Many of us — especially those of us in our early twenties — struggle when thinking about where to start with managing our finances. In fact, some of us don’t even consider saving money until our late twenties! This probably stems from the mindset that we deserve to splurge a little bit and enjoy the first few years of finally earning our own money. Don’t get me wrong, I think this is great, and we all deserve it! But when you find yourself still having no savings at all after a few years, it’s probably time to do a quick review on how you can better manage your finances.
The thing about great financial management is, it’s not just about saving money. While it’s great to have a few savings to spare in your bank account, it shouldn’t stop there. So I’m going to share with you a few tips on how I personally manage my own finances and maybe you could also take inspiration and start managing your own too!
Emergency Fund
When managing your finances, the first thing you should start saving up for is your emergency fund, and this could go two ways:
The most ideal option for me is having six (6) months’ worth of your monthly salary stored up in a separate bank account. Say, if you’re earning PHP 30,000 a month, you should have a total of PHP 180,000 worth of savings stored for emergencies.
If the first option seems like a bit of a challenge, what you could do is compute all your necessary expenses each month and multiply its total by six. So, if your monthly expenses amount to a total of PHP 20,000, your emergency fund should be a total of PHP 120,000.
As to why having an emergency fund stored is pretty self-explanatory. In case of any medical emergency or other unforeseen events that might lead to your loss of income, your emergency fund can support you for half a year while you find a way to get back on track.
It’s also important to note that you should not spend your emergency fund on anything except, well, emergencies! It is not to be spent on splurges or everyday necessities which you should have a separate budget for — which brings me to my next point.
Distribution of Total Income
In order to ensure that you have a consistent cash flow in building your emergency fund, you should properly divide your monthly income into four items. Personally, here’s how I do the math when it comes to my own budget:
20% for my emergency fund, which I keep in a separate bank account
10% for my leisurely expenses such as vacations, new clothes, etc., which I also keep in a separate account
50% for my monthly bills
20% for my day to day expenses for the whole month, half of which I keep in a mobile banking app (this is super convenient btw!) while the other half is kept either in cash or in my payroll bank account.
How you divide your own income depends on your lifestyle, hobbies, and daily activities. For example, the reason why my budget for leisurely expenses is much smaller than my day to day budget is because I live alone, which makes my daily expenses much higher. If I were still living with my parents where I’m not paying for rent or for my own groceries, then I could probably spare a little more for other things.
The same goes for the money you spare for your emergency fund. It doesn’t have to be a fixed 20% if that would mean compromising, say, the money you spare for other important things like your groceries or your electricity bill. It could be 5%, 10%, 15% — it’s up to you! At the end of the day, budgeting is all about spending, and saving, within your means.
Investing Your Money
Once you have set up your emergency fund — which, understandably, could take some time, so don’t rush!— you can now look into various investing opportunities that could help you grow your money.
Always remember that there is no single sure way to successfully invest your money. This, again, would depend on which opportunities you can fully commit to. Other people study how the stock market works and start from there, while those who want lower risks invest on mutual funds offered by banks or insurance companies, where they can let experts handle their money.
If you’re thinking about investing in stocks, a lot of websites offer online courses that can teach you more about this. You may also make inquiries in your local bank or insurance agency for packages and policies you can consider getting as a kick-start.
Apart from stocks, there are also some who venture into small businesses or side hustles like freelance work in writing, photography, project consultations — the possibilities are endless! But do note that this would take a lot of time and effort especially for those with full time jobs. It’s all about finding what works for you in terms of budget, commitment, and profitability.
Always keep in mind that how you manage your finances should also be tied with your long term goals, such as buying a house or a car. Personally, how I budget my money is patterned after my goal of starting my own business. Which is also why a lot of people I take inspiration from are small-time business owners who left their corporate jobs as soon as their side hustles started earning more than their nine to fives.
Once you’ve found your niche in investing, you can now let your money work for you!
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