They say money is supposed to be spent, but how we spend it makes all the difference in the long run.

While I care less about where you spend your money, I still want to share a principle I learned. These methods are all based on the concept of spending in relation to your bank account. By thinking in terms of percentages, living within your means becomes easier.

Here are four ways people would generally spend their money in descending order.

Tier 1: Utang (Getting into Debt)

At the lowest tier is buying things using debt.

This should be the last option since you're borrowing your future self's money. The danger of this strategy is you're putting yourself in an endless debt cycle that can trap you. If you get deep into the debt cycle, you'll spend the rest of your adult life paying for your advanced expenses while borrowing money to pay for your current expenses because you'll have nothing left on your salary.

For example, you're earning P50,000, but you're spending P70,000.

Tier 2: Simot (Consume Entirely)

The second tier is spending your paycheck in its entirety.

Living paycheck to paycheck is another dangerous way to live, but it's better than getting buried in debt. The positive thing coming out of this spending habit is that you only need to find ways to increase your income then you're out. It can be to find a higher-paying job or get a side hustle.

For example, you're earning P50,000, and you're spending P50,000.

Tier 3: Dakot (Handful)

The third tier is spending most of your income, leaving some left.

Spending a considerable portion of your income is not great, but it is still better than having nothing left or getting into debt. And the money that's left can be a starting point to build your emergency fund and savings. It would also be easier to climb to the final tier.

For example, you're earning P50,000, and you're spending P45,000.

Tier 4: Kurot (Pinch)

Finally, at the top of the spending hierarchy is the kurot, meaning you'll only spend a small fraction of your money.

This is an important principle because we need to learn how to live way below our means and increase our savings and investments early. This way, we'll avoid getting into a paycheck-to-paycheck lifestyle and avoid getting into unnecessary debt. Also, the discipline you build will be a great foundation for the future.

For example, you're earning P50,000, and you're spending P15,000.