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Fourth Step to Your Journey to Millions: Spend Money The Right Way (Create a Spending Plan)

by Edel

“What they don’t realize is that a spending plan is the fastest way to wherever you want to go, from simply taking control of your money to getting out of debt.”

-Dave Ramsey

Hello, friend!

Welcome to Journey To Millions!
Journey To Millions - Spend Money The Right Way
In my previous article, I challenged you to write your very own pair of Outcome Goals and Process Goals. Together, these sets of financial goals clearly tell you what to achieve and how to achieve it. I have also shared with you the top three financial goals that you shouldn’t miss. In case you haven’t checked it out, read The Third Step here.

Now, some of you are wondering how your limited income can support your unlimited dreams. No worries! We all have the same concern.

So, in this article, we would be exploring what personal finance experts advise people like you and I on how to spend money the right way.

Is there a right way to spend money?
Surprisingly, at the late age of 25, I have discovered the answer to this question.

Yes, there is a right way to spend money and that’s what we’re learning from our featured personal finance experts today.

Let me introduce you to our first featured personal finance guru who also happen to have the simplest but most challenging spending plan I have ever learned of, Bro. Bo Sanchez.

WHO IS BO SANCHEZ?
“Eugenio Isabelo Tomas Reyes Sanchez Jr. or widely known as Bo Sanchez is an author, entrepreneur, preacher, celebrity and lay evangelist in the Philippines. He was born in July 11, 1966 in Caloocan City to Eugenio and Pilar Sanchez.” (Source: Wikipedia)

“Privately, Bo is also a micro-entrepreneur. He engages in small business and real estate not only for his family’s needs and for his various projects, but also from his firm belief that one of the most important solutions to his country’s economic problems is to raise up more micro-entrepreneurs among his countrymen. He frequently teaches and writes about financial literacy, believing that our poverty is hugely a product of people’s low financial I.Q. on subjects such as debt-management, saving, investing, and business.” (Source: Bo’s Blog)

WHAT IS BO SANCHEZ’ IDEAL SPENDING PLAN?
In an article entitled How To Enjoy Your Wealth, Bro. Bo Sanchez shared his very simple but challenging spending plan:

Divide your money into three investments:

Step 1: Invest 10% in your Eternity. You’re a spiritual being. You will live forever. When you tithe, you’re declaring you’re merely passing this world and that Heaven is your future home.

Step 2: Invest 20% in your Maturity. Your biggest expense isn’t your car or your home. Your biggest expense is your retirement. You don’t want to grow old and poor. You don’t even want to grow old and rich. (Believe me, that’s not fun too.) You want to grow old, rich, and generous.

Step 3: Invest 70% in your Family. Don’t invest in things. Invest in people. Don’t invest in stuff. Invest in relationships. Because the best investment in the world isn’t bonds, stocks, oil, silver, or gold. The best investment in the world is love.

WHAT VALUE CAN WE GET FROM BRO. BO’S SPENDING PLAN?
First, let me remind you that Bro. Bo is a full-pledged Catholic preacher, so naturally, his spending plan reflects how much he values giving back to God. Please do not be surprised.

What is actually surprising here is that his spending plan suggests that we live within only 70% of whatever amount we take home each month. This is spending super BELOW our means, right?! Can you handle that?

I don’t advise you to force yourself to follow his spending plan in a snap, but you can surely try doing it gradually. How about starting to live within 95% of your take home pay for the first 3 months? Then, adjust accordingly.

Now it’s time for me to introduce you to our second featured group of personal finance experts with an amazing spending plan, Learnvest.com.

WHAT IS LEARNVEST.COM?
Learnvest.com is a leading personal finance website in the US, helping women take control of their finances. The company is headed by Alexa von Tobel, a Harvard Business School graduate.

Try to visit their website and fall in love with their different bootcamps! Just a word of caution, since the website has been designed to serve American women, most of the contents are hard to relate with for Filipino readers like you and I. So, just enjoy reading and sifting relatable information from their posts and if you have friends or relatives in America, you might want to share the inspiring stories with them. I’m sure they’ll appreciate it.

WHAT IS LEARNVEST.COM’S IDEAL SPENDING PLAN?
Learnvest.com advocates the 50/20/30 spending plan where:

    • No more than 50% goes toward Essential Expenses, which includes just four expenses: housing, transportation, utilities and groceries.
    • At least 20% goes toward Financial Priorities, which are goals that are essential to a strong fiscal foundation. These include retirement contributions, savings contributions and debt payments. You should make these contributions and payments after you pay your Essential Expenses, but before you do any other spending.
    • Lastly, no more than 30% goes toward your Lifestyle Choices, which are personal, voluntary and fun choices about spending discretionary income. They often include cable, internet and phone plans, charitable giving, childcare, entertainment, gym fees, hobbies, pets, personal care, restaurants and bars, shopping and other miscellaneous expenses. (Source: I Want to Set Up a Budget by Laura Shin)

WHAT VALUE CAN WE GET FROM LEARNVEST.COM’S SPENDING PLAN?
Learnvest.com’s spending plan automatically differentiates your wants from your needs. Those that fall under the Essential Expenses category are your basic needs, while those that fall under the Lifesytle Choices category are your wants. If you want to increase your allocation for your wants, it is up to you to decrease your spending for your basic needs. For example, if you want to increase your spending for eating out or shopping, you can choose to live in a cheaper house or drive your car less.

