with a skin whitener, the cost surges to P43.00 for one cake.

This illustrates how easy it is to over spend without realizing it. Where you could live with a nine-peso soap, now you might be spending up to P43.00, or an increase of almost 5 times. It is your decision whether or not the improvement of the soap and the resulting increase in cost is a need or a want.

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