Sunday, 22 July 2018

If you spend what you earn, you need to read this!

  Posted at  July 22, 2018 No comments
Ever spent money and wondered where it all gone afterwards? It happened to me.

I used to spend much of what I earn in the past. And I didn't remember much about whether it was on important things or the exact things I bought or spent on.

I just spent them all.

In this age where we live in the moment, enjoying the here and now is important to us. But we have mostly forgotten the benefit of delayed gratification.

Now, before one can learn how to INVEST, one first need to learn how to SAVE. Here is why everything starts from having some savings.

Warren Buffet's favourite rules of investing.

5 ways to save your money:

1. Budgeting and tracking your spending

Budgeting is important, but first YOU HAVE TO DECIDE AN AMOUNT TO SAVE BEFORE YOU DECIDE HOW MUCH TO SPEND. This means you decide to set aside an amount to save even before you spend what you earned this month.

I have an easy way to track what I spend on, and that is through transactions on my bank account. I copy that over to an excel spreadsheet and I can see what I spend on each month. It shouldn't be tough to categorise your spending into main areas like food, transport, entertainment. This allows you to see if you can choose better and more affordable options. This will give you an idea how much to allocate for spending after a few months of monitoring.

2. Have a "Saving" and "Spending" account

Linked with point 1, You need to have 2 separate bank accounts. One to credit your salary into which is your main saving account, and another just for utilities and general spending. E.g. you earn $4,000 per month. You decide to first save $3,000. and you transfer the remaining $1,000 into your spending account. No matter what, $3,000 will be saved each month and you must make it a point not to touch that money in the saving account. Combined with point 1, I have an excel spreadsheet that takes me less than 30 minutes per month to update and allocate my money for the next month.

3. Work within your budget.

If $1,000 is allocated for generic spending, try to work within the budget. Additional expenses that are one off and big ticket like travelling can be similarly set aside for and planned.

4. Never buy what you cannot afford. Never borrow! That is debt. Pay off debts asap.

Never buy items on installments or higher purchase because you end up paying more for it. Try not to use a credit card because the interest rates can be crazy and swiping the card too often can make you lose track of your spending. There are some debts that are unavoidable like student loans and housing, make your best plans to repay them as soon as possible to minimise the interest paid.

5. Invest to preserve the money from inflation.

If our money is sitting in the bank, we are losing the money to inflation. It would be wise to preserve the value in relative risk free instruments if we are too afraid to lose that money. To take it a step further, learning how to invest for income can also help to increase and grow the amount of money saved.

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Savings is a pre-cursor to investing. Unless we have a substantial capital on hand, we cannot really invest in the market even if there are opportunities around. Save, Save and Save!

Until Next Time,
K.C.

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Related topics:
1. About K.C. What is my story?
2. My 3Cs to money/investing

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You don't need to pay anyone/company to have a plan of your own and work towards achieving Financial Independence. Only we alone have no conflict of interest with our own money. "30 Year Old Investor" is a personal blog about a Singaporean's savings and investing journey.


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