On Savings

Honestly speaking, it is quite an easy feat to overspend beyond one's means. I, for one, have continued to overspend even till this day. But with conscientiousness, it is possible to be the master over one's purse strings.

I will spell out how I do it - maybe you can give some comments on how I can be better at it. I have an Excel spreadsheet which states out my personal "balance sheet" and "income statement", as well as sheets where I keep records of my investment portfolio.

(1) Income Statement
Identify your sources of income. For students like us, our first and possibly only source of income will be the allowance that we get from our parents weekly/monthly. Personally, I give tuition to two GCE 'O' Level students on weekends, and work as a Teaching Assistant during school term. Being a Teaching Assistant in SMU is actually a real good deal - they promise you $500, they pay you $500 x 114.5%, because they contribute to your CPF too! More on the benefits of that later on. The last source of income we receive (for those of us above 21) will be the Growth Dividends that our friendly government hands out. In case you do not know, we will be paid on 1 April, 1 July and 1 October this year, Growth Dividend and GST Offset Package combined.

Next, identify broad categories which we spend our money on. For me, I created the following categories: Food & Beverages, Transport (MRT), Transport (Bus), Mobile Phone, Entertainment, Miscellaneous, Insurance Expense, Unit Trust Investment, Stock Investment, Savings. Most of these are self-explanatory, but the allocation is far from it. As many of us would have learned by now, it is important to pay ourselves first. Therefore, every month I deposit all my income into 1 bank account, and use internet banking to transfer the money to all my various accounts. I keep separate bank accounts for different purposes, so I do not mix my money up. A fixed sum will go towards my Unit Trust invesment handled by my financial adviser, another towards my Unit Trust investment that I handle myself, which is the Global Stock Index Fund. Every month I also set aside a sum of money in a separate bank account so that I can invest in shares when I hit a certain sum of money. The rest will be placed into my Cash Fund which is currently earning 1% p.a. interest (4 times that of a savings account) with Fundsupermart. With whatever is left, I allocate them accordingly among the other cateogories. Going up Maslow's hierarchy of needs, I naturally allocate the bulk of it to Food & Beverages, and transport. Most times my monthly entertainment budget is less than $50, but who needs to spend when you can watch HK dramas off the net and read free books from the library?

After a few months there should be a trend emerging - we will overspend on 1 account and underspend on another. But hey! At least the final sum should still be around the same - internal allocation is not important in the whole grand scheme of things.

(2) Balance Sheet
The balance sheet gives me a snapshot of my financial position. I update it every week so I know how close I am to meeting my various goals. I keep 2 months of my expenditure in my DBS account, and 4 months of it in my FSM Cash Fund earning higher interest. The rest of my money will be represented by my investment portfolio under Non-Current Assets. Note: do not invest your money until you have set aside at least 3 months of expenses for rainy days, at least that was what I did. You never know when you need money to pay for unexpected big ticket items and you don't want to liquidate your portfolio for situations like these.

The sad part is of course knowing where our liabilties are. University fees is probably our largest liability - thank God it is a non-current one. Nonetheless, its presence in our balance sheet should be sufficient to keep us thinking how we intend to pay this off. In the long run, auto-car loan and housing loan should make its way to the list as well.

Which leaves most of us as negative equity human beings. In other words we're kind of worthless right now. Just take it that we are all underperforming value stocks waiting to realize our intrinsic value =D and you should sleep better at night.

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There are a couple of things which I feel is extremely important for us before we start investing. For me, I have a life insurance policy (which thankfully is still being funded by my family while I am in school) which will guarantee me a lump sum of money in 20 years' time and a certain sum of coverage should I suffer from critical illnesses or death. Actually the most prudent insurance would be a term insurance, as the premiums are cheap and affordable. Most agents won't sell that to you because they earn least on those. So ask for it. Then I bought a Medishield plus which covers my hospitalization fees. So if i don't die but have to stay in hospital for a damn long time, i'm covered. And then, the beautiful thing about working as a Teaching Assistant is that there's CPF contributions so it keeps my Dependency Protection Scheme insurance policy going, so there's double insurance. Plus it's compounding at 3.5% and 5% respectively, which is trashing the hell out of my investments right now. Hah.

If all of the above have been taken care of, then it's time to start reading up on investment books to learn the basics of investing. My friends Loh Wei and Xin Hong have an immense amount of knowledge to share on their blogs which sometimes talks about investing - so be sure to catch those.

Oh and lastly, Giordano's GSS is great. 2 pieces of garments purchased earns you a 30% discount off both items. I got a pair of pants that was supposed to go for $59.00. I got myself a shirt at $26.00 and ended up paying for just the pants when the discount kicked in. Way cool.