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

Rule 1: Start Saving

A bird in hand is worth two in the bush.

I'm sure that since you're reading this blog, that you must be in some way searching for ways, ideas and answers to attaining your financial freedom. Believe me when I say I can relate to what you're going through.

So how should you begin in achieving you financial freedom?

The number one rule is to save. In Robert Kiyosaki's book, Rich Dad, Poor Dad, Robert advocates the wisdom of paying yourself first. This is imperative if you ever want to become financially free! As a famous line goes, "If you want to get through your days, save 10% of your pay every month. If you want to be rich, save 20%."

Few things to note:
1) The 10% or 20% that you save is of your total gross income. Not net.
2) Saving 20% and leaving it in the bank will not make you rich unless you're earning a 5 or more figure sum a month.

So why save 20% a month if this won't make you rich?
The answer: The money saved will reach a prominent sum, which will enable you to invest to generate higher returns,

Aside from those rich people who either inherited or earned their wealth by their entertainment talents, most rich people started by being great savers. The most famous example is Mr. Warren Buffett, the second richest man in the world.

To use a rather conservative example of how savings could increase your wealth, imagine if you were earning a gross income of $1,800 and set aside 20% ($360) every month into your savings account, that'd be $4,320 a year excluding any bonuses or interest gained from the bank rates. If you factor in these extras, chances're this would total to about $5,000 a year.

While this figure sure seems little, it sure beats having $0 in the bank, doesn't it?

Now if you were to invest this $5,000 into an investment vehicle that yields a pretty conservative compound interest rate of 10% p.a. for 10 years, you'd be having a total of $12,968.71. Isn't that amazing? For one year's worth of saving, you could turn $5,000 into $12,968.71 simply by choosing the right investment vehicle and waiting. And think about this. What if you saved $5,000 every year and invested it at the same compound interest rate of 10%? Can you imagine getting back $12,968.71 every single year from the 10th year onwards? That's an extra $1,080 for your monthly expenses! Fantastic!

Here's another tip in increasing your savings faster. Put your money into high-yield banks. These are banks in your country with high interest rates for example ING Direct. Take note however that while it is possible to put your money into a foreign high yield bank, you also run the risk of currency fluctuations. That said, these banks will help your savings grow faster and enable you to invest earlier when opportunity knocks.

So don't delay. Start saving today!

Cheers,
~K

Getting Started - Finding Your Guide

"If a man does not know to what port he is steering, no wind is favorable to him." ~ Seneca

Now, in order to start on the road to financial success, one has to have a guide. Without a guide, the sheer amount of investments vehicles, ideas, "hot" tips and what not can very easily confuse the beginner investor and cause much frustration and discouragement. This is where mentors play an important role.

A point to note. Mentors need not be people. Books, websites, newsletters, these all are packed with info on how to start. Again, the amount of info you'll be facing may be tremendous but the more you understand and learn, the more invaluable this knowledge gained becomes in making a decision and coming up with a "plan of action". The idea here is just to get yourself familiar with the investment types, the jargon, the pros and cons, the risks. This becomes important once you do decide to seek help from experts. Knowing the jargon & technical terms can help you communicate better with advisers and can help you understand and focus your aim. At the end of this post, I'll leave a couple of recommendations as a starting point for those searching for your own financial independence.

In mid last year began my first glimpse into learning the importance of financial security. The welfare department at my workplace organized a full day seminar entitled How to Plan Wisely to Reach Financial Freedom held by Mr. Dennis Ng, who runs a training company, Master Your Finance.com. Unfortunately, as my eyes weren't opened then, I had not been able to take full advantage of the information given on investing. However, that one talk made me realize the importance of saving for my future and aiming to be financially free. Life changed from that day onwards.

That said, I would advise you to attend a talk on financial independence, investment and/or savings. If it's free, so much the better. But if it's not, the amount you put down could very well be the best investment you would ever make if it helps set you straight and plunks your feet onto your path towards financial freedom. No matter where you are, there should be companies which hold free talks ever so often. One such place to check would be your country's department in charge of the retirement account, 401K (in US), CPF (in Singapore), etc. Some brokerages too like POEMS hold talks but these tend to be more towards stocks, options, forex and other investment vehicles that might be too risky for the beginner investor. Nonetheless, these provide good exposure and knowledge for future use.

So lastly, the recommendations.

Books:

1. Napolean Hill - Think & Grow Rich

2. Robert Kiyosaki - Rich Dad, Poor Dad

3. Adam Khoo - Secrets of Self-Made Millionaires

Wesbites:

1. Investopedia.com

2. Investorwords.com

3. Also, sign up at 21st century investing for free videos for beginner investors.

4. You Tube is a treasure trove of free information. Don't let it go to waste.

So best of luck and good journeying. I'll see you all soon.

Cheers,

~K

The Journey to Freedom Begins With a Single Step

My pay gets in this week. Sounds like a celebration waiting to happen doesn't it? Long awaited wants can finally be enjoyed. Dinners. Movies. Clothes. Shoes. The list goes on. I'm sure many of you can relate to this. Some of you may in fact be living this way still. And truthfully, I used to indulge in this for 9 years of my working life. That is until I woke up one day, realized that I only had 19mths to go before my work contract expired and then I'll be jobless. Yup, that's it. No more "Dinners. Movies. Clothes. Shoes." Zilch! Unless I get a job that'll pay well enough to maintain my current lifestyle. And you know what's scary about this? The fact that I was dead broke. And life for me was about to be rebooted at the age of 30. The age where people were already in the prime of their career, settling down, having families, getting a house. But not me. Nope. I, on the other hand, would be just starting my career proper. A scary thought indeed.

Well, time has passed since my shockingly epiphanic moment and I've another 14 mths to go before I leave. Lots have changed. The biggest being how my finances are managed now. And how I've put together a portfolio that has not made me my first million regrettably but has allowed me to feel much better about myself when I finally leave in October next year to face the unknown world. And that is what I will be blogging about. Hoping that my experiences will help you especially those of you who are in or in future will be in the same situation as myself. Now I can't promise that I'll show you the road to being rich. But I do believe, that with discipline and time, what I'm doing will bring me more stability and allow me to retire old and happy to spend time with my loved ones without worry of tomorrow.

A famous quote goes like this, "A wise man learns from his mistakes. A wiser man learns from the mistakes of others."

I hope you'll find your happiness, your freedom. And if anything, I hope you take away something of value to you from my sharing. Good luck in your future and God bless.

Sincerely,

~K