Assessing Your Personal Financial Standing

Before I talk to you about saving, spending and investing, it’s important that you know your personal financial standing. In this entry, I’d like to help you quickly assess your financial status in a few easy steps. This is important so that you can start setting your own financial goals.

Income and Expense

The financial life of most people can easily be summarized as spending what you earn; you earn money (income) and you spend it (expense).

Ideally, you should not be spending more than what you earn; whatever you don’t spend should go to savings or investments. But for many people, the reality is that they spend all that they earn – leaving them with no savings – or more than what they earn – leaving them in debt. This situation arises because people are not aware of their own financial standing: they don’t know how much they’re actually earning and how much they are spending.

It’s important to be aware of how much you earn; this knowledge will help
you manage your finances better. For salaried employees, your income would of course be your net salary. If you are employed and you have a part-time business, your income would be your net salary plus any earnings from your business or other investments. It’s very simple, really.

Expense is a different story. Ideally, we should keep track of all our expenses. But in the real world, it’s really difficult to keep tab of every little purchase that you make, I call these the 7-11 purchases, because they’re small transactions that doesn’t seem to matter at the time. But over time and as they accumulate, they’d likely build up to a significant amount.

Expense Tracking

So to make this easy, I’d like you to start identifying your expenses between “wants” and “needs”, and no, Starbucks Coffee doesn’t qualify as a need, however sleepy you are.

Our two big expense categories therefore are “needs” and “wants”. We’ll first tackle the needs: Of our needs, we can also classify them further as “regular necessary expenses” and “one-time necessary expenses”. Let’s use a month as our timeframe.

Let’s try and see how much you are spending over a month. Get a pen and a piece of paper and make a list of your necessary and discretionary spending. Your list should look like this:

Necessary spending (needs)

  • Food/Groceries: 4,000 pesos
  • Gas money: 4,000 pesos
  • Parking money: 1,000 pesos
  • Phone bill: 1,500 pesos
  • Electricity bill: 2,000 pesos
  • Water bill: 500 pesos
  • Internet bill: 1,000 pesos

Total: 14,000 pesos

Discretionary spending (wants)

  • Coffee: 2,000 pesos
  • Clothes: 5,000 pesos
  • Dining out: 4,000 pesos

Total: 11,000 pesos

TOTAL EXPENSES: 25,000 pesos

Expense Journal

Starting today, try to actively keep track of your expenses by maintaining an expense journal. It could be a small notebook or a pad of paper or a note on your mobile phone, the important thing is that it has to be with your wherever you go and that you would make it a habit to record all your expenses. You can start with just keeping tab of the big expenses, like anything that’s more than 100 pesos for example. Gradually, it will be a habit to keep tab of any expense.

At the end of every week, calculate for your total expenses. Comparing this with the income you earned for that week (monthly income divided four), see if you’ve kept well within your budget or you’ve exceeded it. In case you did, this will be a good opportunity to adjust your spending for the following week.

At the end of the month, calculate for your monthly total. This should now be a pretty good illustration of your spending pattern. Assess if there is anything that needs to be addressed.

Ideally, you should be taking home the same amount of income to cover your expenses. Otherwise, you’ll tend to borrow money, which may spark off a bad cycle of debt.

So, in your own assessment, are you spending well within your means? With your spending pattern, do you think you will be able to save money and improve your financial standing? Maybe lessen your discretionary spending? Or maybe you need a better paying job? Assess your current financial situation and see if anything needs to be addressed.


About Benedict Bernabe

Benedict Bernabe, 27. Benedict has a Master's degree in Development Studies from the University of Melbourne, Australia and a Bachelor of Arts degree in European Languages, cum laude, from the University of the Philippines Diliman. He has worked with the United Nations in the Philippines as the Community Facilitator of the Community of Practice on HIV&AIDS. He worked with Standard & Poor's Capital IQ, a financial information company, as researcher, translator and quality analyst in the investment research team. Prior to this, we worked at IBM Business Services. Benedict is a certified yoga teacher.

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