CHAPTER 8 KEYS TO SUCCESSFUL SPENDING
Introduction
-Unlocking the Keys to Successful Spending
•Living Within your Means
•Looking for Best Values
•Eliminating Fat from Your Spending
“Advising people how and where to spend their money is a risky undertaking because most people
like to spend money and hate to be told what to do.”
Unlocking the Keys to Successful Spending
Four Principles for Successful Spending
1. Leaving Within Your Means
- Do not let the spending habits of others dictate yours.
2. Looking For The Best Values
- You can find high quality and low cost in the same product. Conversely, paying a
high price is no guarantee that you’re getting high quality.
3. Do Not Waste Money On Brand Names
- A brand name is a unique word that identifies a specific company, product, or
service, and differentiates it from similar brands within its category.
- This phenomenon is often driven by deep-rooted brand loyalty and the trust and
familiarity associated with well-established brands.
4. Brand names give the seller an incentive to provide consistently high-quality products and
services in order to protect the reputation of the brand.
- Brand names are always economically wasteful since they dupe consumers into
buying more expensive goods and services that are no different from generic
versions.
You can increase your odds of getting what you expected for your money by doing business
with companies that;
• Have fair return policies
• Can provide good references
• Are committed to the type of product or services they provide.
If you find that you are unable to make progress when trying to get compensation for a
lousy product or service, here are some recommendations.
• Document
• Escalate
• Litigate
Eliminating the Fat from Your Spending
If you want to reduce your overall spending, you need to set priorities and make choices
about where you and don’t want to spend your money.
Turning Your Back to Consumer Credit
“Buy only what you can afford today.”
Budgeting to Boost your Savings
What is BUDGETING?
Budgeting is the process of planning how to spend your money
Importance of Budgeting
● Helps you understand where your money is going.
● Enables you to prioritize spending and savings.
● Provides a plan to reach financial goals, such as saving for retirement or paying off debt.
● Prevents overspending and reduces financial stress.
Budgeting to Boost your Savings
● Start by analyzing your current spending (refer to Chapter 2).
● Determine how much you want to save each month (e.g., 10% for retirement).
● Identify areas where you can cut spending to increase savings.
● Focus on reducing spending in areas that offer the least value.
Different Methods of Budgeting
● Traditional Budgeting:
- Adjust current spending to create savings.
- Involves cutting costs in less essential areas.
● Zero-Based Budgeting:
- Start from zero, determining the ideal amount to spend in each category.
- Allows for a fresh perspective on spending priorities.
Reducing Your Spending
Managing Food Costs
Not eating is one way to reduce food expenditures; however, this method tends to make
you weak and dizzy, so it is probably not a viable long-term strategy. The following culinary
cutbacks can keep you on your feet your health and help you save money. perhaps even improve
Eating Out Frugally
Eating out is a luxury, think of it as hiring someone to shop, cook, and clean up for you.
Here are some tips for eating out:
● Avoid beverages, especially alcohol.
● Favor fast casual restaurants.
● Consider buying prepared food and taking it home or eating it outside someplace nice.
Order vegetarian.
Eating Healthy at Home Without Spending a Fortune
If you are not skilled in the kitchen, consider learning how to cook. Folks who eat out a lot
do so in part because they do not really know how to cook. According to various studies, spending
the money to buy organic food makes the most sense when buying the following foods:
Produce:
Meat, poultry, eggs, and dairy:
Baby food:
Saving on Housing
Housing and all the costs associated with it (utilities, furniture, appliances, and if you are a
homeowner, maintenance, repairs, and home insurance) can gobble a large chunk of your income.
Reducing Rental Costs
Rent can take up a sizeable chunk on your monthly take-home pay. Here is what you can
do to cut down your rental costs:
● Move to a lower-cost rental Of course, a lower-cost rental may not be as smaller, lack a
private parking spot, or be located in a less popular area (don't sacrifice safety).
● Share a rental.
● Negotiate your rental increases.
● Buy rather than rent.
Developing Good Shopping Habits
Shopping can often feel like a black hole on your finances. Money goes in and disappears
into a vacuum.
Key ways to keep your shopping expenses at a minimum:
● Organize your list based on the layout of your store.
● item - just recognize that it's an impulse purchase, not a thoughtful expenditure.
