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Tuesday, July 10, 2012

A New Baskets System For People Who Can’t Budget

A New Baskets System For People Who Can’t Budget

Why Bro. Bo Sanchez don't use budget to his personal life? Here's why.

Basket System
If you’ve been a TrulyRichClub member for quite some time, you’ll know that I don’t use budgets for my personal life. I know that’s a mortal sin for some financial planners, but I gave up making budgets years ago. I’m one of those individuals who doesn’t like to sit down and write down a budget—like how much I’ll spend this month for grocery, for clothes, for haircuts, for snacks, etc…

I don’t know why, but when I see a page with numbers, I zonk out. My mind gets fried. If I keep reading the page with numbers for more than 10 minutes, I get a nervous breakdown.

I’ve learned that budgets work for some people. Like my friend Wilma. She’s got her monthly budgets in an Excel program, complete with colors and categorized in folders with nice labels around them. She’s so organized, her room is like a museum. Goodness, her clothes in her closet are numbered. Even her toothbrush has two dates written on its side—when she first used it and when she’ll throw it (exactly three months).

But early on, I learned that I’m not Wilma. Budgets didn’t work for me. Through the years, as I talked to lots of people, I know that budgeting doesn’t work for many others too. Instead of a complicated BUDGET system, I use a simple BASKETS system. And that has worked for me splendidly.

Here’s what I did… 

Three Baskets Following the 30/70 System 

Years ago, when I received new money, I’d divide my money into three baskets: my tithes (10 percent) and my investments (20 percent) and lived on the rest (70 percent). Note: Actually, these aren’t my percentages anymore. I tithe and invest much more now.

That, in gist, is my 30/70 Basket System. This simple fund allocation system is one of the biggest reasons why I’m a millionaire now. Years ago, I remember days when the 70 percent was gone before my needs were all met. How did I cope? I gritted my teeth, tightened my belt, and postponed purchases until new money came in. Difficult to do but that was how I did it.

It worked. And I know it worked for a lot of people too. Because of my simple Basket System, my retirement fund has grown tremendously. Investing 20 percent of my income over the past years has compounded and multiplied my money beyond my wildest imagination.

If you’re like me who can’t make a budget or follow one, just use my Basket System: The moment you receive income—any kind of income—just set aside your Tithes and Retirement. And live on whatever is left.

That’s it! But here’s something I found out. After helping a lot of people organize their finances, I realize that some people may need a more nuanced Basket System. So I developed a new Basket System for your money. Here it is (drum roll please)… 

The 5W Basket System 

I know it has more Baskets, but bear with me. I’ve checked with other financial teachers and they teach similar categories. Let me explain the 5W Baskets...

First, 10 percent is your Worship Fund(Tithes).
Second, 20 percent is your Wealth Fund(Long-Term Investments).
Third, 10 percent is your Want Fund (Yes, Splurge!).
Fourth, 10 percent is your Wellness Fund(Short-Term Savings).
Fifth, 50 percent is your Wallet Fund (Regular Expenses).
Let me explain the two new Baskets: Want Fund and Wellness Fund. 

10 Percent for Your Want Fund 

There are needs and there are wants. This specific fund is for your wants. They’re not necessities. You can live without them. Why this Fund? You see, there are two extremes you want to avoid. First is the Spender.

Want Fund
The impulsive buyer. The shopaholic. The one-day millionaire. The person with the latest gizmos and gadgets, but who has six credit cards, all maxed out. The person with the Louis Vuitton bags, but has zero savings. You don’t want to be this person.

The other extreme is the Scrooge. The miser. The penny pincher. The person who hasn’t bought a new shirt since President Marcos declared Martial Law. The person who eats crackers every day from a large tin can—bought in Divisoria—for breakfast, lunch, and dinner.

The person who is so addicted to saving and investing because of crazy fears, he doesn’t spend anything for himself. You don’t want to be this person too. I honestly believe you should spend a portion of what you earn as your way of loving yourself, honoring yourself, and celebrating yourself.

Every time you earn something, set aside 10 percent and buy what will make you happy. (Note: I suggest you start doing this when your finances are no longer in crisis mode. For example, when all your major debts have been paid.) It could be eating in a favorite restaurant. Or watching a movie. Or having a massage.

Or going on a vacation. Or buying a new shirt. Or getting a new watch. If you’re saving for a big vacation to Boracay or Batanes or Bohol—you could save this 10 percent for a few months—until you reach your goal. And then splurge!

But splurging that amount each month is great too. Rewarding yourself regularly is fantastic motivation to earn more.


10 Percent for Your Wellness Fund 

This is for Short-Term Savings for specific projects. Perhaps you’re saving for your new house. Or your new car. Or the college fund for little Pamela and 5-year-old Julius. Or a Holy Land pilgrimage that you want to take five years from now.

If you have various projects, then you can divide this 10 percent according to each specific project. Or increase the 10 percent to 15 percent or 20 percent, depending on your income.

Will the project happen before five years? (For example, Pamela enters college in four years.) If so, the stock market may not be the place for your Wellness Fund. Put it in a Retail Treasury Bond (RTB) or Time Deposit. The interest growth isn’t as big, but it’s better than the less than one percent that a Savings Account gives you.

But if the project will take place after five years, you can still put it in the stock market—but you need to follow our Stocks Update eReport closely. (For example, when we warn you of a big downtrend, you may want to pull your money out.) 

Take Your Pick and Use What Works 

So you have a choice. You can use the 30/70 Basket System or the 5W Basket System. They’re not budgets. They’re just Fund Allocation System where you divide up your money when your income arrives. Unless of course you’re like my friend Wilma who can make budgets work.

Choose which works for you. And tell me about it!

May your dreams come true.

Bo Sanchez

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