Compared to Bro. Bo’s spending plan, Learnvest.com’s spending plan has less allocation for retirement contributions. In the Financial Priorities category, they include savings contributions and debt payments, other than retirement contributions. But of course, if you have no debts to pay, then by all means, you can save more for your retirement. Whatever unallocated money you have under any category, you can invest for your future.

Now, for the last, but definitely not the least personal finance expert with a wonderful spending plan to be featured in this article, we have Pete the Planner.

WHO IS PETE THE PLANNER?
“Peter Dunn (born November 29, 1977) is an American financial author, radio host, television personality, and speaker. Author of 60 Days to Change: A Daily How-To Guide with Actionable Tips for Improving Your Financial Life and founder of Advanced Planning Solutions (a financial education firm), Dunn is host of Skills Your Dad Never Taught You on NewsTalk 1430 (WXNT Indianapolis). As a financial expert, Dunn is also a regular contributing columnist to MediaPost, where he writes for the Engage: Gen Y column. As a speaker on financial topics, Dunn appears regularly on the Fox Business Network, Fox News’s Studio B with Shepard Smith, and has been a guest host of Abdul in the Morning on WXNT.” (Source: Wikipedia)

WHAT IS PETE THE PLANNER’S IDEAL SPENDING PLAN?
You will be surprised by how detailed (but not complex)Pete’s ideal spending plan is. If you were to ask me, I like it a lot! More details mean more clues!

    • Housing – 25%
    • Transportation – 15%
    • Groceries and Dining – 12%
    • Savings – 10%
    • Utilities and Phones – 10%
    • Charity – 5%
    • Clothing – 5%
    • Entertainment – 5%
    • Medical – 5%
    • Holidays and Gifts – 5%
    • Miscellaneous – 3%

WHAT VALUE CAN WE GET FROM PETE THE PLANNER’S SPENDING PLAN?
My husband and I used to brainstorm a lot about how much to allocate for gifts, utilities, phones, etc. But now with Pete’s detailed spending plan, spending becomes a no brainer! You get to know your limits in a snap! Everything’s been accounted for, not unless there are other things that you want to personally add or take away from the list.

Now, one very important clue to spending money the right way is Pete’s recommendation to only spend as much as 25% of your take home pay for housing. That is 25% for a maximum housing allocation. Imagine, if you try to overdo it and rent or amortize a house that costs about 40% – 50% of your monthly take home pay, then you would need to scrimp on a lot of other important things in your life. Maybe, you might even end up borrowing money just to live a comfortable life! How crazy is that?!

It is also worth noting that Pete’s suggested savings is only 10%. That’s the smallest suggested allocation for savings among the three spending plans. In my previous article entitled Top 5 Personal Finance Books I’ve Read and Loved, I have mentioned David Bach’s saving scheme which says:

If you want to be Dead Broke: Don’t pay yourself anything.
If you want to be Poor: Spend everything you make, no matter how much money you make.
If you want to be in the Middle Class: “Pay yourself first” 5-10% of your gross income.
If you want to be Upper-Middle Class: “Pay yourself first” 15-20% of your gross income.
If you want to be Super Rich super fast: “Pay yourself first” at least 20% of your gross income.

If you and I dream to become Super Rich super fast, then isn’t it logical that we save more than just 10% as Pete has suggested? Will a 10% allocation for savings make us prodigious accumulators of wealth? Maybe not. So, with this, you and I might as well train ourselves to save at least 20% of our monthly take home pay to increase our chance of becoming millionaires.

Lastly, another thing worth appreciating about Pete’s spending plan is that it has allocations for medical needs and gifts. These expenses, if not prepared for, can bust our spending plans and leave our emergency buckets with holes that are hard to fix. I remember a time when there were about 6 dear friends who celebrated their birthdays on the same month. I felt so bad for not being able to keep money for them all; I didn’t allocate money for gifts that month. I was sooo wrong for forgetting to include that in my spending plan! I really wanted to buy my friends special gifts on their birthdays.

What about your dreams?
As for you, I’m sure that you also want to buy your loved ones special birthday gifts every year, or maybe buy a pretty dress from your favourite boutique every now and then. But unless you include those in your spending plan, you will never have enough money to get them (or maybe end up spending way too much on them and risk not having enough for other important things in your life).

The same principle applies to your dreams or financial goals. Unless you intentionally include them in your spending plan, you will never have a way of getting them guilt free.

The most practical way to make your dreams come true is to make sure that your spending plan thoughtfully covers your financial goals.

