A Secret of Financial Management

A SECRET OF
FINANCIAL MANAGEMENT
By: Safir Senduk

A huge earning is usually considered for measuring the wealth of someone. However, why do so many people with huge income frequently end up running out of money in the middle or at the end of the month? What is the problem?

If you have a job now, do you remember the first one you ever had? Usually, the first experience on work is the most unforgettable experience.

Let's take an example. Anto was still living with his family until he got a job at the age of 23, as a clerk in a trading company. At that time, he had just graduated. Although he had to go through a probationary period, Anto was so excited when he knew that he would get his first salary. His salary was Rp 600,000, which he would receive on the 27th.

We can guess what he would want to do: he wanted to treat his family. He wanted to express his gratitude for getting a salary for the first time in his life, and he also wanted to show them that he was independent now.

Let's see: he received the salary on the 27th. On the 29th he took his family out for a meal in an all-you-can-eat restaurant, so each of them could satisfy their appetite. The pre-tax cost for one person was Rp 22,000, and after tax was Rp 24,200 per person. All of his family members were 7, consisting of his father, mother, one big brother and 3 annoying younger brothers. All was 6, plus Anto made it 7. It means that he had to pay the dinner bill of Rp 169,400. Which means, only 2 days after he received his salary, he had already spent 28% out of his salary for that month. So, he had only Rp 430,600 left for the rest of the month.

"No problem", thought Anto. "It's my own family that I treated, not other people. Besides, it's not every day I do that. Once a month is enough." Days went by. One week, 2 weeks, 3 weeks. "Hmm…that stuff in the mall looks pretty good. There is a very interesting looking shirt. Okay, it costs Rp 28,000. There's also this nice pair of trousers to wear for work. Very cheap, costs only Rp 65,000. It won't hurt to look stylish at the office". He then started buying things. "Okay", Anto thought, "one shirt and a pair of pants for this month. The rest of my salary would be used for transportation and food until the end of the month" .

What happened? On the 24th of the next month, just three days before his second-month payday, he had only Rp 50,000 left.

Anto started thinking. Okay...., such was because he spent most of his money to treat his family. Also this was his first time working. Within the coming months, his finance would be better.

The second month, he got his salary again. Still in the same amount. No raise yet. The difference was no more treating the family. Days and weeks went by. A few days before his third salary, he only had Rp 75,000 left.

Three months passed by, he was finally accepted as permanent employee. He got a Rp 150,000 raise to Rp 750,000. "Not bad", Anto thought. This meant that I would be able to "breath" and save a little. But strangely, a few days before even one month period ended, his still had only little money left. The sixth month, the seventh month, the eight month, although he got a raise, but he still ran out of money and could not put any into savings.

As a matter of fact, Anto is not the only one, whose income is under Rp 1m, with this problem. Even people with millions per month income still have trouble saving money.

What is really happening? Many people think that by getting a raise, they will not run out of money in the middle of the month and they can save for sure. Every month they hope that they will get a raise the next months. But after they really get a raise, they still run out of money.

It is clear that the solution here lies not on how big your income is. The amount of your income does not guarantee that you will not run out of money in the middle of the month. The size of your income does not guarantee that you will be able to save. The key here is not how much money you make, but how you manage your income so that it can be stretched in a one-month period.

There is no fixed way on the right method to manage your finance. However, based from experiences, there are several things that can help you manage your finance well each month:

1. Plan your income and outcome every month.
   
2. Carry out the plan strictly.
   
3. Have reserved fund.
   
4. Join insurance plan.
   

In the next number, we will discuss each of the approaches.