Living in One Income

We have been contemplating on the idea of living in one income and we would like to make some radical changes in our lifestyles to make this happen.

According to the books and blogs I have read, there are three basic things a couple must do if they want to live in one income.

1. Sit down and talk about the idea. – This idea is great for starting couples. Since [it is assumed that] there are only two of you, basic needs are easy to cover with just one income. Determine also whose income it will be. Books tell me that couples have to live with the lower income but that is not an absolute rule.

2. Determine expenses of each. – The couple’s expenses are different from each other. They need to know what is important and what is not through a thorough assessment of each purchase. Give it a month or two to determine the expenses by listing each purchase and analyzing them at the end of the month. It is important that both parties agree on one simple goal - and that is to minimize expenses.

3. Devise a plan and implement it. – This is the most important thing among the three. After the couple has determined what are important and what are not, they can now devise a plan on how to minimize their expense and live in one income. It is also important to update the plan accordingly and counter check or sustain every quarter to make sure that the plan is implemented and the goal is achieved.

So where are we right now?

We are currently at Item number 2 right now. We agreed to make a list on all our expenses so that we can track where our money goes. We also agreed to ask each other’s opinions before a big purchase. It is easier when both of us are on the same page when it comes to money management techniques and investment strategies.

We are just on our first quarter and I hope we can make it through.

~Till then.

Saving Effectively: Pretend You are Paying for a House and Lot

If you have problems in saving money, here’s a tip: pretend you are paying for a house and lot or a car.

Many people are more effective when they are paying for a loan or a mortgage when saving money. It makes them more disciplined.

Applying it to the concept of saving money, pretend you have a mortgage amounting to 1M. This becomes your target savings. Then decide how many years to pay. Of course the longer the period you pay the smaller the monthly amortization but the higher the interest rate. Luckily in saving money the higher the interest rate the better.

Let’s pretend you don’t have any money to start with. But you plan to have a house and lot after 10 years. To start with you are required to give a down payment amounting to at least 10 percent payable within a year with no interest. Then the succeeding payments will be distributed over the remaining 9 year period at an interest rate of 6% (per annum).

Selling Price	1,000,000.00
Down Payment	100,000.00
Monthly Down Payment	8,333.33
Remaining Balance	900,000.00
Monthly Amortization	6,526.67

You may think that the computation is crazy because the monthly amortization is lower than what it should be. Actually it is. The difference of the monthly amortization presented to you by your real estate agent and my computation is their gain which translates to money working against you.

Now you can foresee that it is easy to accumulate one million Pesos in a matter of 10 years.

~Till then

It is really not a matter of how much you earn

It really makes me sad when I encounter somebody who earns a lot (more than what I earn means 'a lot' for me) but who just saves in a bank and who thinks banks are the greatest investment facilities. I have nothing against banks. It's just that I don't recommend it as an investment facility. Mind you, banks are not investment vehicles. They are just there to cater for our emergency funds.

Let me ask you, how much is the salary of a manager? 50 thousand? 80 thousand? 100 thousand? Or even higher. No doubt their salary is way way bigger than mine. But let me tell you, the sad part when you earn more is you intend to increase your lifestyle to suit your status. The mindset goes like this, "Oh, I didn't have a good time when I was an 'ordinary employee'. Now that I'm a manager I should enjoy a lot. Anyway the company is there to feed me." And there goes the spending.

On the other hand, if the manager is a saver but is afraid of other types of investments like mutual funds and stock market then there is still a problem. Let me show you a computation so that you will understand. For example, the manager can save 50 thousand pesos per month but puts his/her money in a bank earning one percent (1%) per annum. The employee, on the other hand, can save 10 thousand pesos but puts his/her money in an investment facility which earns twelve percent (12%) per annum. Let us assume that the manager's age is 40 while the employee is 25. The manager has 20 years more to save while the employee has 35 years more before retirement. (Note: I am assuming that they will both retire at age 60.)

From the table above, it is clear that the 'regular employee' who saves lesser than the manager has a whopping 58 million pesos worth of retirement fund while the manager who saves in a bank has a retirement fund of 13 million pesos.

It only shows that, it is not important whether you have big money or small money. The thing is, you regularly save and invest in the right vehicle. Thirteen million is not bad. But if the manager knows the right facility then he could have accumulated more.

~till then

Time and Money Relationship

Many are asking me, Millette how can I become a millionaire? At my rate of saving right now, when can I become a millionaire?

I always say, let’s put it in Math. Hey, everybody can do math. If you can’t then you will not become a millionaire.

I prepared a simple presentation on how we can relate money with time.

I can’t do X-Y analysis here cause readers will flood me with those “what-is-she-talking-about” comments.

Here it is:

In the presentation above, I assumed that you want to retire by the age of 60 (But you can retire earlier if you wish to.) and that you are saving in a facility which earns 12% per annum.

If you are 25 years old right now and wants to have 10Million by the age of 60, you should be saving 24000 pesos per year or 2000 pesos per month or 67 pesos per day.

If you are 55 years old right now and doesn’t have savings at all then FREAK OUT! Cause you nees to save and invest 4500 pesos every day or 134000 pesos every month or 1.6 Million every year.

You see. If you are going to procrastinate saving and investing then you’ll end up saving more per month. So why procrastinate? Save now!

~till then

How I became a saver from being a spender?

I was 24 years old when I finally realized I am not saving enough for my future.
I read books and articles about saving money and apply it for quite some time but then I lose the drive whenever I see something from my favorite stores.

I was raised in a mindset that having branded things will make me look and feel good. There was even a part of my life that I compute everything I wear before leaving the house. I loved going to those "branded" shops. It made me feel good. Typical shopaholic huh! hehe. I realized I was like this when I attended a Christmas party and amazingly I can tell the brand and the price of the dresses of the ladies. I can even tell where to buy those items. hahaha...

A sad event made me realize that branded shoes, watches and dresses can't help me at times of emergency. That is why from then on, I promised myself I will save every peso I can and be financially independent before my 35th birthday.

Here are the small and big steps I took in order to achieve my goal.
1. I modified the way I think. Being rich is not equal to brands.
2. I freed myself from debt.
3. I save money regularly. I started small but I know I will end up BIG.
4. I have a clear goal in mind whenever I save.
5. I learn the art of investing money.
6. I changed my environment. I affiliated myself to a community that will help me reach my goal.
7. I freed my closet from the clutter I accumulated and start living simply.
8. I cancelled my gym membership.
9. I moved to a lesser expensive house.
10. I put up my own business.
11. I have a partner who helps me reach my short term and long term goals.

Now I am 25 years old and I am happy to say that I am now saving and investing regularly, I continuously build up my emergency fund, I already have my long term health care plan, I already have 4 mutual funds, I am into stock market also and I have a business of my own.

~till then