[Building Blocks]: Understanding your FIRST step to financial freedom!

Hi all!! It’s been a while since I did a [Building Blocks] post. Haha if you were an avid reader of my blog, you will realise that I have been posting quite a bit in [Eye Candy], the segment where I do some analysis on stocks I am researching. Yup I have been rather busy digging through the stock market for gems that I could put my money into. As you can see from the title of the blog post, today I will be trying to help you understand your FIRST step to financial freedom. This FIRST step is essential as it lays a foundation for you to work your money. In other words, in order to INVEST your money you need to embark on this FIRST step.

So what is this FIRST step that is soooo important??

The answer is: SAVING!!

SAVING image

All of you might go “Duh” but how many of us are actually able to really save up your salary or money? We often have the goal to save up this amount but most of the time we give in to certain pleasures and decide to spend almost all our salary away. I know this because I myself is guilty as charged haha!

When I entered the army, its the first time whereby I was drawing a constant stream of income (unlike those adhoc jobs I did last time). With sudden inflow of money every month, I did not have a concrete saving plan and hence my expenses were very high at the start. In some months, I may be broke without the month coming to an end. I also know of friends who are like that too! I only started taking charge of my savings when I started investing as I  realise how meagre my savings are.

So I started reading up and created a system to force me to save, but before that let’s look at

1) The importance of saving

Saving is an important first step to your financial freedom because without savings, you will not be able to use that money to work for you. Imagine yourself spending every dime of your monthly salary, how will you be able to put any money into investing in stocks, property and so on. So if we ourselves do not understand the importance of saving it’s hard for us to grasp the power of investing and compounding!

2) Saving can be automatic!

Yes it can be. Nowadays with the advent of technology, most of us definitely have an ibanking account with any of the banks in Singapore. And it’s super easy to automate the entire process of saving. Let me show you how.

First, you will first need to set up 2 bank accounts

Bank accounts pic

Yes, create 2 separate bank accounts, one for purely savings, the other for expenses only.

Secondly, credit your salary into your savings account. After doing that, calculate a rough percentage of your monthly expenses. For me, I save about 75% of my salary and spend the other 25%.

Finally, set up an automatic transfer between the two accounts. Transfer the percentage for your expenses from your savings account to your expenses account.

Automate saving

Yes the end result should look something like the flow chart above.

3) Don’t touch your nest egg for fun!

Yes! You read it right! Don’t touch your nest egg (savings) for fun (entertainment). Put it another way, don’t spend your savings!! For me, I practise that by not bringing out the ATM card that belongs to my savings account. That way I will not be tempted to dip my hands into my savings.

Of course with that said, what if its an emergency and you need the money? If it’s an emergency, then I guess there will be no choice but to tap on your savings. However, if possible try to reduce your expenses in the subsequent months to repay the amount you took from your savings.

One point to note is that you should always ensure you plan a right amount to be set for your expenses. I tried to save 90% of my salary before, but it’s just too tight on me and I tend to keep tapping onto my savings because I ran out of money. So plan the amount carefully so that it does not give you ANY temptations to tap into your savings!!

In conclusion,

you might say that as a young person, saving is very insignificant to you since you probably can only save a few hundred a month. But take that few hundred and multiply it by 12 or 24 months you are looking at a few thousands already. Think BIG! And that’s not all, use your nest egg to work for you through INVESTING! Slowly but surely, this small amount will grow and compound.

saving final image.jpg

I really like the picture above. In the very first picture I showed you a hand dropping coins into a jar which signifies saving. And with your savings, it forms the soil and fertiliser to grow your money just like the above picture. Savings is a cliche topic and whatever I shared above may be shared by many others too. But, what I think is most important to you is TAKING ACTION to really start your saving plan because saving is the FIRST step to your financial freedom!

** Haha side note before I end. I have been toying with the idea of helping people who are keen to get into investing. I am still working out how should I deliver it. So do stay tuned for more update on this! 🙂 **

 

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