3 Tips for Personal Finance

Getting to Grips with Personal Finance is a lot like Building a House

Imagine personal investment is like building a house, it is a strategic project. You prepare yourself with fundamentals, plan when you want to start (the earlier the better), draw your layout and decide where/how your house is built. You can hire construction workers and agencies to help you out but you should always equip yourself with the required knowledge and ask for external advice. personal finance

This topic is based on my personal experience and is a culmination of my own learning and advice from seniors in financial planning and investment. However, one thing that I have learnt is that this concept is replicable.

In this article, I will explain the core components of my imaginary house which you can use to tailor to your own house in your own way. We share the same house structure (a foundation) but the interior can be unique to you and your wants/needs. So without further ado – let’s build a house.

Educate Yourself with the Fundamentals

So you want to construct a strong and stable house, where do you start? First of all, you need to get to grips with the core competencies of DIY, or in this case finance.

I still remember that aha moment when I started my first investment. I was 22 with some savings in my bank account and the bank offered to help me with my own investment. Further justifying what I already believed – that letting my money stay still is not a smart choice. I was naive and clueless but the given reasons from the banker sounded plausible so I signed up for it.

The market was turbulent right after my amateur investment and I urgently needed my money back for my higher education studies. Therefore, I withdrew my investment at a loss of 200 euros. It was a big money for me as an undergrad. 6 months later the market recovered. Looking back, reflecting on my investment and contemplating the opportunity that I missed, there are several lessons I learned from my first investment mistake. 

First, patience is the key, this is something I also learned later in my journey with my investment in the stock market. Second, I was rushing and failed to educate myself with sufficient knowledge and understanding of the stock market and finance fundamentals. The third lesson leads to my next discussion point.

Be Persistent with Your Saving Target.

Next up is putting on your architect hat and designing the blueprints. Plan out every detail thoroughly, leaving no question unanswered.

Since tripping and falling spectacularly over my first financial hurdle, I got back up, dusted myself off and educated myself. I came to the conclusion that in order to pursue investment I needed to be ready and have sufficient capital to realize my future investment plan. What is that? You ask. Well, it’s essentially how much money I should be saving/spending/budgeting/etc. 

Every month, I deposit the same fixed amount (60-70% of my net income) to my savings account and the rest is used to cover my expenses (Below graph). I am not the most disciplined person. Budget overrun happens to me just like to everyone else. In such a case, I revisit my monthly and yearly financial planning and calculate the deficit. 

Problem-solving is important too (This is the best practice I learnt from my corporate work). I used my ABN AMRO bank account app which shows me the breakdown of monthly expenses and identified the reason for my excessive spend for certain months. My biggest weaknesses are the 50% I spend on eating out and 50% from my frequent shopping extravaganzas. Don’t look at me like that, we all do it! Therefore, I cut down on delivery food and cook at home more often. Shopping is the most problematic issue which I still work on :).   

In conclusion, plan ahead, write down your goal, stick to it and revisit your finance every month/two months so you can make adjustments and corrective actions to mitigate overspending habits. Take things at your own pace and identify your comfortable saving amount based on your needs and current situation. My plan may not work for you but it works for me. We are all different but share the same goal. 

I feel that saving money and being frugal really doesn’t get enough attention in the world of personal finance. It’s so underrated, and for what? If you take the time to consume all the articles, books, videos and podcasts on saving money, as I have, you will see those numbers in your bank account stay at their peak.

“Don’t save what is left after spending; spend what is left after saving.” – Warren Buffet 

With your new-found saving strategy optimised, the next step is to reinvest. Saving comes first, investment comes second, it’s the law of the universe I read somewhere. They are complementary, you can’t have one without the other, which brings me to my next point.

Be ready to make your own decision.

Not to brag but I have been reading about finance and the stock market for about 6 months now, so I have become a bit of an investment connoisseur. But, as my coach always says  “ apply more, don’t just read”. Needless to say, I am much more prepared now compared to when I was 22.  Not to mention, I have a small trusted network for investment advice when I need it. It is important to have external opinions to validate your personal choice. But the final decision is always yours. It’s your call. 

“By far the best investment you can make is in yourself,” Warren Buffet

For me investment comes in many forms, including paying for education, getting your driving license, buying your house, investing in the stock market, you name it. Whatever my chosen investments are I spread them out into prioritised chunks (another classic advice I have learnt). 

Breakdown on Monthly Net Income and Monthly Saving.

Ok so this is all well and good, but why should I invest? I hear you say. Well, I will let the data speak for itself. The table below shows you the return on investment you can achieve by starting earlier in life when compared to later in life. The phrase better now than never has never been so relevant.

Source: U.S News 

Where can I find investment opportunities?

    • Via banks/investment funds (aka financial institutions): this way you have someone to manage your own portfolio. Basically, the bank decides which sector they want to invest in on your behalf. They will show you statistics explaining historic data or average yield rate of different packages and present your portfolio sectors. Different options are associated with different risk levels. Do your homework and choose wisely. Don’t make the same mistake as I did. 
    • Individually via e-trader platforms: this is DIY. You need to know what you are signing up for and will be responsible for all the risks, not to mention the amount of effort you have to spend to maintain your own portfolio. But there is a catch that you can play safely on your own too. (I will mention more in my next article, I have a lot to share about individual stocks, index funds, and bonds, etc.)

Well, that just about wraps it up ladies and gentlemen, we built a house together, a house of healthy finances and a promising future. I hope you learnt from my blunders and successful practices and I can’t wait to learn about your house-building projects to come.

Authors note:

Within my investment break down, I mentioned investing in the stock market. I will elaborate more on my thoughts about investing in the stock market and will demonstrate in detail about a thing or two that I have learned from my investment since the Covid 19 has started in my next article. Please look forward to it, it will be a real eye-opener.  Lastly, I will invite some special guests to share their thoughts on the personal finance and investment series. So stay tuned for our next posts. personal finance personal finance personal finance 

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