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This is Part One of a blog post by a reader, Solace, who recommended a book, "The Little Book That Beats The Market" here in ASSI not too long ago.
All copies of the book were sold out within a day, I remember. I just checked and a few copies have become available again at US$6.48 each. For anyone who missed out the last time, check it out: The Little Book That Beats The Market.
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| Cheap Ferrero Rocher! |
I can identify with many things that Solace is sharing here including his love for chocolates! I also buy them when they are available at a discount and never at full prices! Apart from this, in investment, I also use a combination of fundamental analysis and technical analysis just like him.
All of us can learn or be reminded of things important about personal finance and investment in this guest blog post. Read on:
Solace says:
I embarked on my journey of investing when I was in my mid-twenties, fresh out from the university.
I embarked on my journey of investing when I was in my mid-twenties, fresh out from the university.
My objectives in investing are to:
1) Generate a return that can beat inflation
2) Create an income stream through long term stock investing
First, however, I had to get my backyard in order. What do I mean by this?
Emergency Funds
In life, we should expect the unexpected. We could lose our job or become seriously ill, for examples. This is why we need an emergency fund.
Emergency funds should be highly liquid. This allows quick access to funds, which is vital in emergencies. A saving account with any bank would do.
I believe one has to set aside at least 6 months' worth of emergency funds. Some may even set aside 12 to 18 months' worth depending on their situations. If we have children, liabilities or debts, we would have to set aside more, for examples.
I do not recommend that we invest with money that we cannot afford to lose. Such money should stay in the emergency funds. The volatility of the stock market could cause us to lose money leaving us in a fix when we need the money for urgently.
Managing Personal Finance
I believe how rich we are depends on how much we can save at end of each month. In my opinion, managing personal finance comes first before investing.
I always aim to save between 40% - 50% of my take home pay every month. Majority of what I save will go into my investment funds. From there, I can build up my investment fund over time. We should watch our expenses and save as much as possible.
Very often we can make changes to our lifestyles to save more money. For example, I switched from drinking Starbucks coffee to making my own coffee at home. I love chocolates and candies but I only buy them when they are selling at a discount. One can still enjoy life and be happy without excessive spending.
Car ownership is expensive in Singapore. We should avoid owning one unless we really need it.
By staying away from smoking, excessive drinking and gambling, we are also giving our savings a big boost.
Do take a look at the effect of deduction and distribution costs when evaluating a policy. Very often the deduction can be very high!
For me, I prefer Term Insurance. I do not like to mix investment and insurance. Term Insurance premiums are not as high and it does the job of providing insurance protection. With the lower premiums compared to Endowment or Whole Life Insurance, I can have more savings which means I have more money to invest for better returns.
I would like to point out that for young people who have just started working, they might not have so much money. Term Insurance is a viable option, but very often insurance agents/financial advisers will not mention this.
Read Part Two: here.
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