Increasing My Financial Intelligence

Before putting up a business, I should first increase my financial intelligence. Thus, I began reading again good books on financial literacy and business magazines. I am not a Math genius, the reason why I had a bit hesitation over starting a business for fear that I might not be able to keep track of the business cash flow. But as one accountant friend told me, business mathematics does not have too complicated formulas or equations. One very inspiring book that I started reading again is Rich Dad, Poor Dad. I had the book since December of 2005. It’s a bit yellow now, the inside pages, I mean, but I guess it only compliments its contents—golden ideas.

Well, I admit I am bit sad that after six years, I was still not able to apply what I’ve learned from the book, but I guess I have to be positive. I will look at the brighter side of this occurrence. At least now, I have a fatter paycheck than in 2005. But I still struggle financially the way I did in 2005, and now I realize why after reading again this book. It is because I don’t have a working financial plan. And alright, I admit it, my financial intelligence is quite poor. 

The past three months, I began using a cash flow system called the envelope system, which I learned from Fitz Villafuerte in his Ready to be Rich blog. It’s a good system. I get to know where my money is going. The key is to use real envelopes or imaginary envelopes (using an excel worksheet) to represent my group of expenses. I used both. The technique is to allocate a particular amount of money for each type of expense so everything is budgeted. A certain amount should be set aside for savings of course. Below are my envelopes. 

Envelope 1: For family - 60%

Envelope 2: Savings - 5%

Envelope 3: Treat for family - 5 %

Envelope 4: Transpo and Food allowance for work - 15%

Envelope 5: Eat out with friends - 5%

Envelope 6: Medical Expenses - 5%

Envelope 7: Gifts - 5%

Envelope 8: Dress/Accessories - 5%

Envelope 9: Business Capital - 5%

After three months of doing this, I realized that most of my money went to:

1. Dinner treats for sending off officemates/friends who quit work
2. Gifts for officemates/friends who quit work
3. Gifts for officemates/friends for their birthdays
4. Medical checkups/medicines for family
5. Advance allowances for family
6. Orders from officemates who sell stuff
7. Load
8. Advance gifts for family and relatives

As I’ve said, I’ve been using the envelope system for three months now, but I’m still not able to keep track of my money. I always end up having just enough money to get me to the next paycheck. And often, I get money from my other envelopes, usually from my savings envelope, after I used up a certain envelope for a particular expense. It’s also not helpful that I have a spare money envelope. Last July, I got some retroactive pay after getting a salary increase at my job. Now this spare money is almost depleted. I planned to use it for buying an android phone but, soon, I saw it disintegrating before my very eyes, again because I do not know how to have control over my money.

Well at least I made some good friends really happy and I got to buy some cool stuffs, too:

1. A Ninewest bag
2. A Scoop project dress
3. A Rusty lopez shoes for mom
4. A purple So-en dress for mom
5. A book The Shadow of the Wind

Obviously, the problem is not with the system, but with my infantile self-discipline when it comes to money. After distributing my income in the envelopes, I would easily lost track of my spending. I barely have time to do my cash monitoring at work, and I’m too tired to do it when I get home. That’s why I initially wanted to buy an android phone—to help me become more organized not only with money, but also in other aspects of my life. But with or without the phone, if I can get that necessary discipline, I am sure I can control my spending habits and start saving money. 

Now, building discipline is a different story altogether because it requires a behavior change. (Research says that behavior change happens little by little.) Change should not look so complicated so I won’t feel intimidated. Now the envelope system is not too complicated, actually, but I guess I would do it some other time when I am more mature when it comes to money. I have to adopt an easier system, perhaps something that has fewer columns. And that’s when I remember the Income Statement box presented by Robert Kiyosaki in Rich Dad, Poor Dad. 

 

The Income Statement box is a very simple money diagram because it was actually made for him by his rich dad¹ when he was 9 years old (which is tantamount to saying that if I think this diagram is for me, then my financial intelligence is that of a 9-year-old kid).

Income
Expense
Asset	Liability

All I have to do is put the amount/item in the appropriate box indicated. Income is of course the money I am regularly receiving. Expense is what I spend. Asset is what I own that earns me additional income without doing extra work such as real estate properties while liability is something that takes money from me without anything in return (whether goods or money), like interest on loans and items bought with credit cards.

Below is how my income statement box looks like:

Income From job/paycheck From loading business
Expenses 60% of my paycheck to family Taxes, SSS, medocare and other deductions Transpo and food allowance for work Sunday dates with mom Church donation Dinners Gifts Accessories, clothes
Asset Bank savings	Liability None

Of course, I deliberately did not include actual peso figures in the diagram for my own safety from those who would sneer at my income ^_^. Kidding, aside. Wow, I am really overspending. That’s why I can’t save enough money for my business. Plus, as for my assets, I only got my bank savings which earns about less than 0.01% a year. Well, at least I don’t have any liability because I don’t own a credit card and I don’t borrow money from banks or the office.

Here are my resolutions:

1. Deposit my savings to the bank regularly (so I can’t readily spend my extra money for unplanned dinners, etc.)
2. Open up a time deposit acct or a mutual fund.
3. Cut on my expenses
4. Get more income (raket²)
5. Get more assets (stocks, bonds, notes, real estate, royalties, insurance/life plans)

Well, wish me luck again, guys. In the meantime, I have to tie my shoe laces (or some loose ends) because I have to face the fact that I’m still in the rat race.³

And now responsibilities in the office are adding up. And like what Robert Kiyosaki said, do not work to earn money, but work to learn. And yup, now I’m learning about business management at work.

Footnotes:

1 Rich Dad is the father of Mike, Robert Kiyosaki’s childhood friend. Rich dad taught him how to develop his financial intelligence

2 Rat race is a pattern of get up, go to work, pay bills, get up, go to work, pay bills

3 Raket is other means of income aside from ones regular job