We don’t have all the money in the world. Not even the richest guy on earth can buy everything. This is something I’ve had to deal with a lot in my first job. Despite being here for 2 years, I’m still learning how to be disciplined when it comes to handling my funds. With so many products and services available for money—investments, clothes, gadgets, books—I’m really finding it tough to balance things out. It’s worse that I’m an impulsive and impatient guy.

For me, there’s two things I do with my money: gain financial stability and to reward myself. In an earlier post, I said that we deserved to benefit from our money, both now and in the future. Well, here’s how we can.

Financial Stability – in this order
1) Set up Emergency funds

Emergency funds, as I learned from Carlo, are used exactly for that—emergencies. These can be placed in your savings account, but used only for emergencies. What makes something an emergency? It can be something as simple as replacing your broken USB mouse to or as serious as living off of it in case you leave your job. Also included are bargain buys (books, clothes on sale or good investment deals). Though personally I think ‘good investment deals’ ought to be thought about carefully, so don’t just rush in.

If for some reason, you need to touch this fund, make sure you replenish!

2) Grow your fund to make it last for 6 months.

Why 6 months? It’s a good buffer. In case you decide to leave your job, you have 6 months to live on. Compute your monthly expenses and multiply by 6 to get the preferred amount of emergency funds.

This is about liquidity—your ability to spend cash for short term.

3) Begin to save.

Once you’ve set up your fund, start to set aside money for your future. Bank, Time Deposit first, and if possible, an insurance plan. It’s best to take a plan when young; the monthly fees are lower and you get to pay it off quicker.

Your goals change here, from liquidity to stability—your ability to live long term.

4) Get into better investments.

While the bank and time deposits seem like the only ways taught to us, there are other ways of growing our money. Mutual Funds, stocks or other funds/businesses your family or your friends may have. Of course, know the game before you play it.

Personal Reward
1) Set a limit for what you want to get.

In the world, money is finite. For a person, money is scarce. LOL. So we have to be able to limit our wants. This can be as simple as: getting new shoes per quarter, getting a new shirt a month, a gadget every year, a laptop every 2 years.

2) Start making a plan based on how you can afford it.

A friend of mine planned to get a 32″ LCD TV. He made a plan and in about 4 months, was able to buy one, with a Home Theater system included. This, until now, is my favorite example of planning for something.

3) Factor in nights out, dinners, dates and travels.

That same friend had to give up things. So instead of going out every week, he scheduled his nights out. Of course, we have to prioritize between them.

4) Don’t be afraid to reward yourself.

I have to admit, I made a mistake here. I didn’t really reward myself. Well, at least I didn’t use my money to buy stuff that make me feel like my efforts were worth it. But this is just as important as saving and investing.

My biggest regret is that I didn’t start by making an emergency fund. I used to think liquidity was overrated and that I could survive without having to reward myself. In terms of the Masrhmallow test, I thought I could skip one marshmallow (the emergency fund), forego the second (rewarding myself), to wait for a whole bag (getting long term returns, right now).

It gets tougher to establish liquidity when you already have various commitments for your money. Notice how I didn’t even get started on the credit card, because I’d be a hypocrite if I said anything about not using it. But that’s another story. 🙂