are you in touch with reality about your spending habits?

a few days back, an officemate of mine asked me how do i budget my finances. i told him about the cash management file i maintain which is really helping me paint a picture of what my spending habits were and are. i believe most people who are sticking to a budget more or less work with a guidelist somewhere- mine is more like my playground- as i can spend hours and hours playing around with it without actually getting a headache or getting bored.

so how does one starts cash management? and more importantly, why would one, really?

it took me four years and a horrifying six-digit credit card unpaid bills to realize i was in deep financial shit way back 2005. ironically, that was also the same year i decided i want to celebrate my 25th birthday party in Boracay. i knew i was broke at that point already but there was a 14th month pay towards the end of october and the 13th month pay in december- so hey, my irresponsible self thinks she deserved a little fun and splurged the extra money she really didn’t have. in short, although i did realize i was in deep financial shit already, i was still living in denial. it was like having a bad dream and just hoping that sooner or later i will wake up from it and it will all be gone.

of course, it didn’t quite happen that way. a few months later, i forced myself to write down all the fixed costs i have to pay for every month (utilities, tuition fees for the siblings, allowances, transportation, rent, etc.) and deducted it from my fixed salary. a red, glaring number appeared. i stared at it for hours. it glared back at me just the same. i wasn’t that surprised- it was the sanest, most logical explanation why i was running out of money all the time. (not to mention that i went to bars at least once a week and bought the latest gadget in credit card installment and watched a lot of movies in big screen- which meant another burger meal at Wendy’s, coffee at the coffeeshop and meals at the mall’s various restaurants!).

but that red, glaring number brought me back to reality. and it saved me.

that is why personal cash management (a lot of people call it different names) is important. it keeps you grounded. it shows you exactly what you can afford and what you cannot. it shows you how you did in the past and the probable outlook of your finances in the near future.

the best way to maintain the cash management worksheet is through Excel. it is very simple but you must remember the following considerations when you are building your Cash Management Sheet:

1. When you are plotting your income sources, only consider your guaranteed salaries. This means, for the purpose of planning, do not include your overtime pays, your holiday pays and your “probable” bonuses when you are considering your income base.
2. When you get to your expenses part, list all your expenses. some people tend to forget some financial responsibility to avoid that red ink in their cash management sheet. which i think is very silly but quite a common occurrence (i used to do that before). remember, just because you didn’t put it there doesn’t mean it will not come.
3. Always set aside something for your savings. i know you’ve heard this too often before but i cannot make it clearer than saying this: it pays to pay you “future self” first. and make sure you put it in some vehicle where your current self would not spend it over cocktail drinks at Greenbelt or expensive dinner at Serendra or clubbing in Libis.

if after this exercise you found out that you aren’t doing so bad after all, that your income is still higher than your expenses, the questions you now need to ask yourself are:

1. if in any way you won’t be able to earn the same income anymore, do you have enough emergency funds?
2. do you have financial goals?

though, for the many of us, a number would probably find out they are living beyond their means and that red, glaring figure is now staring back at them. now that you’ve escaped the limbo, how do you cope?

i will tell you how i did it next week. and trust me, it worked.


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