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The Pinch Principle, a Must Have Mindset

Do you pinch a little or do you grab your savings by the handfuls?

What is the “Pinch Principle” all about? This is a truly remarkable mindset to manage your money spending in order to save more money effectively. Originally called Kurot Principle which means “a small pinch”.

To better understand this, I will tell you a story of a person who wants to buy a smartphone worth Php 30,000.00. Just so happens that he has Php 1,000,000.00 in savings. Realistically, can he buy himself an expensive phone?

Yes he can, because Php 30,000.00 is a small pinch taken from his savings.

Now a second person wants to buy a smartphone as well, also worth Php 30,000.00. He has savings in the bank worth Php 100,000.00. He goes right ahead and buys a new smartphone in cash! So what would you call that?

A handful – he didn’t just pinch off a little bit of money, he grabbed a handful of money from his bank account!

Okay, now here’s a third person, who also wants to get a smartphone for himself, but he has no savings whatsoever.  He goes ahead and buys the same Php 30,000 phone anyway.  So what do you call that now?

Debt. He is now in debt.

So the question is: which of these three principles are you currently using as far as your financial lifestyle is concerned: the pinch, handful, or debt?

Is it any wonder why we usually find ourselves penniless or even buried in debt? Most of the time, we don’t pinch; we grab money by the handfuls. Or we borrow money, leaving us in debt. If you want to effectively manage your money, you have to learn to pinch instead. If you must buy something, just pinch a little bit off, not grab handfuls or borrow. Understand that if this is what you do, you can be assured that you will eventually learn how to wisely spend your money.

To understand this, let’s observe the lifestyles of the richest social group in the Philippines: the Chinoys, or Chinese-Pinoys. Why do you think they live such prosperous lives? Because they practice the Pinch Principle while the regular Pinoys practice the Handful Principle.

The Mindset of the Pinoy and Chinoy Businessman

Here’s a story of two businessmen who started their own enterprises: one was a Pinoy, and the other, a Chinoy. They both started off with a working capital of Php 100,000.00.

After the first month, our Pinoy business owner made a profit of Php 10,000.00. What do you suppose he bought for himself? He treated himself a brand new smartphone thinking he definitely deserve it for all his hard-work. Our Chinoy business owner also made a profit of Php 10,000.00. What do you suppose he did with the money? He added it to his working capital.

So how much does the Chinoy businessman now have in capital? Php 110,000.00. Meanwhile, the Pinoy businessman still has Php 100,000.00, but he does have the latest phone with 3 cameras! That ain’t so bad now, is it?

Let’s continue with our story. After a few months, their businesses are doing rather well. Our Pinoy businessman made Php 50,000.00. When any Pinoy has this sort of money, what do you think he does? He goes out and splurges on a home theater system with a flat screen LED TV! Our Chinoy friend also made Php 50,000.00, but what does he do? He adds it to his business once more. So how much is his working capital now? Php 160, 000.00!

Fast forward a few more months: the Pinoy businessman makes Php 150,000.00! When a Filipino has this sort of money, what does he buy? Either he treats himself to a second-hand car, or he puts a down payment on a brand-new one. When the Chinoy businessman has Php 150,000, what does he do? He puts it back again into the business! So how much does he have in total now? Of course he got Php 310,000!

Do you see what we’re getting at here?

Every month, both businessmen make the same amount of profit. Our Pinoy friend makes some money, then goes ahead and buys new stuff he only dreamed before. In the end, his business still works on a Php 150,000.00 capital. On the other hand, our Chinoy businessman makes some money, then puts that back in to his business.

Eventually, the Chinoy entrepreneur was able to save up Php 1,000,000.00! What do you suppose he does next? He approaches one of his suppliers and said, “Hey, if I buy a million pesos worth of inventory from you, will you give me a discount?” And what do you suppose the supplier says? “With that sort of volume, sure I’ll give you 5% off our regular rates!”

