Wednesday, 17 June 2015

2nd Lesson Newbie Program

I would like to thank you for continuously reading and watching our lessons in this newbie mentoring program. If you have friends and colleagues who want to join  our journey to financial freedom, please feel free to share this link.  

Today ,our lesson will be about different monthly budgeting formulas. We need to control the inflow and outflow of money every month. This will help us determine how much the possible amount of savings that we  can allocate to different financial instruments.

“Naging ugali na nating mga Pinoy na pag natanggap na ang ating sahod o monthly paycheck, ay tuloy na sa inuman”. Hindi na nag-iisip kung saan ilalagay ang konting labis dito”. “Isipin natin na hindi habang buhay ay malakas tayo at magtatrabaho kaya dapat gawin natin ang paghahanda para sa retirement”

We have three formulas to choose from:

1. Buckets Allocation.
2.  Cash flow budgeting. 
3. 10 -20-70 formula.

The first formula , the buckets allocation,  refers to placement of money in different buckets such as emergency, growth and dream buckets. At month end, after receiving your salary,  it is recommended  that  you  start allocating the excess income  in different buckets.

Let us have an example. 
Juan is working as call center agent in Makati, earning 25000 pesos monthly, single and ready to mingle, renting a condominium and have a lot of dabarkads.

At the month end, after paying his expenses such as rental , utilities, wifi /cable connections and dabarkads, Juan should allocate an amount to his emergency funds. He needs to build his emergency funds equivalent to his 6 months salary (amounting to 150 000 pesos). Then  he can start  to  allocate his funds to a  growth bucket. In this scenario, he doesn’t have family to support yet . Since he is still young ,   he can choose a high risk  investment that has a potential for high return . He is single and ready to mingle, and a small amount can  be allocated to his dream buckets to be used for travel, wedding, dream house, car etc… etc…

Another formula that we could apply is the cash flow budgeting. If you are an accountant, then it will be easier for you to understand this formula. It is a breakdown of cash inflow and outflow every month.

We are going to prepare cash flow statement in a simple and easy to understand and simple way  without using complicated terms:

Cash Flow Statements:
Cash Inflows:
Active Income
Monthly Paycheck                                                      25 000
Passive Income
Stocks / Bonds/ Interest Income
Total Cash Inflow                                                         25 000
Cash Outflow :
Rent Expense                                                                   5 000
Utilities / Electricity                                                        3 000
Wifi/ Monthly Payment on IPHONE                            2 000
Dabarkads                                                                        5 000
Total Cash Outflow                                                      15 000
Total Net Cash Flow                                                    10  000

In this example, Juan doesn’t have any passive income and he still got an excess of 10 000 pesos that can be allocated or distributed to his different buckets. It will look like this:
Buckets Allocation
Emergency Buckets   -       5 000
Growth Buckets         -         3 000
Dream Buckets          -          2 000

The 10 000 pesos excess distributed in different buckets, with emergency buckets as the  highest allocation. He has to continue building it  until it reaches the required  amount.  Dream buckets could be those leisure and future plans of Juan.

Another famous formula is the  10 – 20 -70  prosperity formula. 
At the end of the month , you need to multiply the monthly paycheck by the given percentages and distribute it as tithes, savings and expenses as shown below:
Monthly Paycheck
25 000 pesos
Tithes              25 000 x 10%    =  2 500
Savings            25 000 x 20%    =  5 000
Expenses         25 000 x 70%    = 17 500

In the prosperity formula, a big amount of 17 500 goes to the living expenses, this 70% varies on the monthly income and standard of living. 

We have different financial standing and status in life, you can be married, single, with kids or without kids , swith mortgages or without, consumer loans or credit loans, supporting your families etc..etc..

It is clear that whatever formula you use, there should always be an allocated amount for savings or investments.

The monthly budgeting techniques and formulas should be applied consistently and can be a monitoring tool for savings and expenses. This will help you to be conscious in your spending plans. 

Later in this newbie lessons, we are going to focus on how to increase your monthly cash inflow. Your task is to reduce your monthly living expenses while having the dream lifestyle and without sacrificing the things that you loved.

Sincerely yours,

Jonathan I. Ruiz

P.S. Here is the 2 newbie you tube video:

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