● People typically spend more and buy more processed -- and therefore, more expensive --
food when they're hungry.
● Shop at discount stores and public markets.
● Don't buy items that you will not use often.
Entertaining on a Shoestring
Do you want to socialize with friends and family while spending as little money as possible?
Few ideas that are proven winners:
● Covered-dish dinners: Hosts provide the main course, and gusts bring side dishes and
desserts.
● Wine-tasting party: This type of get-together can be very educational and fun experience
(not to mention thrifty).
● Basketball party: Hosts provide the theme entrée, which has something to do with the
opposing team.
● Game night: Invite two to four people over after dinner to play a dice game of skill and luck.
● Movie night: Rent a movie, better yet, watch a one online or prerecorded so you do not
spend additional money.
● Fun and inexpensive outings with the kids: Having a picnic, flying kites, playing catch,
collecting wildflowers, going to the zoo or public library.
CHAPTER 9 DEBT MANAGEMENT
FINANCIAL INDEPENDENCE
State where an individual has enough personal wealth and income to cover their living
expenses without relying on a paycheck.
● To others means having enough money to be completely free of the demands.
● Able to do exactly what they want with their life and time
UNDERSTANDING DEBT
● Good Debt – Debt that is used to invest in assets or opportunities like education, real
estate, or investing in a business that supports long-term growth.
● Bad Debt (Consumer Debt) - Purchasing unaffordable items like furniture or cars.
DEBT MANAGEMENT
Is the process of handling and controlling one’s debt in a strategic and responsible manner.
● Debt often helps us achieve our most precious life goals.
● We can live our most fulfilled lives by using debt as a tool to get us there.
● Debt can also lead us to an unfulfilling, stressful existence if you take on more than you can
afford.
DOWNSIDE OF BEING BURIED IN DEBT (in accordance with J.L. Collins)
1. Your lifestyle is diminished.
2. You are enslaved to whatever source of income you have.
3. Your stress levels build.
4. You endure the same type of negative emotions experienced by an addict:
● Shame
● Guilt
● Loneliness
● Helplessness.
5. Options can become so narrowed
REASONABLE DEBT
● Both the interest rate and the amount of the deal are manageable.
● Reasonable debt helps an individual to achieve a most fulfilling life.
● Any debt can be considered reasonable if it is not beyond your means to repay it and is
used to improve your standard of living, increase income, or accomplish a short-term
objective.
DEALING WITH DEBT
Refers to the process of actively managing, reducing, and ultimately paying off debt in a
responsible manner.
● When you use debt for investing in your future, we call it good debt.
PRACTICAL TIPS ON DEALING WITH DEBT:
● Use credit wisely, manage cash flow, invest savings.
● Emphasize the importance of financial discipline.
1. MORTGAGE LOAN
- A mortgage is a loan taken to purchase a home.
- Understanding interest rates and amortization schedules can help you deal with your mortgage
loan.
Associated Cost on Mortgage Loan
● Insurance – Mortgage companies require you to carry homeowners’ insurance.
● Property Taxes – Naturally paid once a year, the amount can vary depending on where you
live and the value of the property.
● Homeowners Association (HOA) Fees – The more amenities in your community (pools,
landscaping, clubhouses), the higher HOA fees.
2. CAR LOANS
Issues with Car Loans:
● High Interest rates
● Long term agreements
● Rapid depreciation
How do you get around this?
● Buy Used vehicles - This will save a lot of sticker price and save you thousands of pesos.
● Do not Stretch - Keep your car expenses under 5 percent of total income.
● Go for Lower Annual Percentage Rates (APRs) - shorter term and therefore a higher
payment, but it will be financially sound over the long run.
● Refinance - replacing your existing auto loan with a new one
● Sell - If you are having trouble making ends meet, it may be time to sell your car and buy a
cheaper one.
Slippery-Slope Debt
Guidelines for Taking on Debt
Slippery-Slope Debt
Debts with high interest rates are extremely difficult to pay off, due to compounding interest.
Why Are Credit Cards a Slippery Slope?
Credit is the concept of purchasing a product now with the promise of paying for it later. You
can use credit to pay for clothes, food, houses, and other goods and services. Essentially, credit
allows the consumer to purchase virtually everything if they pay it off eventually and provide good
perks.
