It takes 21 days to form a habit, 90 days to sustain it. It is easy to start, but harder to sustain. Discipline and consistency go hand in hand. Even on days when you don’t feel like doing, discipline is what keeps you moving towards inculcating good habits. Start building an emergency saving above anything else, including retirement. Ideally it should be 6 months of your income to set you aside for raining days, i.e a loss of job, hospitalization bills or anything unexpected. The older you get, the bigger your emergency fund should be.
Once you’ve set aside your emergency fund, next look at your finance management. You probably heard of the 50-30-20 budgeting rule. To break it down, your income should be split into 3 categories: 50% needs, 30% desires/wants, and 20% savings. This should be the ideal rule of thumb for income management. Always pay yourself first the moment you receive your paycheck, not the other way around. Many would choose to spend first and save the remaining, an example of a poor saving habit. Set aside a portion of your income into your savings fund, preferably another bank account.
By splitting your income into different banks for different purposes, it can indirectly help you to control your urge to spend. Out of sight, out of mind. For instance, one account can be used for salary accreditation and expenses spending, the other for savings, and another for big ticket items or long-term goals. The point is, get into the habit of saving, especially at a young age. You may not see the impact now but inculcating good saving habits at a young age can be a powerful force towards a certain financial goal. Moreover, watching your money grow can be both rewarding and motivating.
Paying yourself first also factors in retirement planning. This amount would be part of your retirement nest. When your saving plan is in line with your retirement, you are on the right track towards your financial goal.
The remaining amount is how much of a risk appetite you can tolerate. Returns vary based on your pool of fundings as well. 30% returns for a million-dollar investment is more significant than a thousand-dollar investment. Technically the more money you have, the more loss you can weather. Investment loss is a hard pill to swallow, especially if your risk appetite is small.
Hence, before starting in any form of investment, always ask yourself how much loss can you take? Are you okay to lose that pool of money should the market take a turn for the worse? Are you able to pay off bills despite making a loss? Our potential loss will then determine our risk profile, industry, or funds to select.
“Portfolio Diversification” is the word you will always hear when the word investment pops up. Diversification gives you greater access, investment tools or even geographical location in the market, providing a reasonable trade-off between risk and reward. Reap the rewards of the power of compounding interest when you start investing and/or saving earlier. Planning your retirement early can ease your anxiety
Another good investing habit is to think long term – retirement, children’s education, property etc. Be clear on what you want. When planning for any goal, be it short term or long term, self- discipline is evident for you to reach it. The bigger the life choices / temptation, the more self control is required. You can’t harvest the fruits from a tree a few days after planting the seeds. Investing is a long term strategy that requires patience and discipline