As the cliché goes… “the more money you earn, the more money you spend”
And for some people, they even spend more money than they earn – just to show everyone that they afford to buy the newest gadgets, the hippest clothes, and the most recent car.
Sad, but true, most people don’t think of the future, and would rather spend everything now as if life will shower them with endless supply of money.
In this very materialistic world, it is very difficult to save. Many would argue that they don’t earn much every month – so how can they even start saving, a typical life of living paycheck to paycheck.
I don’t necessarily agree. If you can afford to buy those gadgets and clothes, then you must be earning enough to save some of it. It just takes discipline and will power.
Then, trick your mind – tell yourself, “ I earn less, therefore I have to spend less”
If you earn 20K (after tax) per month – automatically save a portion, let’s say 5K, and set it aside where you can’t spend it unless it’s an emergency. In effect, it brings down your salary to 15K – then you have to psych yourself that you only have 15K to spend. Do it every month, then you’ll find yourself with a substantial EMERGENCY FUND for the rainy days.
Emergency Fund is a 6-month to 1-year worth of your living expenses to tide you in cases of emergency, like loss of job, sickness, etc. This should allow you to get up, and find a new job to get things back to normal. In the event that you lose your job, how can you concentrate in looking for another one, if you’ll be busy thinking where to get your family’s next meal, or how to pay for your monthly bills.
Set aside this emergency fund, where it can grow in time (though such money is readily available, no one would really want to be in a position where you would be forced to use your emergency fund – nobody wants to lose his job, right?). Then, you have not only saved for an emergency fund, but such amount can grow, and you can use the interest to finance your wants like to buy new gadgets, clothes, etc. or even to increase your investment portfolio. Most people keep their Emergency Fund in a separate Savings Account, which probably earns less than 1% per annum. I suggest, you find other tools, which can give better growth, but as accessible and liquid as a Savings Account. You can choose to put it in Time Deposit (most Rural Banks give higher returns than Commercial Banks), Mutual Funds, Treasury Bills, etc.
Only after you have achieved in saving your Emergency Fund, then you’ll be ready for the next phase – Investing.
If you continue your healthy habit of saving every month, you will continue to accumulate more money even after you have completed saving for your Emergency Fund. Those excess funds can now be channeled to other investment tools that can give you even higher rates of return. As they say, “the higher the risk, the higher the return”. Since these are excess funds, you can be as wild as you can in satisfying your investment appetite, anyways you still have your regular job to pay for your usual expenses, and your emergency fund just I case the worst happens.
