The topic of “Financial Responsibility” can be intimidating for some, especially if you’re a young professional like me. But as we get older, it is inevitable that we reach the stage of setting our priorities straight and thinking about plans and goals. It would be advantageous to be aware of your finances in this stage of your life and to start budgeting and investing for the future.

Growing up in a typical Chinese household, the practice of being frugal with handling money has been pass on to us since we were young. In light of being “financially responsible”, I would like to share my top 10 money managing rules that I apply in my life:

Settle your “fixed” expenses before anything else

Your fixed expenses are your monthly bills like rent, utilities, groceries, etc. These are the expenses that meets your physiological needs. Such cash outflows, however, may be adjusted depending on market and situational changes such as increase in utility bills and mandatory change of lifestyle; mandatory meaning that these changes are necessary such as a sudden inclusion of maintenance meds and such in your expenses. These are the expenses that are a “must” for you to live your daily lives.

Some may say that it is a “must” for them to have Starbucks every morning. Please get real and be honest with what should be included as “fixed” expenses.

Save at least 10% of your earnings

Regardless of how much you earn, practice to save at least 10% of it after your fixed expenses. For example, if you earn Php 10,000 a month and you have fixed expenses worth Php 2,000, save 10% from your net income (which is Php 8,000) amount to Php 800. The percentage could be adjusted depending on your profile, but the sweet spot for me is 10%, and it won’t be difficult to calculate what portion of your net you have to save.

Set aside a percentage of your earnings as emergency fund

How much you set aside for your emergency fund will vary on each individual. A good rule to follow is to set aside at least 6 months of your income for 1 year. Going back to our example, we should save at least Php 60,000 from our net for 1 year. This would mean that we should save at least Php 5,000 a month for emergency fund (this is following 12-month salary).

Live below your means

Whatever is left of your earnings is the money you can use to spend. Try to live below your means while you’re young and minimize spending especially on “material” things that you’ll regret spending money on.

Going back to our example, after saving 10% of your net income and setting aside emergency funds, we’re left with Php 2,200. This Php 2,200 will be your disposable income per month. You should live below the capability of your disposable income. A good habit I practice is delayed gratification. I will hold on to the Php 2,200 and let it accumulate until I purchase something I really want, or sometimes even better, in a future date. Delayed gratification will also set you up in the habit of really thinking about your purchase, making sure that you won’t just squander your long saved cash for something not worth it. Delayed gratification is better compared to spending all of my disposable funds in something that would only satisfy me in the short-term.

Invest your savings

It is best to invest your money while you are young. In my case, I opened a time deposit and a money market account. These are low risk and are suitable for me since I’m not an aggressive investor. My boyfriend, however, has a more aggressive risk appetite and invests his savings in stocks and equity backed UITFs (Unit Investment Trust Funds).

Before investing, you should check your risk profile, how much liquid you want to be, and what would be your investment goal. For me, I have a low risk investment profile but liquidity is not an issue that is why I opted for time deposit with longer terms and a money market account which I don’t have plans of liquidating soon. My boyfriend has a high-risk profile and also plans to keep his investments for the long-term. According to him, the longer you keep your money in high-risk high return investments, the more chances of greater capital appreciation.

Going back to our illustration, we save Php 800 per month. Invest these savings rather than keeping them under your bed. Let your savings work for you, slowly and exponentially multiplying them through investment channels.

Apply for a credit card

Applying for a credit card has its perks. With the right card, you can earn rewards for each purchase that could get your cash rebates and great offers. You could also purchase without the use of cash, which is a plus nowadays that we’re shifting to cashless transactions. Another benefit of using a credit card for purchases is having a credit record. Usually, financial institutions use credit profiles to engage you in future financing products like housing loans. However, the advantages of having a credit card may also cause if you’re not responsible enough.

Since using the credit card does not entail the physical or tangible feeling of cash out flow, some may feel that they’re retail immortals when using the credit card. Having this kind of mentality is what drowns people in credit card debt. Use your credit card responsibly and instead of using it as a tool to purchase whatever you want, use your credit card to teach you financial discipline. Which leads to my next tip;

Use your credit card wisely and only buy things you currently afford

Use your credit card only for things you can afford AT THE MOMENT. For example, if your itching to buy that new smartphone, only use your credit card in making the purchase if you have sufficient funds to meet the phone purchase. The logic here is to use your credit card as a payment substitute for cash and not as a debt generating mechanism. Avoid using your credit card if your funds are insufficient that smart phone purchase.

Some may say that the main reason they applied for a card is for the ability to pay for things through debt. This is a big mistake since for credit card purchases, there are higher bank costs and higher interest rates as compared to housing loans and car loans. Personally, I just use my credit card as a payment channel and get reward points.

Pay your credit card bills in full

This is another tip in using a credit card. You may say that you have sufficient funds to purchase that new Coach Bag since you could meet the minimum monthly credit card payments. This is a big no no practice.

Always try to pay your credit card bills in full. One way that credit card companies earn from others’ defiance of this rule is through, again, higher bank charges and interest rates. If you accumulate all the interest rate payments you made, you might as well have bought two Coach bags instead of the one you have right now.

Track your expenses

Always make an effort of tracking your expenses. You could opt to use a spreadsheet for this or download expense tracking apps. The purpose of tracking expenses is to benchmark and compare your saving efforts and to formulate strategies on how to make your spending more conservative.

Tracking your expenses also gives you the ability to realize some of the certain luxuries you could minimize or avoid all together. For example, when keeping track of your Php 500 a day expense, you could see which expense items you could let go to lower your expense to Php 300 per day.

Build financial intimacy with your partner

Money is a common cause of quarrels in relationships. The worst-case scenario is that this may lead to violent break-ups or, for married couples, broken families.

I advise you to be open with your financial situation with your partner. Whatever it may be, if he/she is a great partner, they would stay by you and would even help you in your financial goals.

My boyfriend made a cash budget spreadsheet that we both can use to track our expenses. This helps us monitor our own expenses and to help us budget dates. If we could not afford to go out, we could just hang out and chill with Netflix. This is better than giving your partner the illusion that you could give them the best time of their life all the time without disclosing that you are already financially in distress just to give them that best time.

Communicate with your partner regarding your finances so that both of you could grow and meet your financial goals.

I hope that these money-saving tips give you an idea on how to manage your finances effectively. 🙂