Our Chinoy friend takes it a step further: “Hmm. What if I give my customers a 3% discount, and I keep the 2% savings for myself?” This only means that he can lower his prices a little bit more.

It just so happened the respective shops of our Chinoy and Pinoy business owners are situated right next to each other’s.  They sell the same products, offer the same services.  Given the situation, where do you suppose would you make a purchase?

The Chinoy’s, of course. Because it’s the same exact thing but way cheaper. And what do you suppose would happen to our Pinoy businessman? He’ll start losing customers and profit. And then what do you think would happen? He’ll start selling off some of his stuff to cover his expenses. That car he bought for Php 150,000? He’ll start peddling it around. Our Chinoy entrepreneur can afford to pay it cash upfront, but he makes an offer, and haggles the price down to Php 80,000. And because our Pinoy friend needs the cash right away, he sells the car at a loss. Now the Chinoy businessman got himself a car at a bargain!

After a few months, the Pinoy’s Php 80,000.00 is about to run out. So what does he do next? He sell off his home entertainment system, this time for only Php 20,000.00. Our Chinoy friend also snatches it up. And then eventually, the Pinoy business owner sells off his smartphone. For how much? For only Php 2,000! Soon, the Pinoy decides to close up shop. Most likely, he’ll end up working for the Chinoy.

And this, pretty much, is the story of our country.

There used to be a time when the Pinoys were more prosperous than the Chinese. How do you suppose that changed? What seems to have been the problem here? We Pinoys are great at grabbing money by the handfuls! The Chinese are great at pinching just a little bit off their savings!

When I told this story to a bunch of people, someone remarked, “Ma’am, that can’t be true! I know a Chinoy, he splurged on a BMW. That’s a P5 million car! That can’t just be a small pinch?”

In all likelihood, the answer would be yes. Yes, he probably did practice the Pinch Principle. When he bought that car, he probably had Php 100 million in savings! So that’s just a pinch! Are you still with me?

A Hand-To-Mouth Existence

Where do you suppose you’d find people living a hand-to-mouth existence? The slum areas? The depressed neighborhoods of Manila? While that seems to be the usual connotation, but if you really want to see these kinds of people, look no further: Just look around you – you’ll find them anywhere.

Let me ask you this. If you don’t get your paycheck this month, do you think your family will survive? If you don’t have a credit card now, or if you lose your job this very moment, how many days do you think would your family last, living a decent lifestyle? The truth is: if you lose your monthly paycheck, you’re not going to make it.

For Chinoy businessmen, even if they don’t make a profit at first, they will eventually continue living their prosperous lifestyle. Why is that? Because they’ve already put in the hard work for so many years, and they’ve learned to just pinch a little off their rewards. Which is why so many Chinese-Filipino families now reap all the benefits. As for the regular Pinoys, if we don’t work, we don’t eat.

In a way, this is a painful realization. Even as we grow old, we are still in that perpetual state of working and working. How many Filipinos 60-years-and-up do you think are there still making a meager living? Don’t you think it’s about time, starting today, to put in all the hard work, and avoid grabbing your rewards by the handful? Delay your gratification a little?

You know what’s a more painful realization? One day, you’ll find yourself wanting to work, but you just can’t. You’re already old. Why? Because you’ve led such a decadent lifestyle when you were young. You wasted your youth and good health back then on endless partying, YOLOing, and other vices.

Here’s a question: is it wrong to buy yourself good things? The short answer is “no”. As long as you’re just pinching a little off the top. Next time you see someone sporting a rolex or an expensive bag, don’t be too judgmental. Who knows? Maybe they really just pinch a little off their savings. At the end of the day, what’s happening to other people is not important. What’s happening to you, that’s all that really matters.

The Bible says in 1 Thessalonians 4:11, “Make it your ambition to lead a quiet life. You should mind your own business and work with your hands, just as we told you.”

What Do You Think?

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