First Posting, Saving Fixed Sum every month

Living Investment

This is my first posting on the Blog. The original intention of setting up this Blog is to share some of my experiences in Living Well with Peace.

 Most of it will cover finance and investment related matters. Some good practices which I am sharing came about because they work and also because some does not and hence valuable lessons are learned not to repeat them.

 I will stay true to the theme of Living Well with Peace and cover other areas beyond financial subjects, such as physical and mental well-being.

 My first post is Saving Fixed Sum every month”

 Set aside a constant amount from your take-home salary every month and deposit it in a separate bank savings account. This amount is not to be withdrawn for routine expenses. The quantum is decided by you after considering your take-home salary and routine expenses for yourself and your family. A simple rule of thumb could be 10 – 15% of the net salary.

 Example:

 If your take-home salary is $3,500 per month, an amount set aside for forced savings is 10% of $3,500 = $350 per month at beginning of each month.

 Over 2 years period at interest rate of 1% p.a compounded monthly, the amount will grow to = $8,488

 Future Value = Principal sum of $8,400 (350 x 24 months) + Interest earned of over 2 years of $488 *

 This is a sure way of savings and you will have a significant sum of amount at the end of savings period.

 If you own a business with business income, the same principle applies. You will pay yourself first and set aside some amount in a regular savings plan. You will be surprised at the final amount after say 2 years. 

Theory

 *Future Value FV24 = $350 {[(1+r)24 – 1]/ r}{1+r} = $8,488

Principal sum of $350 invested at beginning of each month over  2 years = 24-month period

Nominal interest rate of 1% p.a = 0.01/12 per month = r, compounded monthly

 Written on 10/9/2006 11:42 AM

 Copyright © 2006, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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