“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” – James W. Frick

The most fundamental of issue on personal finance is money management.

One of the most common questions I ask all my financial counseling session is this – ‘how do you spend your money’? The first things we need to establish is reviewing the cash flow statement. Looking at the expenses gives me a quick look at the financial situation of a person and most of the time, I’m pretty dead on.

The cardinal rule on being wealthy is this – “Spend less than what you earn and invest the difference.” The first and most difficult hurdle is often the spending less part. I’ve always believed that there are only two forms of an expense – its either a need or a want. Lo and behold, most people I know (me included) who had a problem having a healthy cash flow are those who have difficulties controlling their ‘want’ expenses. In extreme cases, I’ve witnessed some people bring down their ‘need’ spending just to maintain their ‘wants’ – yikes!

The prudent thing to ensure we will have a healthy cash flow (where inflow of cash is far bigger than its outflow) is for us to be sensible in the way we spend. There is really nothing wrong on spending on ‘wants’ but when those spending are causing you to have a very unhealthy cash flow or worse, being in debt, it’s time to STOP.

Our income is always finite therefore we must be very wise in the way we spend it. Priorities should be clear, communication between spouses and between children should be open so that everyone in the family will understand about priorities in the family income. I implore parents, specially fathers to take a strong lead role in coming up with a healthy family finance so there will be peace and harmony.

I strongly believe that we have the power to curb our wants. We are all rational and logical – its time our finances reflect our real priorities.  “Reason should be superior to emotion; you are what you think, not what you feel.” – Francis Kong

A patient man has great understanding, but a quick-tempered man displays folly. – Proverbs 14:29, NIV

“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” – James W. Frick

One of the most common questions I ask all my financial counselling session is this – ‘how do you spend your money’? The first things we need to establish is reviewing the cash flow statement. Looking at the expenses gives me a quick look at the financial situation of a person and most of the time, I’m pretty dead on.

The cardinal rule of being wealthy is this – “Spend less than what you earn and invest the difference.” The first and most difficult hurdle is often the spending less part. I’ve always believed that there are only two forms of an expense – its either a need or a want. Lo and behold, most people I know (me included) had a problem having a healthy cash flow are those who have difficulties controlling their ‘want’ expenses. In extreme cases, I’ve witnessed some people bring down their ‘need’ spending just to maintain their ‘wants’ – yikes!

The prudent thing to ensure we will have a healthy cash flow (where inflow of cash is far bigger than its outflow) is for us to be sensible in the way we spend. There’s really nothing wrong in spending on ‘wants’ but when those spending is causing you to have a very unhealthy cash flow or worse, being in debt, it’s time to STOP.

Our income is always finite therefore we must be very wise in the way we spend it. Priorities should be clear, communication between spouses and between children should be open so that everyone in the family will understand about priorities in the family income. I implore parents, specially fathers to take a strong lead role in coming up with a healthy family finance so there will be peace and harmony.

I strongly believe that we have the power to curb our wants. We are all rational and logical – its time our finances reflect our real priorities.

A patient man has great understanding, but a quick-tempered man displays folly. – Proverbs 14:29, NIV

Here is a guest post by my good friend and wonder boy Dodge Ronquillo. Awesome read!

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Rethink Expenses and Spend Happily

Expenses are things we spend money on, sometimes wastefully. That’s why all successful businessmen and all respected finance gurus advocate living disciplined lives and reducing expenses–to set aside money for savings, investments, and emergencies.

However some of us may think that to have a wealthy life, we should scrimp out on everything else until we amass a big amount of money. I think that living that way is missing the point. Save up a good chunk of your money and place it in places where it can grow and spend the rest–but stay within budget and don’t get in debt. Expenses are and always will be a part of our lives (unless we live in self-sufficient farms with a water supply and a source of renewable energy).

Ironically, that means we are free to spend. The question is, how do we spend the money that we work for? This is not a blog post on how to save more. This is a post on how to spend more happily.

Two Kinds of Expenses

I believe that there are two types of expenses. The first kind is what we normally pay for. Let’s call these requirements. In other words, our cellphone bills, utilities, association dues, transportation costs. We need these to live.

The other kind of expense is the kind we splurge on. Let’s call these happy switches. Our movie tickets, dinners out, gadgets, books, clothes. We want these to reward ourselves.

Now, do you feel better spending Php 1,200 on your cellphone bill or on a few new tops or new Mac accessory? I hope you see what I’m getting at. If we aren’t happy with how much we earn, then we should probably rethink how we spend. Don’t reduce spending; rethink it. How much of your money goes to paying bills instead of going out with friends?

So yes, the trick to being happier is reducing our expenses, but just one kind–the requirements. I suggest cutting down on requirements and spending more on happy switches. I don’t think I know anyone who prefers paying bills over going out to dinner with friends.

Two Things You Must Understand

1) This assumes you follow a rule for saving up. I like I like a ratio shared by a friend of mine (According to him it’s T. Harv Eker’s ratio): 10% Savings, 20% Investments, 10% Charity, 10% Education/Self-improvement, 50% Expenses. Spend happily but don’t go beyond 50%.

2) This is a way to feel rewarded no matter what our income level is. It’s a realistic and short-term way of enjoying what we work hard for. This allows us to feel rewarded while still saving up money for the future. I’m sure I’d prefer to watch movies and go out for dinner rather than give that money to the bank for my credit card bill.

Apparently, there is a way to be happy now and in the future. Go ahead and spend happily!

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