1. It is not how much you earn but how much you save from what you earn that matters. Expenses multiply with the uptrend of your income.
2. One should always live below his means. One should save at least 1/10 of his/her salary/income. That amount should not be spent later. Rather, that amount should be accumulated, and invested for a profit. You should not save in order to spend. If you must accrue for future expense, do so, but don't forget to save at least 10% of your salary.
3. Do not buy things that will not have value for you five years from now. If you can invest your money in a company that earns at least 15% per annum, your original investment will quadruple in 10 years. Hence, ask yourself, "If I buy this piece of ornament, will it generate 4x more than its purchase value after ten years?"
For example, I have P20,000.00. Should I spend it on a new cellphone? If I buy a cellphone, I gain the cellphone - a depreciable asset that returns to its salvage value (if it will not be stolen from me) in four or five years. And, I lost 20k in cash. If such a purchase is good, it should generate 80k in 10 years, because at 15% per annum, your 20k will be 80k in 10 years. Hence, before buying something, look at the return. You are not losing 20k only. You are balancing it against the quadrupled amount in 10 years.
4. Don't buy on credit unless it concerns your life. And even if it does concern your life, don't prolong the payment.
5. Take care of your body. It's expensive not to.
6. Don't marry a model. Unless her name is in Forbes 500.
7. Teach them young. Do not spoil the kids with material things. Teach them to save money.
8. Don't be in a high-maintenance job. If you are earning 40k, and needs to spend 30k on transportation/car maintenance, gym, spa and clothing, it would be better to earn 20k, and spend 10k. Because it is easier to earn 20k than 40k. If you must earn more, then you must be able to save more. For proof, just listen to the sob stories of those artistas who made a killing then, and now has to beg in order to live decently. "The problem with you is you earn a lot". (Millionaire Next Door)
9. Save for the future. If you cannot increase your income, decrease your expense. If you will suddenly stop working, how far can you go on your savings? Many people live from paycheck to paycheck. And later in their lives, they are forced to ride buses, at 60 or 65, begging not to retire yet because they have not saved enough. In "Millionaire Next Door", the author coined the term "go-to-hell-fund", the savings that will ensure the person to be unemployed for the next 10 years and still survive. What is the most important thing here? It's not the income. It's the expense.
Let's say, one person is only spending 90% of his/her salary:
Then, in ten years time, he will have 1 year of extra savings. In order to accumulate 10 years of extra savings based on the same base expense, one has to work for ten times the ten years time - that is, 100 years! - in order to accumulate the gth fund. Of course, in real life, the savings should be invested. Remember the parable of the talents.
Bottom line, in the algebra of equations here, the income cancels out, and what matters is the expense (I will not put them here so as not to cause hemorrhage)
10. Prepare an annualized budget. I have been doing this since 1988 (I was a second year college student then at UST). You should know how much you are spending on transportation, food, entertainment, grocery, cellphone, etc.
Take my example, my transportation expense is 11% of my income. It's up 1% from last year. I can't do anything about it, so where can I deduct in order to balance out? I can start drinking water instead of drinking Coke. I can stop buying books. I can minimize on my cellcards (by not answering to "me pasok ba sir bukas?" questions, or "sir, galit ka ba sa akin?" questions). Now, this will also be helpful for career moves. If I am going to be paid 50% more, but will have to move to Manila, I will have to think a great deal. For one, the transportation cost will have to multiply by 2.5x. Doing the math, my transportation cost will be 18.33% of my salary. That is 7.33% up from the present setup. Is the increase enough to pull down the other expense by that much? If the answer is yes, I may consider moving to Manila factoring all the other things.
11. Be humble. A low-profile person need not buy a lot of good dresses/suits that cost so dear. It's just a frame of mind. The moment you start thinking about what the other people say, then, that's the time you start spending a lot.
12. It's a long way, but don't give up. There, I have said it. No explanations needed.
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