By elmads

Introduction

Have you ever wondered what would it feel like to have a business and a company? But then you realised you do not know how to start it, let alone run one. It is just overwhelming to learn all of the stuff about managing a business, to see those numbers, to learn basic accounting in order to understand where the business cash is going and how to manage it. That is literally what lingered in my mind for weeks and months in 2019. Then again, another question suddenly popped up in my mind, it asked, what do all successful companies and businesses large or small have in common? I answered, good management, competitive advantage, they know where every amount of the their company’s money goes and where to allocate it. That is when an “AHA!” moment happened, I said to myself that those criteria are actually applicable to an individual level. That is when I tried, experimented and started to apply it with my own finances. I guess some of you are wondering if it really did work for me, my answer is yes.   

Before I even started venturing in doing this process, I already have been doing a budgeting strategy of my own. The difference of these two are, with budgeting; we allocate each and every dime of our money into a specific bucket with a corresponding purpose. Whereas, with this financial mutant level of tracking our money; we have the snapshot of our financial state from the past, present and future levels of our finances. We will be considering our whole human being, as a company that generates money and works to sustain its business and operations, which is our lives. Call me a geek or a lunatic, but this is not for the faint of heart that is why it is called the financial mutants of money management.

Nothing is impossible as long as we have the goals and aspirations in our hearts that we want to achieve, we will take all the possible routes to attain it even if the path is long and hard.  

Just like in each and every company worldwide we need to look into our Salary, Spending and its future projections, our financial health and the inflows and outflows of our income in a given month and year. 

Salary, spending and future projections – Individual’s income statement

A.) Your Salary 

This is the financial lifeline of every person, it sustains our life needs. It is important to know every bits and pieces of our salary breakdown, which can be found from our payslips either on a hard or soft copy. The presentation of payslips in each company and each country are different but the general structure is the same. It will always contain your gross pay, tax deductions, social security deductions, other deductions depending on your country, and lastly your net pay.  

NOTE: You must know how your salary is being computed in order for this to be possible. Also, my computation and step-by-step guide below is only applicable in the UK settings.

1.) Gross Pay – This is the total amount of income that you get before deductions. This comprises the basic pay, earnings from overtime, holiday pay, bonuses and more.  

2.) Basic pay – this is the rate agreed between you and your employer, as your standard pay. There are categories we need to take note when it comes to our basic pay.

• what is your contracted hours and pay per hour,
• or your contracted days of work per month and the daily pay rate.

Take note that these contracts are different per company and country. It is necessary to know this because it is your benchmark for gross salary pay per day, and it will enormously help with your salary projections in the upcoming months and years.

To illustrate, if your contracted hours is 44 per week then your contracted pay per hour is 14GBP, that gives you 616GBP weekly which is calculated as follow (44hours x 14gbp) then after 4 weeks/1 month that will be 2,464GBP monthly which is calculated as follows (616GBPweekly x 4weeks). It is then plausible to predict your average year’s gross income depending on the contract details of your salary employment, without absences and tardiness. If we base it on our example, its one-year possible gross pay could be 32,032GBP. 

3.) Tax deductions – This is considered the universal deduction because almost all countries have this type of deduction. It is one of the ways in which the governments raise capital to support their country and its citizen’s needs, to grow the economy, to govern and make everyone’s life better. It is a priority to know your tax code because the tax that will be deducted to you by the government will depend on how much you make.

Knowing your tax code tells you if you are being taxed correctly and it also aids you to identify and project your future salary tax deductions. Check if the country where you are being taxed have a tax allowance. 

4.) Other deductions – this varies per country as well, because some have social security deductions which is also called the state pension or national insurance, private pension from your company, government health service deduction and more. Know how these deductions are taken from your gross pay in order to have a good estimate of it.

Furthermore, it is wise to learn more about your company’s private pension because usually the company and the government contributes money in it on top of the contribution that you give based on the private pension deduction on your pay slip. Basically, it means that money is given to your private pension account by both your company and the government.

Below is an example of my other deductions and how it is computed.

5.) Net pay – this is the amount of salary that you will be actually receiving after taking all of the deductions, namely tax, state pension and other deductions.

As you can see from the illustration above, knowing how you are being paid and how each and every penny of your money is being broken down before reaching your net pay is crucial to derive into an intelligent projection for your next month or year’s salary. This in turn, will give you a more systematic approach in doing your budgeting strategies today and in the near-term horizon.  

Note: I did not include the overtime pay and bonuses because they are unpredictable salary factors. Remember that we are forecasting what is consistent and highly possible that can happen. When doing projections we always need to be conservative in order to arrive into a more realistic results.

B.) Your Spending 

1.) Essential Spending – These are expenditures for important goods and services to sustain our activities of daily living. It is also called the basic needs expenses. I have discussed this in my blog titled, “Why Knowing our spending habits is important before saving money”. Essential spending is very easy to project as long as you are aware of your this part of your spending. If you know how much you spend on it monthly, you will then be able to forecast how much you will spend on it in a year.  

2.) Non-Essential Spending – These are expenses for our own personal wants. This expenditure is hard to forecast especially if we are the type of person who spends a lot, without considering our current financial status. Whereas, if we are a frugal individual and we seldom spend for our own personal wants then the amount of money we spend should be very easy to predict.

Furthermore, some people save money first then spend it for their personal wants after a few months or years which can be considered as a foreseeable expenditure because they already know how much the goods and services cost, this is why some individuals are able to know how much they should save beforehand; vehicles and travel tour purchases are the common examples for this. 

In addition, there are always yearly occasions in a given month of the year like valentines day, wedding anniversary, birthday, Christmas and many more. we could predict our future spending by knowing the months of which our family will be celebrating in a specific event of the year.

Being aware how we spend and where we spend our money gives us the leverage on how we can ramp up our savings. It might sound as a contradiction to “spend money after saving”, but it is not. For instance, if we religiously save, let’s say 500GBP per month of our 1,500GBP salary, then we could spend the remaining 1,000GBP based from the quote above. With knowing our spending, we could ramp up our savings more. Here is what I mean, using the previous example 500GBP saved from 1,500GBP salary, let’s say that the known and projected overall total spending monthly is 750GBP, that means we have a remaining amount of 250GB which could then be added to our savings.  

C.) Your Projections

Now that I have discussed the basic components of our salary and spending. I’ll now move forward to projecting our future salary including the expenses. Below is an example of my self made income statement.

The chart above is a straightforward presentation of what I have discussed to you in this article. I have blurred the amounts in the side for privacy purposes. As you can see there are 4 columns, these are the time periods by year; starting from left to right, year 2018, 2019, 2020 & 2021. Yes, 2021 is already included only as an estimate of my possible income this year, in the consideration that 2021 will be a quiet year without to much worries and problems.

Furthermore you might wonder why my cash for safety and security are in red, because it is an expendable cash amount for emergencies. It has a specific purpose which is not for savings, investments, or personal and basic expenses. That means that when the emergency need arises, my wife and I will gladly use it without hesitation, and this will not even affect our financial stability at all.

To Sum It Up

What we need to always remember and take note when doing our financial projections, is to become mindful, aware and realistic. Base everything from our lifestyle of spending, our salary and most of all facts. The more we are true to ourselves the more accurate we will be in our projections because the foundation is not mere guess but from factual data. Henceforth, an intelligent forecast.

Knowledge is my Sword and Patience is my Shield,

Evan Louise Madriñan / elmads

Financial Mutant Level of Managing Money – Your Own Net Worth —>

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.