How To Personalize Your Personal Finance

Recently updated on: November 6, 2023

I write a lot about personal finance because this is one of the problems many individuals are facing. These problems are even more noticeable with our friends and families, as shown in Statista.

Our friends and families contribute to shaping our fundamental understanding of money, which we also pass down the line to our children and other friends. Growing up, our family told us to study hard and finish college, which would someday help us land a good-paying job.

Sure enough, it is one way to get a decent salary. However, many are not trained on what to do after getting their first paycheck - ironically, even teachers.

That may be where the lifestyle of living paycheck-to-paycheck and "London" or "loan dito, loan doon" starts. And if not solved early on, it will cause problems in the future, affecting other aspects of our lives.

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Most of the time, we just do what others are doing and rationalize that it is just the way it is, like how it's impossible to live without debt.

But suppose we are observant enough about how people spend. We can see something is wrong with the default setting of many Filipinos' take on personal finance.

We are also conditioned by television shows, vloggers, and showbiz personalities that we need more and more. And the only way to prove that we are "successful" is to have shiny, tangible status symbols to show for, like a big house, a nice car, and fancy vacations.

However, we can't deny that we need money. But we should remember that money is neutral and can be used for good and evil, depending on who utilizes it.

Also, money has no "real" value. It just happened that society agreed that a piece of paper or some gold and copper pieces has value to exchange for products and avoid the traditional barter.

Moving along, you need to understand that your personal finance is your personal responsibility. And you need to match your current situation with your approach to your finances.

So, here are some ways to personalize your personal finance.

Know Your Why

According to Simon Sinek, "Always start with why."

Just like what Nescafe asked, "Para kanino/saan ka bumabangon?" must be your first question and should not only be tied to a monetary amount. Our "why" should be more personal and aligned with our core values and goals.

Before we can personalize our personal finance, we need to understand why we do what we do. We need to dig a little deeper and know ourselves better because financial decisions are made by emotional people. 

What are Your Current Responsibilities?

Every person's responsibility is different. Some may have more, while some may have less. That is why you should consider your current situation when dealing with your personal finance - which is shown by the X-Curve.

Responsibilities, especially family responsibilities, are the top priorities of many individuals, especially the breadwinners. That is why you and your family must be on the same page when discussing financial matters.

There must be no secrets among you and your beneficiaries. Because if needed, you might have to undergo some lifestyle changes that will also affect them.

If you're earning less than what you need, you may have to find other income streams like a part-time or a side business.

Need vs. Wants

Everyone has their definition of what they need and what they want. But for me, "needs" are essential, while "wants" are a luxury. One may say he "needs" a new pair of shoes, while another will comment that it is an unnecessary expense. 

Think of it this way, for a real estate salesman, presentable shoes are a "need" to give a good impression to a client, but for someone working from home, a new pair of shoes may just be an excess.

Or take a car, for instance. It is a need for someone who always commutes and pays high fares but a want for someone who rarely uses it. It is also essential to consider all the added costs of big purchases like cars or houses.

I once had a colleague whose fresh out of college. After only a few months on the job, he decided to buy his first car. Unfortunately, he hasn't considered the high cost of gas and parking in BGC. Soon, he was back to commuting while paying for a vehicle he rarely uses. 

If people just become more conscious of identifying their needs instead of mislabeling them as "want," fewer people will be in debt.

Differentiating Needs and Wants

I test it by asking a simple question: "Will the delay of this purchase impact my everyday life?" 

If the answer is yes, then it is a need. But if it is a no, it is a want and can be delayed or skipped altogether. Basically, my only needs are those I need to survive, like food and water, shelter, and clothing. Everything else is a want or good to have's.

Tracking Your Expenses

Many people receive their month's salary then two weeks later. They'll complain that nothing is left. They fail to identify where the leak in their budget lies (if they have a budget). 

Tracking your expenses is one effective way of knowing where your money went to the last centavo.

You may use the traditional pen-and-paper, or you may use a digital app. It depends on your preference. But for me, I prefer an app since it is more convenient. 

I've been using an expense-tracking app since 2015. And I (almost) know where all my salary went - including the unwise financial decisions I've made along the way.

During the past five years, I saw how my salary increased (then decreased) and how I spent them. It is challenging to build the habit of tracking your expense, but after developing it, you'll just do it mindlessly and automatically.

How's Your Budget?

I've written the importance of budgeting and how to budget in multiple posts now. So I just want to remind you why it is crucial. Budgeting is directing where your money should go, not where your money went.

Also, budgeting a fixed salary is different from a commission-based salary. For commission-based, you'll need to know the average amount you earn and budget from there.

Do You Need Insurance?

The short answer is yes. Life and health insurance are vital to have, especially if you have dependents. Insurance should be tailor-fitted to your beneficiaries' needs. I have limited knowledge about this, so it will be better to talk to a licensed insurance agent if you've decided to get one.

Are You in Debt?

One of the biggest hindrances to professionals, both young and old, is debt. It is essential to understand that you'll never have a better life if you are constantly in debt. Avoid borrowing money.

If you are already in debt and don't know how to move on, first, you need to know where your money is going. That is why you should always track your expenses. If you look at it closely, you'll find that you have many unnecessary costs that may be used to pay your debt.

Also, don't take a loan to pay another loan. Don't get into further debt to pay your previous debt. This is an endless cycle that will not end well.

How's Your Emergency Fund?

Emergency funds should match your needs. For a single person, 3-6 months' worth of expenses is enough. But you may need a more significant fund if you're a breadwinner.

On Investing

There are multiple considerations before investing. Here are the basics:

1. You should have insurance.
2. You should have no debt.
3. You should have an emergency fund.

Then, your investment should match your intention. Why do you want to invest? What is your goal? Is it for the short-term or longer term?

Followed by, how much risk are you willing to take? The higher the risk, the higher the return, and vice versa.

Lastly, how much capital are you willing to risk?

Final Thought:

Before anything else, you need to evaluate your current situation. You have to have a bird's eye view of your personal finance and talk about it with the people involved, especially your family.

There is no shame in living frugally. The important thing is that you sustain your needs. If you persevere long enough, it will eventually be better.

If you become more conscious of your personal finance, you'll see many things to improve on. You just need to start.