How To Budget Your Money With The 50/20/30 Guideline

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How To Budget Your Money

With The 50/20/30 Guideline

www.learnvest.com

Whether you're a parent with two kids or a recent college grad working your first job, our 50/20/30 guideline can help you assess your budget. LearnVest Planners often use this approach working with new clients to help illustrate the big picture of where their money is going.

Our guideline breaks your budget down into three buckets (rather than the seemingly infinite categories of some traditional budgeting). It’s designed to help you figure out how much you may want to allocate to each area every month, and can also help you determine the order in which your money can be allocated.

50/20/30 Broken Down

1. Fixed Costs

These are bills and expenses that don’t vary much from month to month, like rent or mortgage payments, utilities and car payments. We also include subscriptions, such as gym memberships and Netflix accounts, in fixed costs because you’re committed to paying them on a monthly basis.

When it comes to fixed costs, our Planners generally suggest that you aim to keep your monthly total no more than 50% of your take-home pay.

2. Financial Goals

LearnVest Planners typically recommend putting at least 20% of your take-home pay toward important payments or contributions that will help you secure your financial foundation. We believe there are three essential goals everyone should strive for: paying down credit card debt, saving for retirement, and building an emergency fund. But your financial goals can also include larger savings priorities, like a down payment on a new home.

3. Flexible Spending

Finally, consider budgeting no more than 30% of your take-home pay toward flexible spending. These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas.

We include groceries in flexible spending because even though food is a necessity in your budget, how you spend on food can vary. Some weeks you might eat out more, while others you may buy more groceries to cook at home. At LearnVest, our Planners often say that it doesn’t really matter what you spend your money on each month in this category, as long as you're aware of your spending and not going over your total flex budget each month.

One Note About Retirement

As you might have noticed, the 50/20/30 guideline applies only to take-home pay. Any contributions you make to retirement before your paycheck hits your bank account are not included. For that reason, you may actually be contributing more toward your financial goals than this breakdown would suggest. And you may find that it's a good thing to keep that retirement money out of sight, out of mind!

How the 50/20/30 Guideline Can Apply to Your Own Budget

If you’re just starting to put together a budget, the 50/20/30 Guideline can serve as a useful benchmark for how to divvy up your paycheck. When it comes down to it, though, how you spend (and save) your money depends on your specific goals and lifestyle.

As part of the LearnVest Action Program, you can work with a dedicated Planner who can give you a clear plan of action for your money, including helping you to create a budget that has the right balance for you. If you’re curious, you can get started by trying out our online budgeting tool for free.

3 Smart Financial Moves to Make in Your 20s

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3 Smart Financial Moves to Make in Your 20s

By imoney .

There’s no better time to get your financial house in order than in your 20s. It’s the perfect time to develop good financial habits that will serve you well in the future, as you prepare to be financially independent and secure. Financial decisions you make early on can affect your financial life in a permanent way.

But what steps can you take now that will result in the most payoff later in life? Follow these 3 smart financial moves to make in your 20s, so that your future self (and your bank accounts) will thank you.

Smart Move #1: Balance debt payments and savings.

A lot of people just starting out in their financial lives wonder, “Should I pay all my debts first, or should I start saving first?” From a purely math perspective, paying off your debt with 14% interest is more financially sound than putting money in a 1% interest earning savings account.

But personal finance is never that clear cut. What if you’re so busy paying down your debt that you don’t save any money, and all of a sudden, your car breaks down and you have no money to pay for it? You just end up in more debt.

The way to break the cycle is to balance your debt payments and savings. Let’s say you can devote P4,000 of your paycheck to debt payments and savings. Use P2,000 to pay your debts, and P2,000 to put in your emergency fund to cover any unpleasant financial surprises life might throw at you. Once you’ve built up a healthy emergency fund, you can then concentrate on paying off your debts, or perhaps look to saving for retirement (that’s coming up next). This way, if there’s an unexpected expense, you don’t have to add to your debt and start the debt cycle all over again. You can just dip into your savings.

Having a system for paying your debts, while also saving enough to build a buffer for emergencies, will help you develop good saving habits that can serve you well in the future. Start off by comparing savings accounts with our tool.

Smart Move #2: Start saving for retirement right now.

You might be thinking, “retirement is so far away!” Or you might be more concentrated on getting a job and building a career now, than preparing for your future later. You might change your mind when you realize how much money you’re wasting by not starting to save right now — because of the magic of compound interest, it might be in the millions!

Check out compound interest in action. Let’s say you start saving for retirement at 25, putting away P2,000 a month in an investment product that earns 8% interest every year (which is typical for moderate risk funds), compounded annually. By the time you’re 65, you’ll have over P6.2 million to enjoy for your retirement. But if you started saving the same amount at 35, you’ll only have around P2.7 million when you’re 65. Waiting 10 years to save would cost you around P3.5 million! So if you don’t start saving as early as you can, that’s millions you’re wasting. Even if it’s just a little bit, as long as you save regularly and in the right products, you can be well on your way to a happy retirement.

Smart Move #3: Invest!