Remember, if you are bold enough to dream about becoming a millionaire, you also ought to be bold enough to correct your mistakes. If your current spending plan is a far cry from any of the suggested spending plans above, then it is up to you to check on your plan and revise it accordingly. It may not be easy but it will surely be worth it!

For my next article, I would be sharing with you some sure fire ways to increase your income to make more of your dreams come true. More money coming in means more money to spend for your dreams!

For now, I’d like to ask, which of these three spending plans do you think you’ll use?

Or better, which of these three spending plans have you already used with success? Share your story in the comments.

Lastly, as always, if you know anyone who could benefit from these spending plans, take a second and send them a link to this article. Help me help others reach for their dreams.

Until my next post.

Love,

Edel

 

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Image taken from Lil Light ‘O Mine

{ 14 comments… read them below or add one }

Tyrone | Millionaire Acts May 1, 2013 at 10:33 pm

Nice to see another personal finance blogger! :)

Reply

Elvin Peria May 2, 2013 at 5:08 am

Thanks for dropping by Tyrone. :)

Reply

fel May 15, 2013 at 3:07 pm

This is a nice blog. I hope in the coming future their will be millions of Filipinos like you who encourage to be financially free. I know it is hard to educate people who was stuck in teir so called ” Comfort Zone”. Keep it up!..

Reply

Elvin Peria June 22, 2013 at 9:37 pm

Hi Fel,

Thank you for the visit. We started this blog so that we can help more Filipinos, especially couples, to become financially free.

Please help us reach out to them by sharing Journey To Millions.

Thank you!

Reply

Iyah August 17, 2013 at 12:48 am

The three spending plans are equally good! However, the last plan seems to be very specific and I love it! It’s a no brainer! HA! All I have to do is get my calculator and check if I am on the good track or not. And now I’m thinking how to make more money to cover up all expenses and have a good spending habit. This is an eye opener to me. It activates my brain cells! :)
P.S. Thanks Edel for referring me to rareJob! I am looking forward to be part of rareJob. :)

Reply

Elvin Peria August 21, 2013 at 7:43 am

Thanks for dropping by, Iyah. We also love the last spending plan because it is very detailed and specific.

Wishing you luck on your RareJob application. :)

Reply

Lecerf September 17, 2013 at 8:38 pm

I do combine the first and third option of spending plan.. but sticking on it was really hard..i need more discipline to say NO on travels and getaways.. :(

Reply

Elvin Peria September 17, 2013 at 9:05 pm

Hi Lecerf,

We’re glad to hear that you have a spending plan. Most people doesn’t have that. :)

One of our financial mistakes is not to have budget for our fun-filled activities. These activities, travels and getaways, may be the source of over-the-top expenses but it is necessary. We will only live once, so we should enjoy life. That’s why creating spending plan and sticking to it is the best thing to do.

I think, it is not the discipline on saying “no” on travels or getaways. It is the discipline on saying “no” on unplanned expenses.

Reply

Lecerf September 17, 2013 at 10:20 pm

Thanks Elvin.

Yes your right. No on unplanned expenses.

I do practice tracking my expenses since college, but never learned how to invest. So tracking my expenses just help me to lessen the needed allowance my parents should give.

When i started working 3years ago. I keep this practice and started making my spending plan, but since my priority was to give money to my parents, i just save little which in time i was able to spend for travels and unexpected expenses.

And now that i’m 24 and the year 2013 nearly ends, i’m quite disappointed that i still don’t have savings for emergency funds and funds for any of other goals that I’ve already listed earlier this year.

Hope i can still make it.

Thanks for your informative articles.

God bless :)

Reply

Elvin Peria September 18, 2013 at 7:03 am

It’s not yet late, Lecerf. To be honest, we also learned personal finance in our mid-20s and haven’t done anything serious about it during the first few years. It was just recently that we set aside for our emergency and retirement funds. Kung kinaya namin, for sure, kaya mo din po yan. :)

By the way, thank you for appreciating our articles. :)

Reply

stephenbill October 22, 2013 at 5:59 pm

Great post you guys, I’ll add your blog to my RSS feeds. :D Let’s support each other in our journey to millions to BILLIONS. haha

Reply

Elvin Peria October 22, 2013 at 8:30 pm

Thanks for appreciating Stephenbill. :)

Reply

Muriel November 11, 2014 at 3:27 am

Wow! Very informative article at relate na relate ako!
We started (me and my hubby) our journey to millions in 2010 when we read the book of Bro Bo, “My Maid Invest in the Stock Market”. From then on, I searched for ways on how to boost our income, how to get out of debt, how to save, learn other investment options, etc. In 2012, we attended John Calub’s Money Magnet seminar and Attracting Wealth seminar, from his simple Money Magnetment System and Millionaire Mindset practices, we reached our first million with zero debt and financial freedom in the last quarter of 2013. Learning is non stop, and we are planning and working on to our next new goals… keep sharing…

Reply

Elvin November 11, 2014 at 12:25 pm

Congratulations Muriel on reaching your financial freedom! :) I agree with you na dapat hindi mag-stop ang learning! :)

Good luck on your next goals. :)

Reply

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