A week ago, there were 2 people came into my finance class introducing themselves as book writer of “PENSIUN GAUL”. What makes me bought their book was about their presentation on restructuring your expense as soon as possible. They said that we need to look after the future of ourselves in age of 58 onwards. Healthcare insurance and cash are very important to have on those ages. Some people also need the money to keep their busy life by traveling, running their own business, or maybe raising their grandchildren.
Expense should be managed from the earliest stage of our life. Some people may have experience that increasing income may also increasing their expense. Their lifestyle may also get higher as their income increased. Once this lifestyle be entertained, we often forget about where the money goes at the end of the day. The worst case will also made our monthly salary to pay credit card bills. Does this happens to you?
There are many ways in restructuring your expense to have a better future. One key success factors is to jot down your expense regularly and summarize it on monthly basis to know where your money goes. This will also manage your expense by psychologically not to spend more money on the current month and also you may have the idea of budgeting your expense to buy something.
I use several programs to manage my expense, such as AndroMoney, Cost Manager, and even Ms Excel sheet. Budgeting your money made easy by this applications. The report will show us where the money goes as it already has the expense category. The only problem is “Are we discipline enough to record it?”
The next stage is to restructure your expense by budgeting your money in a monthly basis. You may also refer to the book “PENSIUN GAUL” as they have already explained many things about having an emergency money, savings, investings and leisure things. An Emergency Money is a must have and liquid savings that will insure yourself from being unemployed and will still live normally without selling any of your assets. Here’s how to calculate an emergency money, EM = Monthly Cost x 9 months.
Emergency Money is calculated by having your Monthly Cost times 9 months, meaning that you may live normally for the next 9 months. Monthly cost is calculated by defining your very basic monthly payment such as Rent, Living Cost, tuition, etc. This Emergency Money should be achieved while you are working and you may spend some of your monthly income to this EM savings account before you go to the next level of Investing your money to the money market.
EM is different from Investment account. Emergency money should be more liquid than any of Investment account. You may deposit your EM account on a bank and tag it as EM account. More about EM installment that should be achieved from your salary is calculated by having about 20-30% of your salary. The equation should be like this :
Salary = Monthly Cost – [EM (40%) + Savings (30%) + Investment (30%)] – other expense
Some people may have a different equation, but make sure that your EM + Savings + Investment account are higher than your unrelated expenses included as Other Expense. We should be able to differ about Needs and Wants, where Needs have a special rules to follow and Wants are the things that we can manage on.