The younger you are, the better time it is to start investing. Look into medium- to long-term investments such as UITFs or equity value funds to help secure your financial future. If you’re more interested in gains for now, look into short-term funds with no minimum holding periods that can grow your money faster than regular savings accounts, while also giving you easy access to your returns. But once you’ve amassed a good amount of money, consider diversifying into longer-term investments, and becoming more aggressive with your investing.

Some investment options you should take a look at:

• Short term: BPI Short Term Fund. For a minimum initial investment of P10,000 and additional transactions of at least P1,000, you can get started in the world of investment. If you need liquidity and stable income, this is a good first fund to try.
• Medium term: Metrobank Max-3 Bond Fund. Do you already have an investment horizon of at least 1 year? Look into this fund, which is for young professionals who’ve already built up a savings fund and have a moderate risk tolerance. The initial participation is P50,000, with minimum additional participation of P25,000.
• Medium to long term: BDO Equity Fund. If you have an aggressive risk appetite and want potentially higher returns, and can afford to stay invested for more than three years to maximize your money’s earning potential, check this fund out. The minimum investment is P10,000, and the minimum additional is also P10,000.

Start investing while you have time on your side. The longer your investment horizon is, the better potential for gains — so one of the smartest financial moves you can make in your 20s is getting started now.

Investments You Can Make With P20,000 Or Less

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5 Investments You Can Make With P20,000 Or Less

By imoney 

Let’s say you’ve been saving P2,000 every month from your paycheck, and now you have P20,000. Or you got that amount as a performance bonus from work. Or a particularly generous relative gave it to you for your birthday. What would you do with it? You might be thinking that it’s too little an amount to invest in anything long-term, enough that you’re tempted to just go shopping with it. But if you look around for wiser options, you can find ways to make that money work for you. Below, we’ve put together a list of investments you can make with P20,000 that are financially better for you than going on a shopping spree.

Unit Trust Investment Fund

You can easily dive into the world of investment with P20,000. For example, Security Bank offers a number of unit investment trust funds (UITF) which require an initial amount of only P10,000. But what’s a UITF?

Unit Trust Investment Funds “pool the funds of investors to create a large fund which, under the watchful eyes of professional fund managers, can productively harness these funds, taking advantage of economies of scale,” according to Banco de Oro. Thus, even individuals can access investments usually just available to big investors. UITFs are also heavily regulated by not only the banks offering the fund, but also by the Bangko Sentral ng Pilipinas, protecting investors.

UITFs are medium- to long-term investments that have historically better earning options over a long horizon than traditional deposit options, so if you can afford to leave your money in a UITF without having to withdraw from it for a long time, it can be a good option for you in the long run. For example, if you had invested in Security Bank’s Peso Asset Variety Fund on January 1, 2014, these are the kind of returns you could be expecting (disclaimer: values from Security Bank’s UITF calculator. The investment value is only indicative of the value of investment as of a certain date. However, for redemption, please note that the net asset value per unit (NAVpu) will be not be known until the end of a certain business date.)

Initial investment	3 months	4 months	5 months	6 months
P10,000	10,819.98	11,143.67	11,098.78	11,341.81
P15,000	16,229.96	16,715.50	16,648.17	17,012.71
P20,000	21,639.95	22,287.33	22,197.55	22,683.61
P25,000	27,049.94	27,859.17	27,746.94	28,354.52

That’s an ROI of 13.42% over six months, which you can’t get with your regular savings accounts. Again, this is just an example, so please consult with your bank first to determine which fund is right for you.

East West Bank also offers the Infinity Peso Intermediate Term Bond Fund, another UITF which requires an initial deposit of P10,000. It’s a low-risk venture, because the money will be invested primarily in government securities and investment-grade corporate bonds. This is ideal for investors with a long-term investment horizon.

Health

For under P20,000 annually, you can avail of Maxicare’s MyMaxicare SIlver Plan, so if you don’t have health insurance, you could easily get it. For example, according to Maxicare’s Quick Plan Computation, a 30-year-old applying for the Silver Plan, with dental coverage included, would pay P17,083.00 annually. You can check the Quick Plan Computation for the fees you would have to pay at your age (and whether you want dental coverage or not), which you can set annually, semi-annually or quarterly according to your needs.

Benefits include emergency care, annual check-up and preventive care benefits. The Silver tier allows for semi-private room and board for hospitals, with a maximum benefit limit of P60,000 per illness per year.

Medicard’s Plan 2500 is another healthcare option, with a P15,876 annual fee. Hospitals include Asian Hospital and Medical Center, St. Luke’s Medical Center-Quezon City, The Medical City and Cardinal Santos Medical Center.

Business

For as low as P15,000, you can own a siomai business. Shanghai Siomai has dealership packages that start with a one-time P10,000 dealer registration fee and a minimum order of P5,000 worth of siomai ingredients. Consult their website for details.

P20,000 can also get you started in owning your own rice business. Bigasanko.com, a rice distributor, wholesaler, and retailer, requires that amount as an application fee, which can be deducted from the down payment.

Before investing in a business, make sure you’ve done your research and have a plan for profitability.

