How Do we Spend Money Wisely?

Spending money is easy and fun, but spending money wisely? That's another question.


Whenever we get our salary, extra income, 13th month pay, bonuses, etc. We tend to think of things we need to spend it on. This is the truth for most of us, but how do we spend it wisely?

Spending money is inevitable, sometimes fun, and sometimes devastating. Whenever you get your hands on the prize, always remember to ANALYZE your C-E-A-L.

Definition of C-E-A-L:

C = Cashflow
E = Expenses
A = Assets
L = Liabilities

Analyzing C-E-A-L can be done in sequence, an effective way is to DEFINE, MEASURE, FORECAST, and lastly EXECUTE.
Here's an example and their definitions:

CASHFLOW: Your income from assets, allowances, your job, your freelance job.
  • DEFINE: Where do I get my cash-flow?
  • MEASURE: How much am I getting exactly?
  • FORECAST: When is my next cash-flow coming in?
  • EXECUTE: Go to a bank and save it for later consumption. This way, you immediately turn it into an asset which may potentially earn some interest.

EXPENSES: Expenses are inevitable, lets call them living allowance. Whatever you need to buy for you to live, to support life, to have fun, to pass time, to make time, etc.
  • DEFINE: What are your NEEDS and WANTS?
    • Needs: Food, Daily Allowance, Water, Electricity, etc.
    • Wants: New TV, a New Gaming Rig, Junk Food, Toys, anything for fun and comfort.
  • MEASURE: How much are you willing to spend? How much can you spend? What's important?
  • FORECAST: Set a time-frame based on what you defined. Better yet, use a calendar to guide you on when to settle your expenses.
  • EXECUTE: Use it on the time-frame specified on your forecast.

Note: Now, assets and liabilities are things that need a lot of thinking, it can be confusing at some point because they CAN interchange. To make it simpler, here's what I have in mind:


ASSETS: These are what you have that invites CASHFLOW. A JOB, a property being rented by your friend, your freelance work, your company are just a few examples.
  • DEFINE: Defining assets are tricky, because sometimes assets can also be liabilities, let's take about a house / a condo unit, these two properties can be assets if you have it rented by someone else, but a liability if you bought it for yourself. To define your assets, start by asking yourself, what do I have that gives me more income/value?
  • MEASURE: How much money do I get from assets? When exactly can I get my profit? 
  • FORECAST: Can I acquire more assets? What other assets are out there for the taking? What gives the most profit? When exactly can I acquire an asset?
  • EXECUTE: Invest on the assets from your forecast by using the money you acquired from your cash-flow less your expenses, liabilities and savings. 

LIABILITIES: These are things you have or plan to have that invites EXPENSES.
  • DEFINE: Ask yourself , what things do I have that requires me or urges me to spend money? This can probably be a car, a house, a condo unit, a pet, a phone subscription, or even your credit card. To be fair with liabilities, they can also become assets easily. An example for this is can be your phone subscription, if you use your phone to simply call a friend and talk about random gibberish ALL THE TIME, this is considered a liability, now if you use it for marketing your business, it becomes an asset!
  • MEASURE: From the definition, how much am I spending?
  • FORECAST: From the measurement, how much should I spend on a weekly/monthly/yearly basis? Make a calendar!
  • EXECUTE: Convert liabilities to assets, Cut unnecessary liabilities, or settle those necessary liabilities on time.

Sooooo.. Now that you went through that, here's the shortcut:
  1. Measure and make sure you have a regular positive cash-flow.
  2. When it comes to expenses, mostly spend on what you NEED.
  3. Invest on ASSETS using what cash-flow you have left as often as you can and make damn sure THEY STAY AS ASSETS.
  4. lastly convert liabilities to assets, cut unnecessary liabilities, and settle the necessary ones on time. 
Here's a computation that might be helpful to determine if you can acquire assets from the money you have:

TOTAL CASHFLOW (think annual)
LESS EXPENSES (needs > wants)
LESS LIABILITIES (things you can't live without)
LESS SAVINGS (this is important, save some for those rainy days)
= ASSET FUND

Just wanted to share what I've read previously:
  • Poor people often become poorer because most of them spend their limited cash-flow on expenses (wants > needs).
  • Middle-class people often spend their cash-flow on liabilities that can turn into an asset, remain a liability for a long time, or become a bigger liability.
  • Rich people often become richer because they spend their cash-flow mostly on ASSETS and try to convert liabilities into assets. 

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