It's not how much you earn, but how to manage your money that can have a real impact on your finances. How many times have you drained your bank account days before your next payday? How often do you call your parents for an “emergency” remittance? You cannot truly claim adulting without being financially independent. Your lifelong journey to independence should start with your first paycheck.
Learn how to make better financial decisions. Here are 10 easy money-saving tips you should do in your 20s.
1. Have an accurate picture of your finances
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To win a money-saving challenge, you should do a diagnosis of your financial condition. You need to know how much you're earning and spending down to the last peso. Draw an accurate picture of your financial status. Get a piece of paper and divide it into two parts. Write down your net income each month on the left side, and your expenses on the right. For the expenses portion, start with the basic items such as rent, utilities, credit card payments, loans, and groceries. An estimation of these will do. Subtract the total expenses from the net income. Do you like what you see? If not, you'll have to think about boosting the numbers in the right (your income) and cutting down those in the left (your expenses).
2. Force the savings out of your income
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The typical lesson in budgeting involves subtracting the total expenses from the net income. This will only give you a picture of how much you're earning against your spending habits. But this will not jumpstart your savings especially if you're getting a negative difference.
Get a clean sheet of paper. Write down your monthly net income from all sources and compute the equivalent of 20%. This percentage is your savings. Subtract your savings in peso value from the total net income. The difference will be your budget for your expenses (bills, food, transpo, etc.). This new formula will “force” savings out of your earnings instead of depending on your will to save. Admit it, most of the time, the mall payday sales are more powerful than your will to save up for the rainy days.
3. Build an emergency cash pot
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The rate of your savings should change as your income improves. If 20% is but burdensome for now, try with 10%. Then increase it gradually once or twice a year, or as your earnings grow.
The money you'll be accumulating isn't exactly the starting fund for your retirement. That will follow after you've built a 6-month emergency cash pot. This pot, which is equivalent to your monthly expenses for 6 months, will keep you afloat in the event you lose your earning capacity. You may lose your job, get sick, and fail to return to work immediately. You need to protect your finances from these unforeseen events.
After building this cash pot in the bank, you can then continue saving for your investments and retirement. You can aspire for your own condo home, fund your way to law school or med school, or plan settling down with your own family.
4. Get adequately insured
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A couple of days in the hospital can easily ruin your finances. You know how expensive it is to fall sick in this country. Make sure you have sufficient life and health insurance coverage. Think of an insurance plan as a safety net. If an unforeseen event strikes like a medical emergency, your insurance will help protect your finances. You wouldn't need to drain your bank account or incur debts. Your insurer will pay for all expenses covered by your insurance plan. The truth is, the premiums you're paying are your tickets to peace of mind.
Basically, a life insurance policy is recommended to breadwinners to ensure their dependents will be supported in the event of the former's untimely demise. But there are new products that include investment features, making them an appealing investment product for everyone.
5. Assess your basic expenses
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Rent is likely your single biggest expenditure. Typically, people spend 30% of their monthly income on their rent payment. You can lower this amount by renting a condo with friends. Sharing a condo space with 1 or 2 more people means that you'll split the rent, utilities, and the tasks of managing the household.
Do you really need to keep your postpaid phone subscription? There's an exhaustive list of free communication apps you can use to reach people without incurring phone charges. You can also use call and text promos available to prepaid users. For your broadband connection, stick to the plain vanilla plans, if possible. If you don't use landline anymore (which is likely) and rarely watches cable TV (because there's Netflix and YouTube), then you don't need expensive bundled Internet plans.
6. Prepare your food and save money and your health
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Dining out is costly. It can also raise your risk to obesity and type 2 diabetes. Cook hot, healthy meals at home. Pack your lunch and snacks. You'll be surprised at how much you'll save in your budget.
There's no harm in eating out with your co-workers or friends once in a while. Join dine outs once or twice a month, but bring meals on regular days. Expand your work lunch menu. Cook pasta in between white-rice days. You can also prepare sandwiches, salads, and desserts. Check out recipes you can easily prepare in your DMCI condo.
7. Cut down on sweetened drinks
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It's not only on expensive coffee you should cut down; reduce your soda and other sweetened beverage consumption. Sugar, not fat, is a main cause of obesity, according to a study. Whenever you feel like heading to the coffee shop across your office for a Php250 coffee, think of how it's ruining your health (and your budget). Drink water, lots of it, homegrown coffee, tea, and fresh fruit juices.
8. Boost your income
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Boosting your income can increase your savings more than slashing your expenses. Remember that you're taking out your savings directly from your net income. The difference will be allotted for your living expenses. Any adjustments will be made on whatever is left from your net income and savings.
You have two options: wait for the annual salary increase or find additional sources of income. The latter is your best bet to speed up your savings.
Explore part-time jobs you can do at home. With a reliable broadband connection and a functional computer, you can earn serious money writing articles, designing websites or teaching English to foreign students. You can also do research work for graduate students or apply as a freelance social media manager for small businesses.
9. Choose your company
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Just because your friends and coworkers are into a certain lifestyle doesn't mean you should join the bandwagon. You have different financial standing, priorities, and goals. You may not even be fond of clubbing every Friday.
If your circle isn't a good influence on your finances and overall well-being, you need to find a better company. Better yet, be comfortable being on your own.
10. Downsize your lifestyle
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Do you really need to own more than 2 pairs of running shoes? If you're not using your smartphone for work, is there an urgency to always score the latest model? Is it truly a must that you travel abroad once every quarter? Live the life you can afford. This is the ultimate lesson in every young adult’s guide to saving money.
You're an adult earning a living for yourself. Own up to it. Make better financial decisions. Start with getting a clear picture of your financial standing, whether you're earning enough and spending reasonably. Then force savings into your budgeting because you can't depend on your will to save up. Get adequate insurance cover and reassess your lifestyle. Finally, commit yourself to reach financial independence.