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Saturday, September 12, 2009

Increasing your Savings - Reduce your expense


It is not how much you earn that is important, it is how much you keep that matters.

Well to link back to my previous post, I mentioned that you could increase your savings by putting your money with high-yield banks like ING Direct. Another bank which also gives pretty good interest rates, as I've found in the last couple of weeks is Emigrant Direct. Both banks offer 1.3% interest which you have to admit, sure beats the usual 0.25% here in Singapore, doesn't it? I wonder if Singapore have any high-yield banks. Anyway, as I caution again about the risk of currency fluctuation I also think that if you wanna diversify the portfolio (in your cash portion) with some foreign currency then perhaps this would be a good time. Currency conversion rates are after all at a all-time low. I will be blogging about portfolio construction in future posts for your understanding so please bear with me. Right now, it's just the basics that I hope to put in place for you so you can have a good start.

Anyway, moving on. The next way to increase your savings is simply to reduce your expenses. Now this may seem common sense, and it really is. However, you'd be surprise how many people spend without any knowledge of where their money goes on. I've been in that situation myself so I can perfectly relate and understand this phenomenon. One way to track your expenditure is to put all your incomes & expenses into a personal profit and loss (P&L) statement. No! It's not difficult at all. Rest assured that you'll find it extremely easy to prepare.

Steps:
1. Divide your page into two.
2. The left of the page, is your Income entries.
3. Enter all monthly income - net pay, dividends, interest, rental paid by your tenant, etc.
4. The left of the page is your Expense entries.
5. Enter all monthly expense - shopping, food, entertainment, necessities, facial products, car expenses etc.
6. Add the entries up per column.
7. See which column is more, the Income column or the Expense column

Here's an example. Pls pardon the format. I've been trying to arrange the format for the last 20 mins with no success.

Personal Income Statement

Income $

Net Pay 2,400
Dividends 50
------------
$2,450

Expense $
Credit Card 100
Clothes 56
Movies 100
Food 450
Insurance 80
Car Fuel 500
Car Maintenance 200
Parking Coupons 100
Wife 400
Mum 250
Handphone 100
Internet 80

Balance 34
------------
$2,450

So $34 would be what's left to save. Easy isn't it?

By doing this you can see exactly how much you can put aside in your savings account. Also, if you do this, you can see all the unnecessary expenses and thereby cut down on them. You'd be surprise how much you're spending in total when you put it into a P&L statement. A friend of mine who's a financial planner told me today that she attended to a client who didn't realize he spent $150 a month on Famous Amos & Subway cookies! That said, if you have problems balancing your finances, engaging a financial planner is a really good way to start maximizing your savings. And the best part? It's FREE service! That's right. You don't pay unless you buy a product that they recommend. Now before you misinterpret my intentions, I'm not recommending that you cheat a financial planner of his/her worth. Truth be told, the financial planners I know are worth their weight in gold. They allow excellent idea bouncing and I am extremely grateful for their help & assistance in planning mine & my loved ones future. So my advice is, find a financial advisor to start a saving plan tailored to meet your desired goal(s). In Singapore, I like IPP Financial Advisors as they are not linked to any Insurance company and can do a fair comparison to ensure that you have the best deals. If you live outside Singapore, I'm pretty certain that there are independent financial advisors as well. Worldwide Financial Planning, for example, is an independent financial advisor group based in UK. You can also approach banks and insurance companies like Prudential to assign you a financial planner to help you meet your objectives. We'll talk more about insurance & finding a good financial planner in future posts. Right now, it's good to broaden your knowledge about what's available.

In summary, by reducing your expenses, you allow more to be put into your savings which will enable you to start investing it earlier for faster growth & higher returns which if you recall, is the aim of saving up. With the help of a financial advisor, you'll be certain to achieve this much faster.

Good luck!
~K
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