Pay yourself first

To be able to have money to invest or do something you want, you must first have money.

So the most basic strategy is you must pay yourself first. When you get your monthly salary/wage, you MUST first pay yourself. Ignore the credit bills you have, the many utility bills, etc. You MUST pay yourself first. The idea is that if you do not pay yourself first, you most likely end up with not paying yourself at all at the end of the day.

How much to pay yourself? The basic guideline is 10% of your take home pay. If you are comfortable with it, you can increase this amount. Put this 10% into a separate bank account from your normal checking or take home pay account. Let's call this separate bank account your emergency cash account. You cannot mix your emergency cash account with your checking account. When you do this, your emergency cash account will grow every month.

To make the money work in your emergency account, find a bank account which pays a good interest rate. A good choice is the Cash Fund from Fundsupermart. It has an interest rate of roughly the SIBID (Singapore Interbank Bid Rate) less charges, which is roughly equivalent to the current fixed deposit rate. The Cash Fund from Fundsupermart is not exactly a bank account but it acts like one, though it takes 2-3 days for a withdrawal transaction to be completed.

Keep building your emergency cash account until you have enough to survive at least 6 months (or more, up to you, not less) without working. Then you can start building money on your investment account.

An example to illustrate:

Assuming you earn $2000 a month, your take home pay will be $1600 (80% of $2000 ). You need to pay yourself $160 (10% of $1600). Put this $160 into your emergency cash account every month.

Assuming your monthly expenses is the other 90%, which is $1440. You need $8640 ($1440 x 6) for your emergency cash account. You need to accumulate your emergency cash account until you have $8640 before you can start your investment account.

If you receive bonuses, AWS, etc, consider leaving some portion of them into your emergency cash account so that it can grow faster.

If you can reduce your expenses, you can increase your contribution, for example 15% or even 20%.

If you have credit debts to pay, you must still contribute at least 10% to your emergency cash account first. You can pay less towards your debts.

An important note, DO NOT EVER use your emergency cash account. Its role is to give you financial security and your mind some peace.