29 May 2012

{Parenting & Money} Managing Daily Household Expenses

Previous Posts
{Parenting & Money} 3 Must-Haves in Saving and Investing
{Parenting & Money} Basic Principles of Saving & Investing
{Parenting & Money} The Inevitable Link

Ever since Julia was born, our household expenses increased by about 50% due to increased electricity consumption and groceries.  This is of course expected.  However, as our expenses increased, there was no change in our income and we did not adjust our spending habits either.  As a result, we depleted our savings and we incurred some loans.

According to Mr. Hector De Leon, EVP of First Metro Asset Management, Inc., one major pitfall in household budgeting is our inability to differentiate between needs and wants.  He shared this article and here are my realizations:

·     The three most basic human needs are food, shelter and clothing.  Our specific preferences in terms of brand, style, taste, materials to be used, etc. will turn these “needs” into “wants”.

I value the quality of a product; hence, my preferences are often times more expensive.  I patronize brands that are “tried and tested”.  For example:  I buy Avent feeding bottles.  I would rather spend more on this brand than buy cheaper feeding bottles with poor quality.  The latter will eventually compel me to buy a replacement, making me spend more than I should. 

However, I must admit, there are brands that I patronize just because I want to.  I am one of those people who go to the grocery store and just get the brand I am most familiar with.  Now that my half-full cart is as expensive as a cart full of grocery items, I try out new products that are cheaper but with the same quality.  It’s a trial and error process for me.  But luckily, I found a few cheaper alternative brands that are as effective as the more expensive brands I used to patronize.

·        In this day and age, a car and a mobile phone are now considered important and essential in our day-to-day living.

I agree that a car and a mobile phone can make us more productive.  But, often times, they can also be a source of unnecessary spending.  I spend a lot on fuel because my car's engine displacement is 2.0.  I wish I got a more fuel efficient car instead.  Next time.

I use three mobile phones.  Yes, three…two for personal use and one as a company-issued productivity tool.  Don’t ask me why I have two for personal use or why I even have phones for personal use.  I really don’t know.  Every month, I spend about P5,000.00 for monthly bills.  If I only use my company-issued productivity tool and allocate about P3,000.00 for personal use, then I can save about P2,000.00 per month.  That’s P24,000.00 a year!

I’m glad I don’t change my mobile phone unit as often as others do.  Having the habit to own the latest phone translates to an automatic deduction from savings at least every 6 months (or depending on how soon they upgrade phone models).      

·        Our lifestyle adjusts as our income increases.  Instead of setting aside the “increase” as additional money for savings, we buy more things we do not really need or we upgrade our lifestyle by buying more expensive things.

A salary increase is an opportunity to shop and spend more.  Here’s why I am guilty about this:  When Don and I were just starting our life as a couple, we don’t eat in restaurants often.  It’s simply because we can’t afford it.  Now, when we were evaluating our monthly spending, we realized that we spend a lot on food (dining out). Don’t get me wrong, I am not against spending.  In fact, there is nothing wrong in buying the things we want as long as we can afford it.  For us, as we enumerated our priority list of expenses, it’s something we can live without… at least for the meantime.

 I spend a lot on little things that I don’t really need.  I have a lot of ballpens, little notebooks, containers… things that I like buying but don’t really need.  They may be cheap but when I calculated my unnecessary spending, it’s enough to pay for my phone bills!

According to Mr. De Leon, it is always a good idea to have some money set aside in case of emergencies like medical expenses or house/car repair expenses.  Maintaining six to nine months worth of living expenses will insulate you from taking an unplanned loan or incurring investment loss (due to distress selling).  If one is not disciplined and is capable of impulse buying, it is important to keep this money in an account that doesn’t have an ATM Card.

Every time I buy things now, I ask myself if it's a need or a want.  It's difficult because I can always find an excuse to turn my want into a need.  Ever since we decided to tighten our belts, every trip to the mall is a test of discipline and self-control.

How do you deal with your needs and wants?  What are your strategies to avoid unnecessary spending?

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