253 – On Budgeting And Avoiding The Dreaded Debt Trap

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.)

11 thoughts on “253 – On Budgeting And Avoiding The Dreaded Debt Trap

  1. Solid advice! I have a problem with impulse purchases too (especially when it comes to food) – but the coronavirus pandemic has helped in that regard because I’m forced to eat out less lolol. Here’s a technique I use when I’m itching to buy something, especially food – I ask myself if I NEED to buy a Starbucks, or if I can just get by with a RM5 flat white from the grab-and-go kiosk. 8/10 times it works! That way you don’t deprive yourself of a treat, and you don’t end up spending three times the amount.

    Here in Malaysia we get our salaries monthly, which can be easier to budget. Just set aside a portion for savings, repay loans, and whatever’s left can be budgeted throughout the month. There are pros and cons though – a lot of people end up spending too much at the beginning of the month, and surviving on instant noodles for the remainder lol.

    Liked by 1 person

    • Interesting! So you guys over there get your salary once a month? Here in the Philippines, companies usually release their employees’ salaries every fortnight – equating to the full amount being released for the entire month (15th and last day payouts.)

      I’ve had that same dilemma too – whether to have lunch at a mall-based restaurant or just order some takeaway food from a convenience store or a nearby eatery. Most of the time, I end up with the second option, and my wallet loves me for it! 😀

      Liked by 1 person

  2. Great advice!!! ALWAYS save enough for a rainy day. We do not know what tomorrow will bring. Many were caught unprepared for this coronavirus outbreak – no job, no savings…had to depend on the government’s handouts. Luckily our government tried its best to lend a hand, providing food and money.

    Liked by 1 person

    • Seconding what you said here. Government subsidies will only go so far, so it’s important to have ready money for the sudden storms.

      With that said, the fable of the ant and the grasshopper comes to mind. The ants using the sunny period to stock up on food for the upcoming rain, while the grasshopper simply lounges around from leaf to leaf.


  3. I would really recommend saving up for an emergency fund at least three months. Having that kind of cushion was the only reason I was unfazed and actually opted to be retrenched in the middle of a pandemic. Thankfully, I was able to get a project after losing the job and few weeks after, land a job that pays better than my previous job. If not, baka nandun pa rin ako sa old work ko bitching about the super duper extended work hours dahil WFH setup haha.

    Also, I learned the hard way na hindi dapat magkasama ang savings sa payroll sa emergency fund lol. Tinatawanan nila ko that I have too many bank accounts, but that’s just like my version of money envelopes haha.

    Liked by 1 person

    • Interesting points; thank you for sharing! 🙂 Nakakatuwang makabasa ng different perspectives on financial management.

      In my case, malaking tulong yung WFH setup sa nilipatan ko dahil nakaipon ako nang malaki – halos 50% ng sahod ko yung naitatabi dala nang di naman ako gumagasta.

      Mabuti ka nga matiyaga ka sa multiple bank accounts! Though sa akin naman, I periodically track expenses using Excel sheets.

      Liked by 1 person

      • I kennat with Excel sheets hahaha mas pen and paper gal ako so every pay day may list sa journal ko ng saan-saan mapupunta ang pera ko. Same thing, low tech lang nga. Buti naka-WFH ka na even before the whole shit storm started. Swerte mo.

        Oo laki nga rin natipid ko nung nag-WFH ako, kaso yung natipid ko, either napunta sa pagkain (because stress eating) and yung iba sa mga donation drives. Masaya yung multiple bank accounts mas may sense of security kesa sa naka-cash sa bahay. Yung main savings account ko nga, nasa bahay lang ATM nun lol para sure na di siya magagastos talaga.

        Liked by 1 person

      • Di naman complicated formulas yung ginagamit ko with Excel, just the basic SUM lang din tapos manu-manong computations. I still do pen-and-paper pag budgeting, mas stringent lang ako sa record-keeping. Ultimo print-out ng payslip ko kinukuha ko pa, along with the transaction slip sa ATM! =)) Namana ko yung record-keeping skills ng tatay ko, mas madali nga namang ma-trace pag may paper trail XD

        Pero to be honest, WFH did take a serious toll on my mental state. Partida, introvert ako pero na-miss kong pumasok ng opisina. I’ll be posting about that soon, kaya stay tuned! 🙂


  4. Pingback: 274 – On A Belated 2020 Recap | The Monching's Guide

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