Beginner

You have worked hard to attain a good career and a steady income. You commute each day to be at work on time, and you give it your all when you are there. Yes, your job brings you great benefits such as your income, a progressive career path, and if you’re lucky, there’s a good social life too. Or maybe you have your own business, and are rewarded for your hard work by making good profits.



Just like you work hard to earn, you need to reverse roles by making your money work hard for you. How can you achieve this?



The first thing that you must do is to cover your expenses. Experts agree that you should first consider your non-discretionary expenses, those expenses that are absolutely necessary, such as accommodation, food and other monthly expenses. Once these expenses are met, look at your discretionary expenses - those expenses that you want to incur but can be avoided, such as vacations, movies and eating out. Calculate your monthly non-discretionary expenses and save a few months’ worth of these expenses (experts recommend 6 months), in case you suffer a loss of income. You can put these savings in your bank account which will earn you some interest as well.



Now consider your earnings after reducing your non-discretionary expenses.

Income - Non-discretionary expenses = Funds available for discretionary expenses and life goals.

This portion can be used for leisure activities and to prepare for your life goals. Set aside a sensible amount for leisure; now you have the remaining money available to work for you. In other words, this is the money that you need to invest.

Investing can be defined simply as putting money in an instrument with the intention of earning income or profit. Investments allow you to accumulate funds for your future life goals such as marriage, buying a house, retirement, travel, etc. The great thing is, if you start investing early in life, your investments will perform much better over the long-term. This is simply because of the magic of compounding. Compounding is when your money earns interest and that interest earns even more money for you in the future.

Now you know how much you have available to invest. The next step is to decide how to invest the money. Maybe you have considered fixed deposits, or are looking at the sort of investments that your parents have recommended, such as gold or real estate. You may have heard about other investment options such as bonds, stocks or shares, mutual funds and so on. Different investment products can help you plan for different financial goals depending on your risk and reward profile. We will learn about these ideas later. However, the most important thing to learn now is:

i) Cover your expenses
ii) Save for a rainy day
iii) Don’t let your money remain idle
iv) Start investing early to create more wealth.