Investing in Philippines: Ways to be debt free: Allocating your salary or earnings

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Wednesday, July 27, 2011

Ways to be debt free: Allocating your salary or earnings



One way to be able to get out of debt and start investing is allocating your salary or earnings. 

Wait what did I say "allocating your salary?" Yup you can save and allocate your salary even if your salary is small. If you haven't read my post about starting investing even with a small salary click here.

The problem with most of us is cash management. Sometimes when we get our paycheck we pay it all to our debts leaving us cashless until the next paycheck thus forcing us to borrow so that we can pay for our daily living. Others save some but eventually touch that set aside money because some "sale" is so attractive(click here). Others put all their money in time deposit thus they are unable to get it out when they encounter emergencies thereby forcing you to borrow again. 

See my point.

That is why you and I have to allocate our resources or to put it direct our limited cash so that we have something to pull out without affecting other things that need cash. So how do you allocate your limited cash so that you wont be trapped and end up borrowing?

It is so surprising that the Holy Bible has something to say about allocating your money:

Ecclesiastes 11:2 
Give portions to seven, yes to eight, for you do not know what disaster may come upon the land.

It does not necessarily mean that you have to divide your salary or earnings to seven or more upon receipt but it is a good practice to do so. As for me I have initially divided it into six parts I called funds. You can make it into 4 or 8 but that entirely depends on you but as for me I am sticking to six and probably add another in the future when the need arises. Also it does not mean that each category should be equal because we have different needs base on our lifestyle, our age, and other factors. 

The concept here is to allocate a portion to each category or "funds" so that we have something ready for anything that may come up or befall us. As the quote in the movie "Mechanic" says "Amat Victoria Curam" which means "Victory Loves Preparation"





Let me share to you why I divided it to six:

One: Retirement Fund

This fund is for my retirement in the future. The value of your money now will be decreased as time progresses due to what we call inflation. In order to fight inflation we have to make money increase so that we can cope up with inflation. This fund could be set aside form time to time and when a certain amount is reached will be invested in stock, mutual fund, or a time deposit that gives a return above inflation.

Two: Investment Fund

You might wonder why do I have an Investment fund when I already have a Retirement Fund. Well why only save for retirement when we can increase more our current finances by investing it to other financial  vehicles like small business, stock investment, debt investment, or short term placement of cash that gives a fair return. This way you can have extra for the current time and at the same time add more to your already existing Retirement fund any extra you may make from this fund.

Three: Savings Fund

Again it may seem like this is already a duplication but hey savings fund are monies you set aside also which you can pull out for an opportunity that may give you a nice return. Also you can use this fund if you are saving for something that you have been dreaming to buy or take like a vacation in Bali or a 21 inch flat screen TV or maybe the latest laptop or an Ipad. This is the fund where you can put it and wait 
until it reaches the amount you need to purchase your wish list things.

Four: Emergency Fund

Yup this one is for those things that just pop up right in times you are not expecting like sudden hospitalization, disaster, and other "beyond control" events in our lives.

Five: Expense Fund

This one is self explanatory. You live thus it is logical that you spend money for some expenses that you do in order to live day by day. This might be the one with the biggest percentage of your salary or earnings.

Six: Tithes or Donations Fund

Hey you got to share your blessings. Most of the time you pass the opportunity to bless others because you don't have anything left for it so to make sure you bless others with your wealth you allocate some for this.

As for the additional fund I am thinking of creating a fund for insurance. This one might be another duplication with Emergency fund but this one is for something that we can setup so that besides the money save in the Emergency Fund we have more funds to cover such unexpected expenses. I am still in the exploratory stage for this. My beloved has introduce me to insurance and we are looking at the best options available out there. There are so many types of insurance thus a careful study must be done. Though I remember that my first investment has an attached insurance up to 60,000.00 pesos that wont be enough to cover me up as I aged.

Again save, allocate, and make these funds grow to outdo inflation. 

"Amat Victoria Curam"

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