Best Practices for Responsible Credit Card Use:
1. Use credit cards if and only you can pay your entire balance every month.
2. Take precautions with your personal information and your credit card company.
3. Line up your credit card payment due dates with your pay schedule.
4. If you miss a payment once or twice, call the credit card company and ask them to
reimburse the late fee and ask them to make sure it does not hit your credit report.
5. Negotiate a lower interest rate.
6. Ask to switch to a card that does not have an annual fee.
7. If you do not have any ongoing credit card debt, ask for a credit limit increase to lower your
credit utilization rate.
8. Compare cards online, but do not open so many of them.
9. Stick with cards whose benefits you understand.
10.Ignore all mailings inviting you to open new credit cards.
11.Stop doing the zero percent introductory transfer of balances.
12.Stop getting so excited about points and cash backs.
Why are Personal Loans a Slippery Slope?
Personal Loan is an unsecured credit provided by financial institutions based on criteria like
employment history, repayment capacity, income level, profession and credit history. Personal
Loan, which is also known as a consumer loan is a multi-purpose loan, which you can use to meet
any of your immediate needs.
Guidelines for Taking a Debt
1. Total Debt/Total Assets – Your total debt divided by your total asset, and this should not be
more than 50%.
2. Savings Rate – Your annual savings divided by your annual pretax income.
3. Net Savings – Your income minus your spending will give you the peso amount you have to
pay off debts or save for goals.
4. Debt-to-income – Keep it below 25% and manage large, fixed expenses.
Resisting the Credit Temptation
Tactics you can use to limit the influence of credit cards.
● Reduce your credit limit
● Reduce your credit card with a charge card.
● Never buy anything on credit card that depreciate in value.
● Think in terms of total cost.
● Stop the junk mail avalanche.
● Limit what you can spend
Identifying and Treating a Compulsion to Borrow
No matter how hard they try to break the habit, some people become addicted to spending
and accumulating debt. It becomes a chronic problem that starts to interfere with other aspects of
their lives and can lead to problems at work and family and friends.
What if Your Credit Card is Lost or Stolen?
● Personal credit cards and debit cards offer you similar so-called "zero liability" if someone
illegally uses your card. If your debit card is lost or stolen and someone makes fraudulent
charges on your debit card, you simply sign statements with your bank stating thàt the
charges aren't yours. If money was deducted from your account for unauthorized
purchases, you will be reimbursed typically in a matter of days.
● Use 2 bank that offers the same protections on their business debit cards as on their
consumer debit cards.
Using Credit Wisely
To have the upper hand regarding your credit, you need to figure out how much debt you
can really afford, how much debt you already have, and how to get rid of unhealthy debt for good.
Assessing Your Current Debt Situation
The first step in assessing your current debt situation is to list all mortgage and consumer
debt, including credit cards, auto loans, student loans, and any other personal debts.
Developing a Plan of Attack to Wipe Out Debt
1. List all your credit card debtors in order of the highest interest rate first or the smallest
balance first, whichever you feel may be most effective.
2. List the current balances on each of these accounts.
3. List the minimum required monthly payment for each account.
4. Total the minimum required monthly payments.
5. Apply any surplus funds toward your highest-interest rate debt or the debts with the
smallest balances.
HOW DOES ONE GET DEBT OUT HIS/HER LIFE AND MOVE ON?
Here is what can be done:
1. Make a list of all your debts.
2. Eliminate all non-essential spending. These small routine expenditures of P40 for coffee,
P200 dinners and P120 for pizzas add up. Avoid them and settle for cheaper purchases.
3. Rank your debts by interest rate.
4. Pay the minimum required on all your debts and then focus the rest of your available money
on the one with the highest interest rate first.
5. Once you have settled that one away, move on to the second highest and right on down the
list.
6. Once the debt is gone, you need only shift the money to investments or savings.
Paying it Down
The first step is to budget; there is no way around it. Sit down and look at what you spend
money on-see what happened in the past.
Sometimes it makes sense to use savings to pay down debt, particularly if your savings is
not earning much interest. Before you make this more, you must consider how often you receive
income, in order to make sure you have enough cash on hand.
For example, if you are paid every three months, then do not take all three months of your
savings and put it toward your debt. No matter how often you are paid, having at least one month's
worth of emergency savings is essential.
