Investment Process- The seed for investment

In my previous post, I have mentioned The Power of Compounding.
How do we actually create that effect?
There are a couple of things which we need to have:
1st of all, the seed for investment which is the initial sum. Follow by the right investment vehicle to create the gain per annum which i shall focus on in the next post.

The Seed for investment usually starts from savings. Any amount of savings per month is good and needless to say, the more the better.
Disciplined savers are usually those who can "park" a percentage of their income every month once they received their salary.
There are those who needs to be "forced" in order to save. It can be done by signing up a savings plan which deducts a sum of money from the bank account every month on their pay day, like the MSA for POSB.

As for those who has no savings at all, my advise is to start saving now. No matter how small the amount, it makes a difference.

So, if you still feel you cant save any, I would suggest you try this method:
(1) List down all your monthly expenses.

(2) Subtract the monthly expenses from your take home pay.

(3) Set aside this amount of money (into another bank account used for savings) on your payday. In this way, you will force yourself to save. It is probably good to include a little margin in your monthly expenses (if possible) in case some items/bills are under estimated.

(4) If after subtracting the monthly expenses, the balance amount is zero. It is necessary to re-look at your monthly expenses and re-assess each item.

What expenses are considered as a necessity?
(1) Transport expenses:
Includes MRT, Bus and occasional taxis. If you cant save a single cent, you should sell away your car.

(2) Insurance premiums:
Basically, the rule of thumb is about 10% or less of your monthly income. Anything more than that, could be excessive.

(3) Food:
Limit or reduce the number of meals at restaurants.

(4) Income tax payment:
No choice. You cant run away from this.

(5) Allowance for parents:
Have an agreed amount you can give per month.

(6) Bills:
Look out for promotion by Telcos on broadband and mobile plans for example.
Consider subscribing to cheaper plans.

(7) Loans:
Always keep a look out for cheaper interest rates for housing loans for example. The reduced interests rate could help reduce the payout amount.

(8) Entertainment:
Consider a budget to spend every month. Review it all the time and consider reduction in amount if possible.

So, to end the post, here's 2 famous quotes:
"Save a little money each month and at the end of the year you'll be surprised at how little much you have. "
-Ernest Haskins


"Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy. "
-Groucho Marx