It’s the first week of 2018. What is your New Year’s Resolution? Is it for better health? Finances?
It is the best time to organize our coming year with well-wishes and positive change. “New Year, New You” as most say. In line with this series, let us help you with your year-long goals!
To kick off, have you started planning for your finances this year? With the TRAIN Tax Reform coming this year, you might have more leeway in building your savings.
If you haven’t saved in your life (or if you failed trying), this is the year to start anew. Here is the “New Year, New You 2018: Savings Challenge”.
Learning to save is certainly a life skill. It is not enough for your financial freedom. But it is most definitely a requirement to achieve it. After all, before you can invest in UITFs or Real Estate, you should have money.
“Savings” is the money you put away from your income. It may be for emergencies, investments, or long-term spending funds. It sounds easy, but most people struggle because they save this way:
Income – Expenses = Savings
The problem with this is that people are left with nothing after expenses. Most of the time, even incurring more debt. Increasing income is one solution. But for the meantime, we can also tinker around the “Expense” side of the equation.
You can try this point of view. Why not DEDUCT YOUR MONTHLY SAVINGS FIRST before you spend your paycheck. To simplify,
Income – Savings = Expenses
This enables you to secure your savings before you work around your budget for the month.
And speaking of budgeting, whether you are an employee or a freelancer, anyone can set a proper budget regardless of income. Click this link to for a step-by-step guide to budgeting.
52-Week Money Challenge
Last year, the 52-week money challenge circled its way in social media. It aims to start your savings journey with small amounts per week first, and incrementally increase the amount.
For example, you can start with 50 PHP ($1 USD) the first week, and subsequently raise the amount by additional 50 PHP ($1 USD) per week. It will look something like this:
The problem with this is that it may not be that flexible. If you check the last months:
What if you only have PHP 25,000 to budget? Starting October, you will take out 34% already for savings.
With the “ber-months” coming and with rising costs of goods, the amount might be too hefty for the normal Filipino.
Saving is a habit and stopping within the period might negate your previous efforts to solidify that habit.
To solve this, you can try these 3 simple hacks to conquer the 52-week money challenge. Or you can try an alternative challenge.
12-Month Savings Challenge
The 12-Month Savings Challenge is similar to the 52-week money challenge. But instead of sparing a specific amount per week, you save a specific PERCENTAGE AMOUNT OF YOUR INCOME PER MONTH.
It was made by Filipino finance coach and registered financial planner Alvin T. Tabañag. With this scheme, you will have more flexibility with budgeting. It works as follows:
Base Amount + (% Savings x Monthly Income) = Monthly Savings
It may look challenging, but hear me out. For those with PHP 25,000 income, just set a certain “% savings amount” and increase it per month.
For example, if you choose a zero base amount plus 1% starting per month, the chart will look as follows:
Or if you want a higher savings rate, you can try to increase your base amount. For example, you have PHP 50,000 monthly income and you choose a base amount of PHP 2,000. The chart will look as follows:
With its flexibility, you can have a more sustainable saving habit. You can check the full article for more details.
Our Financial Future should be planned. The first step is always the hardest. Regardless whether you begin with a sizable sum or a just a few pesos, the important thing is TO START NOW.
Saving is a habit and I hope we all build it this 2018. Happy New Year!