Nothing beats the euphoric feeling of receiving your salary twice a month.
However, a good number do not experience this upon receiving the first tranche. Instead, they worry about budgeting their salary—mainly because a large portion of it ends up as payment for any loans or debts they incurred.
This results in a smaller amount left for daily expenditures, forcing one to borrow money from credit companies (or worse, from loan sharks) just to get by. By the time the second tranche arrives, the cycle of repaying debts and taking out loans starts over.
Fortunately, this “debt trap” can be avoided without the need to tighten one’s belt and go spartan with these three steps. Lifestyle changes such may be difficult at first, but they definitely go a long way towards financial stability.
Cut down on impulse purchases.
Rewarding yourself once in a while with retail therapy is not a bad thing, but doing so frequently will strain your finances. Everyone wants to be updated with the latest clothes, shoes, or gadgets – but avoid jumping on the bandwagon. What is popular today may not be so tomorrow.
Food is another aspect a good number of us tend to splurge on. I myself am guilty of this, but you would not be reading this blog if not for that occasional splurge. People are usually unaware that it takes me some time to finish a full restaurant review – mainly due to budgeting considerations. With that said, practicing delayed gratification on small impulse purchases definitely does wonders. Resist the urge to order another cup of designer coffee, and you wallet will thank you for it.
Be careful with credit cards.
While it may be convenient to pay with plastic most of the time (especially when you don’t have cash on hand), remember that credit cards operate on an installment basis. This means that you still pay the full amount with interest bundled in – but divided into fixed payment periods and smaller portions.
Credit card companies also impose surcharges for late payments, so settling credit card bills at the soonest is highly advised. I can no longer count with ten fingers the stories I heard about people who were unable to pay their credit card bills – to the point that sheriffs from collection agencies confiscated some of their properties to settle their outstanding arrears. Also, using your credit card to earn reward points is not advisable either as it makes you spend unnecessarily just for a small freebie.
Never forget to save!
A line from an old song goes like this: everybody needs a penny for a rainy day. No one knows when the rainy days will arrive, so it’s best to set aside an emergency fund for sudden expenses. Most financial independence gurus recommended 20% of one’s monthly income allocated for savings, but bigger than that is better. Mutual funds are an option if you wish to grow your money in the long term, but note that you cannot simply withdraw cash from these unlike regular savings accounts.
Here is a method I personally do when budgeting my monthly salary. I list down all my monthly expenses – such as savings, payments for loans or bills, home contributions – and the amount I allocate for those. I then withdraw my money and divide my salary based on the expected amounts, putting the money into dedicated envelopes. This way – I know which is which, I avoid dipping into the other allocations, and I can directly deposit the monthly savings into my bank account.
Follow these three steps, and you’ll say goodbye to the predicament of having to borrow money until the next paycheck arrives. Small steps in money handling and spending such as the ones mentioned make a big difference and bear fruit figuratively and financially.
Until the next post!
(AUTHOR’S NOTE: I originally wrote this piece back in 2015 as part of the application process for a financial lending firm I applied in. I didn’t make it in that company, however. Now that I got my laptop back, I decided to revisit that piece – giving you this blog entry.)