Before you start your
investment journey, you must have saving first.
How much you save from
your income at each month? Do you face difficult on daily expenses at the end
of the month? At the beginning of the month, you enjoy your life by consuming
your salary without suitable limits and turn into difficulty situation where
you found out that there was nothing left in your savings to “survive” on the
remaining days at end of the month. In other terms we call as live from
paycheck to paycheck.
This situation can be
solved if you have properly planned your income before consuming it. Before you
pay your salary to others, you should save part of your salary first as your
fixed saving. This fixed savings can’t be used as it served as emergency funds that
only to be used when you lose your income in certain period. You can save for 3
months or 6 months depend on your age. If you still young and healthy, you can
save for 3 months as the chance to get another new job will be high. But if you
are in elder age, you should save for 6 months as the chance to get new job
will be difficult compared to young adult.
Your saving should
cover all your fixed expenses and daily life. The fixed expenses here mean the
expenses that you must pay to others such as the house loan, rental fees, car
loan and insurance. While daily life expenses shall include the items that
support your basic life, such as food, etc. It should not include your luxury
items which can’t provide extra income and place your financial burden.
After you pay part of
your salary after tax to fixed expenses, the remaining income shall be used to
support your daily life basics. Before you consume the remaining income, you
must save a fixed amount from them first, then after that can be consumed for
your personal use.
How much you should
save per month? We will look into another article soon.
Remember! Before invest,
you must have sufficient savings that cover your daily life.
I save around 30% of my employment income each month. Is this ratio similar with most people who save? Are there other ratios that people are using?
ReplyDeleteHi CYL2039, the ratio may different compared to others as some of them may have high fixed expenses such as house loan. My ratio is about 17% from my income each month. Your ratio is high, keep work!
DeleteI believe most who are in the financial markets will look forward to saving 100% of our earned incomes and just rely on our investments (what we call financially free).
DeleteHi investing wolf, yes, everyone will look forward to put their 100% as their saving in the investment. but what happen if the person need urgent money due to unforeseen events? if they sell their shares, it may cause some loss to him after deducting the broker fees, etc just to get the sufficient cash flow to him. so it was advised to save for future emergency reserve.
DeleteThat's y we always need to have a bucket of emergency cash in case rain decides to come. Once you have all the legs of a chair set up, then only can you happily sit around and enjoy life with your earned income.
ReplyDeleteYup! let the money work for you!
Delete