Education

If you want to build up your management skills, the Advanced Managers’ Course at the UP Institute for Small-Scale Industries can help you. The 10-day course, which you can take over 10 Saturdays and costs P18,000, focuses on leadership, innovation, technology, environment, people management, strategic management, risk management and customer relations management. Ideally, you should already have attended other management courses or been in a managerial position, though this is not required. Check the schedule to see if you can enroll.

Or maybe you’re looking for a raise and want to improve your negotiation skills before you go to your boss. For P10,800, Ateneo’s Center for Continuing Education offers Negotiation Skills: Deal or Deadlock, which will teach you when to negotiate, how to implement your negotiation plan and counter others’ tactics, and develop the core skills of a good negotiator.

Self-investment

What better way to invest your P20,000 than in yourself? Taking lessons and learning a new craft is a good way for you to grow your skillset and expand your career options, or just make your life better. So if you want to start your own bakery, for example, or want to level up your skills in making pastries and desserts, take a look at the 5-Day Pastry Boot Camp at Enderun Colleges. This intensive 30-hour class will teach you how to make sponge cakes, choux pastry, chantilly cream, and more bakery staples. When you’re done with the course, you can use your new skills and techniques to start your artisanal bakery, or bring new desserts to family gatherings.

You could also beautify your home or workspace by learning more about interior design. The Interior Styling workshop at the School of Fashion and Art (SoFA) Design Institute, for P10,000, is an 8-week course which helps you develop an understanding and appreciation of color, pattern and furnishing, and how these can improve interior spaces, whether they be residential, commercial, or institutional.

Do you have any ideas for what else to do with P20,000?

5 Golden Rules Before Using Your Savings

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5 Golden Rules Before Using Your Savings

Published by MoneyMax.ph 

June 9, 2014 

Filed under Lifestyle, Personal Finance

 

Most people spend their entire lives making ends meet, doing backbreaking work, and sacrificing the smallest of comforts to pay dues and to save money. In other words, people commit to a life of toil to fulfill obligations and to avail themselves of a secured future.

Perhaps, majority of the global population associate having a secured future with having enough money. But what comes next after accumulating a decent (or excessive) amount in the bank? Are you saving so you can spend it in one transaction or you’re still uncertain how you should spend it?

Here are five golden rules to make sure that every cent is worth spending:

#1. Write your bucket list

Having a bucket list is essentially having a more meaningful direction in life. You can list down 101 or 1001 items. Make your own rules. Reflect on what you’ve always wanted or what you want to overcome.

Start your own family, learn a new language, build a shelter for the homeless, donate for the preservation of a heritage site, go on an African Safari adventure, discover the birthplace of Renaissance, or visit all 7,107 islands of the Philippines.

Use your hard-earned cash to reward yourself with precious items and priceless moments. Each item on your bucket list is the other thing that you want to do for personal fulfillment.

#2. Think long-term

If you’re planning to spend a significant portion of your savings, weigh the value of the object or experience. The bigger the amount you need to shell out, the higher the quality you should require from it especially if it’s an object. It’s much easier to determine the real value of an experience because if you want something to happen, then it’s significant for you.

Make an analysis of what you want to spend on, the amount that you need to spend, and what you will get from it – it’s very much like assessing the ROI (return on investment).

Remember: A good investment has long-term positive effects.

#3. Live one day at a time

If you have the habit of overthinking and overdoing things, hit the brakes and take a full-stop. Most individuals who overthink eventually don’t get anywhere and those who overdo end up with mediocre results or a dilemma.

It’s a simple equation that can lead you to unwise decisions, including overspending and financial mismanagement.

A good example is a situation before payday. You’re overthinking if you’re already planning how to spend your money, where to go, what to buy, and how many items to purchase. You’re overdoing it if once you get your check, you spend like you just won the lottery without thinking about your dues.

Don’t let your emotions and energy drive you to a financial crisis and off a cliff. Set your priorities, take it slow, and live one day at a time.

#4. Indulge responsibly

Those who are working for 40 hours or more every week try to find the time to pamper themselves and live a life outside of work. There’s nothing wrong with that. You have every right to spend your moolah as you please. However, don’t forget that you need to set your own limitations.

Too much of something is bad not just for your health but also for your finances. You may justify your actions by saying that you’re a grown up and most likely earning your own money, but you’re also just a human being who is prone to making mistakes, and the worst part, is you’ve probably turned a blind eye many times.

Don’t allow freeloaders to pressure you. Try to cut down on your vices. Eat healthy. And, don’t make financial decisions when you’re drunk or intoxicated.

#5. Create good memories

If you’re spending aimlessly, you’re probably still missing something in life. Yes, work is exhausting. Sometimes you just want to give up and bum around. But, don’t think that you’re just working to pay the bills.

Don’t focus on the things that can make you happy all the time. There’s nothing more fulfilling than churning out cash to create new memories and to establish a strong connection. It can be a birthday party, family dinner, surprise present, vacation with your loved ones, brand new car, and property investment.

Consider using your money for something that you can share with your loved ones. Always remember that money goes around but memories are yours to keep forever.

- See more at: http://www.moneymax.ph/blog/5-golden-rules-using-savings/#sthash.idjJ4uUp.dpuf