Saturday 24 September 2022

4 tips I have learned on how to manage my finances & when I started investing

Everyone starts from somewhere in terms of your financial journey. Of course, if you can start early and start doing things “right”, it gives you an edge and the good habits compound. Through my financial journey since 2017, I have read numerous articles and I think the below 4 tips can help many people in managing their money.

Budget and track your expenses or at least, be aware of your spending habits

It’s important to know your expenses and how exactly your money is being used when your salary comes in. Tracking your expenses might not be easy and to be honest, I don’t track my expenses but I make sure at the end of my credit card billing cycle, I am aware how much I have spent, whether I have overspend on that month and if so, which was my highest spending category.

Having a budget helps as well and working to stay within the budget will allow your savings and amount to invest be standardised monthly. Of course, the first few months when you get your pay, you need to try out different budget amount to see which fits you and once it is finalised, make sure to stick to it.

Read more: Will retirement be a thing of the past? | Working till old age and why it is needed

Keep yourself updated on financial information and news

You don’t have to really keep yourself so updated on financial news but know what is happening in the big picture to prep yourself if there is going to be fluctuations in your portfolio. Just like how you want to know what’s happening in the world, it is also important to know the companies in your portfolio or at least what the macro-environment is like if you are buying into index ETFs.

More importantly, know the products your money is in. If you have a REITs portfolio, know the instrument that you are using to invest (eg. brokerage) whether it is custodian and how safe your assets are also, know what REITs are in the portfolio or what individual REITs you want.

Read more: F.U. Money | What’s the right amount?

Of course, if you want to do automated and passive ETF investing, at least understand the ETFs or investment products so that if there is any big news, you would be aware. It is also important to check or rebalance your portfolio. Although there are also times when not checking your portfolio or not being updated can be a blessing in disguise, it is good to be updated and also to know the financial agents who help handle your investments to make sure they are doing well.

Knowing your risk appetite

This is important to ensure you are not making yourself anxious based on the investments that you are making. Also, knowing your risk appetite can adjust your portfolio accordingly or contributions and funds being put aside.

For example, if you are a low risk person, you can allocate a portion to the stock market and add bonds into your portfolio to ensure that it does not fluctuate too much. Being low risk might mean no or a very minimal position in cryptocurrencies in your portfolio judging by how volatile it is. As long as it makes you sleep soundly in the night then I think it should be done that way even if in the long run, your returns are not as huge.

Or you can adjust your risk based on your age and allocate your funds accordingly making sure that you have sufficient emergency funds so that you will have something to fall back on in times of difficulties. After the UST/LUNA crash, I re-looked at my risk appetite and realised that I have been allocating way too much to cryptocurrencies. I am glad I did not cash out my stock holdings to move to crypto completely and instead will lower the allocation to crypto and increase my DCA-ing to ETFs.

These are things that you might learn along the way and it is normal to make mistakes as I find that I know more about myself and also reinforces why I wanted to start investing. It is really in times of difficulty and volatility that you learn how you feel and react for example the current down time is really a testing period and it provides a great opportunity to see your character and how you respond to it.

Read more: Should I buy individual stocks or ETF?

Start investing, automate until you have a substantial portfolio/cash holdings

Lastly, you have to take the first step and get started. You can read up lots and research but you have to get started as they always say time in the market beats timing the market. I would say it is a lot easier creating a brokerage account and setting your automated buys compared to the past where paperwork could take up to weeks before you can get your account.

Of course, seemingly easy and convenient, there might still be inertia to get started and you need to overcome it. For me, one of the best tips is to automate my investments as I found that helped me the most in building it up, the first few months might seem slow depending on the amount you have set. But over time, it will build up. It kinda is a set and “forget” method, if you also like to have some active investments into individual companies, you can set aside money and buy in whenever you think is a good time.

Until I build a substantial portfolio, I will still be automating a portion to ensure that I am investing periodically whether it’s a downward or upward market. This of course, is done as long as I hold a job as we can see now that many people are predicting a recession and huge layoffs but I am still buying in monthly.

Extra point: Build up your wealth buckets starting from your emergency funds + payments bucket before moving onto investments then dreams bucket

InvestmentMoat released an article titled, “A Three-Bucket Financial Framework for Extremely High Earning People (and other Valuable Money Advice) which explained how a financial advisor helped athletes (big names) to manage their money as we know they can earn enormous sums if they were to become popular and a important asset to the sport/team.

Do go over and give it a read, I think it is a really useful article no matter where you are at. It emphasised the need for a base before reaching out to exciting stuff that you want or have in mind. Or if you have the base ready and you have limited time, maybe you should also focus on the dreams bucket to make sure you have no regrets, of course, this differs among individuals.

Health is wealth but wealth can add experiences to your life

Finances is important as it provides a way for us to enjoy life as well as to live depending on what your budget is and what you have available. However, there are definitely other things in life than your finances like health and experiences.

Having a cushion/buffer of money can improve our mental state or even the way we think as more options might be available for us. That is what we are aiming for when we manage our finances and build it up, whether it is to help us in case of any emergencies or to help us achieve our dreams, having money to be able to do all that is very helpful.

Experiences like travelling and signing up for classes you are interested in can add joy to your life. Managing finances is a great first step in your life and getting started early helps, as the effects compound over the years.

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  1. Hi there, good write up.

    In regards to expense tracking, I only focussed on tracking big ticket expenses, such as the below monthly expenses:
    1. Home loan
    2. Income taxes
    3. Condo conservancy and sinking funds
    4. Groceries and dining out (here I just lumped them together)
    5. Car expenses (loan, ERP, fuel, taxes & insurance)
    6. Gifting such as for birthdays, wedding & funerals
    7. Home repairs, appliances replacement (if any)
    8. Medical expenses (if any)
    9. Holiday expenses

    Luckily my children have graduated and we dont need househelp any more. Children's education and domestic helper added to another two substantial expenses.

    Our family expenses used to hit $15,000 to $17,000 monthly. Now its $12,000 to $14,000 monthly. From the above you will notice many of our expense items were actually fixed expense items, ie, not discretionary expenses. Hopefully when retired, without income tax and with home loan fully paid, we will see our expenses drop to $6,500 to $7,500 pm.

    In the scheme of things it is more important to have the income to cover the expenses. And the more passive the income the better. Right now our passive income averaged about $16,000 pm. The passive income comprised of dividends, rental & interests earned from CPF savings.

    Saving is only part of the equation to wealth building. "Saving more" alone is not enough. One has to couple saving more with earning more to accelerate wealth growth.

  2. Wow, that's a really good breakdown, yea, as you grow older, you can adjust what you need to track in expenditure. Really amazing that you have passive income averaging about $16,000 per month. Definitely a huge sum that can help with the expenses. Aiming to be able to have cashflow in my later years as well.