Posted in Personal

Savings 101

Growing up, I’ve been taught that it’s important to have savings for the rainy days. It was with that mindset that my parents helped my sister and I to open our first bank accounts when we were teens.

It’s been years, but I still carry that mindset with me. I like shopping for books, shoes and artsy stuff. But I also like the peace of mind in knowing that I have money in the bank whenever I would need it.

So, I want to share some of my saving habits:

0-Balance Limit

I use this technique to ensure that there is always money in my savings account. This simply means assigning a certain amount that acts as my 0-Balance Limit. If at anytime my saving reached that threshold, I treat it as empty and I stop spending.

An example of this technique:

Bank Cash is the actual amount left in the bank after subtracting all the expenses. Expendable Cash is the amount you get when you exclude the 0-Balance Limit. It is the money to be used for other things like random shopping, take-outs, leisure coffee (Yes, I love frappuccino).  If not spent, it would be added on to next month’s Bank Cash thereby increasing the Expendable Cash as well.

Based on the image above, you could easily save Php 100,000 in a year. Within that amount, Php 20,000 is already your safety net. It doesn’t feel like a big saving, but if you don’t spend all your Expendable Cash, it could grow bigger in the next few months.

The beauty of this technique is you can assign any amount and you can adjust the increase any time you want.

Credit cards are equivalent to cash and not extra money.

I have credit cards. They are convenient and necessary especially if you like to travel (pre-covid and hopefully after). But I treat my cards as equivalent to the cash in my wallet and/or bank.

For example:

  • Item for sale – Php 10,000
  • Cash on hand – Php 3,000
  • Card limit – Php 15,000
  • Bank savings – Php 20,000

To be able to buy that item using my card, I’d check first if I could pay it back from my bank account – either immediately or within the next pay day. If the answer is yes, I’d swipe it. If not, I won’t buy it or start saving so I could buy it next time.

It could easily be tempting to think credit cards as extra cash, but that would lead to monthly debts and more payments than I can handle. I don’t like debts and I especially don’t like knowing that my next pay would have to go towards payments instead of my Expendable Cash.

I also make sure that I won’t go past my allotted 0-Balance Limit even after I paid back the credit.

Build an Emergency Fund (optional).

If you look back on the image above, you’ll see I included an Emergency Fund column. It’s the money segregated from the savings but also not spent on expenses.

Some people use piggy banks, or a different bank account just for this purpose. It can be daily, weekly, or monthly. You can increase the amount or keep it the same for the rest of your life. The point is you’ll have a small amount of easily accessible money in times of emergency.

This is optional as I usually use Expendable Cash for my spending needs. But if I suddenly reached my 0-Balance Limit for the month, having an Emergency Fund is a lifesaver.

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Of course, I learned early on to always plan and do research before any major transactions. Most of the times, it’s better to buy one high-quality item than to continuously replace a cheap one. And some things are more of a liability than an asset.

In the state of the world today, I feel like more rainy days are coming. Having good saving habits could help avoid the headache and uncertainty of the future.

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