Q: I READ your ‘5 finance things millennials should do’ article from before, but I’m worried that concentrating on saving and investing won’t leave me any money to have any fun with. What do you suggest I do? —Allen, via e-mail
A: While you’re young (even when you’re not!), it’s natural to want to enjoy your money—sometimes at the expense of your financial well-being. But being smart about money isn’t all about penny-pinching and being kuripot (stingy). There are ways to save for your future while still having a portion for guiltless spending:
1) Pay Yourself First. Paying yourself first is the key to enjoying your salary while still saving for your future. Why? Because a lot of people spend first, then save what’s left. It’s funny how these people find at the end of the month, there isn’t much to save, if there’s even anything left. That’s paying yourself last.
Instead, before you do anything with your paycheck, immediately put a part of it away for saving or investment. If you do this automatically, you might not even notice it. Many banks have an auto-save feature, where every month (or every two weeks—you can set the time yourself) a certain amount is automatically taken from your payroll account and transferred to a savings account. Some also have features where you can automatically subscribe to a UITF or mutual fund.
Paying yourself first has many advantages. By saving first before spending, you won’t be tempted to skip saving for the month. This, in turn, will ensure that your savings grow consistently without you having to work too much for it. Once you see your savings grow, you’ll be more likely to add to it, and then later explore more options for your money to grow.
Twenty percent of your paycheck is a good portion to save every month. If you can’t afford that, start small (even 5 percent is fine) and increase your ‘paying yourself first’ money over time.
2) Budget. Knowing where your money goes will help you save more of it. Also, you may surprise yourself when you find out just how much you spend on expensive coffee every month. If you don’t already have a budget for the next month, track your spending. Try to see where every peso of your salary goes so you know what you’re spending the most on. Then, after a month, sit down and see what you spend on the most, what you could afford to spend less on.
Contrary to what you might think, having a budget can actually help you feel more free about spending—because you know what you can afford, and you know that the rest of your needs have been taken care of already. So pay yourself first, then pay for your needs, then buy that frappuccino and enjoy it guilt-free.
There are many ways to budget: the ‘envelope’ budget, where you set an amount for every category of spending; the 50/30/20 budget, where you spend 50 percent for needs (bills, rent, groceries), 30 percent for wants, and 20 percent for savings and debt payments; or the even easier 80/20 budget, where 20 percent goes to savings and 80 percent goes to everything else. It may take a while for you to find a budgeting style that fits you, so feel free to experiment—as long as you’re putting something toward savings!
3) Set aside some money every month for guiltless spending. For a lot of people who are starting to budget, they begin to feel guilty every time they spend money on a ‘want’ and not on a ‘need,’ even if they’re already putting money toward savings and investments. Just because you’re saving for the future doesn’t mean you can’t enjoy something for yourself.
To avoid needless guilty feelings, set aside a small portion of your income for spending on whatever you want. As long as you don’t exceed that limit, you don’t have to feel bad about your purchase. If you follow the ‘pay yourself first’ rule and you’ve already paid your bills, why should you feel bad about buying a new pair of shoes, especially if you already set aside money for it?
If you have wants that are more expensive, such as a nice vacation or a new gadget, you can budget for it little by little every month, so that when the time comes, you can pay for it in full.
Saving doesn’t have to be a burden. By following these steps, everyone can have their cake and eat it too—as long as they save some of that cake for the future first. Do not forget that we need to be wise with money, and balance is key. While it is ‘fun’ to be enjoying your money today, you will suffer in the future if you keep on spending every peso you make. Remember, your older you will either thank or curse your younger you.
(Randell Tiongson, RFP is an advocate of Life & Personal Finance. With nearly 30 years of experience in the Financial Service Industry – Banking, Mutual Funds, Insurance and Financial Planning, and Management Consultancy – he has become one of today’s most respected personal finance coaches in the country. Check out his website for more financial advice www.randelltiongson.com)