Spend Less Than What You Earn

by Gil on December 6, 2011

in Personal Finance


I’ll be posting more topics related to money principle I believe and promoted through this blog starting now by giving you my insights about this principle and might hopefully benefit you as you follow it. I learned financial literacy not in the school neither in our home. I learned it from personal experiences and reading books and personal finance blogs and I wish I could impart you some of my learning.

The number one principle of this blog is “Spend less than What you Earn.” It is easy to understand yet hard to follow. I think this is the basic and pillar of personal finance. Spending more than what you earn is becoming popular and norm in our current time and we can see it everywhere. Credit cards are so popular today because people want to spend money even they don’t have at the moment.

More Insights on Spend less than what you Earn

Like what I said earlier, this principle seems basic but very difficult to carry out especially if you have the habit of overspending and impulse buying. Debt and no savings are the results of spending more than what you earn. So it is very important to monitor and plan what and how do you buy stuffs because in most cases you don’t really need what you are purchasing.

I will give you an illustration to easily understand this concept. For instance, Gil is earning P15,000 a month less all the taxes and fees from Pag-IBIG, SSS and Philhealth. He has a stable job and working in his company for more than five years. He’s still single and he doesn’t support any of his family members because they too have regular income from their jobs and businesses. In other words, all of his income is his alone. However, the sad thing is he doesn’t have any savings even P1,000 at his bank account. Why is this so?

The story goes like this. Every time he got his salary every payday, he and his friends regularly go to bars to have some “good time.” Gil likes branded and popular drinks so his expenses is much higher than his friends every time they go out. Every month he spend more or less P5,000 in bars and gimmick places.

He also likes branded shoes and clothes and every month he buys at least one clothe. His expenses for this: P2,000. Gil has a post-paid smart phone from a popular telecoms company which he pays P2,500 every month for 2 years. He has other regular phones and he got this new one to be “in” with his friends who has also smart phones. Aside from this expenses, he’s paying credit card debt each month that costs him around P4,000.

By the end of each month, Gil has almost no money at all in his wallet. He cannot save because he’s not planning and wanting to save because he’s reason is that he has a “stable” job. Actually, compared with majority of other employees of his age, Gil is earning a good salary and it is increasing by almost ten percent each year. Despite of his better situation, he has no savings and cannot afford to lose his job even for a month.

Things to Do to Spend Less than what You Earn

I would like to give you some tips that I’ve done so you may follow the first principle of FMB. I think this is not stressful or difficult to carry out unless you really doesn’t want to do it.

1. First, you should identify your expenses and then make a spread sheet list for it so you will know where and how do you spend your money and make necessary adjustments afterwards.

2. In your expenses spreadsheet, make another sheet for your income data so you will know how much do you really earn each month. This includes your salary, profit from business or any income that you may have. From your income data, you can now start to allocate how much you should spend for each expenses you have like food, utilities, credit card bills, entertainment etc.

3. If you want to avoid untimely spending, don’t go to shopping malls. It is better to go to a park where there’s no temptation of buying stuffs.

4. Make the 30-day rule a habit. If you want to buy an expensive gadget or stuffs, allow 30 days to pass and after that if you still want that item, buy it provided you have enough money.

5. Don’t buy stuffs just to show to other people that you are well-off or your rich. Buy stuffs because you need it and it will help you in your everyday life.

6. Guard your credit cards because it will eat you alive. Credit card is good if you can pay regularly the monthly bill, otherwise, you will be burdened by many debt.

I hope this first principle of FMB will help you to achieve a good personal finance and give you information on how to spend less than what you earn.


Image Credit: Stuart Miles

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