Five practical money habits

You have developed your own spending habits long before you decide on your financial goals. After all, you learn about money and how to spend it first before you decide what you want later in life.

While this isn’t necessarily a bad thing, developing bad money habits that prevent you from achieving your financial goals is going to be a problem. If you’re trying to be more practical with your money, here are five spending habits you need to develop.

Spend with cash

One of the reasons many people go into heavy credit card debt is treating credit cards as extra cash you can spend, but not for what it is: debt. Swiping your credit card might feel nice because you don’t have to pay for anything at first. But when all these purchases add up and it’s time to pay, you do not have the funds to pay. So, you decide to pay the minimum amount, and thus begins the cycle of debt and interest that can be difficult to get out of.

What is the best way to track your money and how much you can spend? Spend with cash whenever possible. If you don’t have a good way of tracking your spending and your credit card payments, having a fixed amount of cash in your wallet can help you determine if you’re spending too much.

Keep credit card use to 30%

Think of your credit usage ratio this way: how much credit card debt you have versus how much you can have. So, if you have a P100,000 credit limit on your card, and you currently have an existing debt of P30,000, then your usage rate is at the recommended limit of 30%, and here’s the reason it shouldn’t go any higher.

According to some financial experts, the ideal credit usage ratio should be less than 30%.

In the United States, where a national credit score system is in place, a 30-percent ratio suggests that you are not being financially responsible, and are making purchases that you may not be able to afford and pay back in full. Should you decide to open a second credit card or take out a loan, this may reflect on your application. The Philippines has no national credit score system.

Get a “Money Buddy”

Keep a close friend or family member as a trustworthy guide when making financial decisions. Ideally, this person should be financially responsible, meaning he or she should help you avoid making careless or impractical decisions about money.

Your money buddy should also prevent you from making impulsive purchases. With your money buddy, you have someone willing to remind and help you make better financial choices. However, in the end, you’re accountable for your own actions.

Spend less than you earn

A simple but effective practice when it comes to money is spending less than you earn. For every paycheck or any form of income you receive, save a portion of it, and track your spending.

By spending less than you earn, these things can happen:

• You free up money for paying existing debts.
• You can begin a savings account from the money you did not spend;
• You can save up and invest for future expenses.

Modify your “giving” budget

Among Filipinos, it’s common practice to spend money not just on yourself but for your immediate or extended family. While this is often a nice gesture, you have to weigh your financial health.

If you want to be practical about gifting, think about this: the money you spend for others should not come from a separate “giving budget” but from your own “lifestyle budget.”

So, if you have a budget of PHP 5,000 a month for discretionary expenses, you can choose to use this budget not only for your own entertainment but also to treat or reward a family member. It’s up to you how you want to split this expense between you and your family members. But do use this fund for gifts and “surprises” for the family.

Building these practical spending habits can indeed help you achieve your financial goals. In the end, it’s all about being responsible with your money and it starts with these simple money habits.

Open a Metrobank Savings Account and enjoy meaningful banking today.