The importance of spending less than you earn (8 Sep 2010)

I just added another $6,000 into the following funds.

Cash fund - $500
Parvest Europe Alpha - $1,500
Fidelity Asian High Yield - $1,000
Lionglobal South Korea - $1,000
Aberdeen Asian Smaller Companies - $2,000

This time round, the additions are more from a broad based approach. Hence, I added to a bond fund as well as equities funds. I continue to believe strongly that equities will outperform bonds over the next two years, and there will not be any significant fall in markets over the next 6 months to 1 year. And the portfolio is positioned to reflect this. I continue to favor markets like South Korea as I believe that Tech is well positioned to boom, yet has continued to be overlooked even at this point in time.

More importantly though, every time I start to accumulate cash beyond a certain amount in my bank account, then I tend to invest some of it. This means that generally, I am saving some money each month, and that I spend less than I earn. This is a very important habit to form. Because no matter how much you earn, if you spend even more than that each month, then you are moving backwards in terms of wealth accumulation. And even if you earn relatively little, if you are still able to save and invest some of it, then you are moving forward.

Many pop stars, movie stars and sportsmen fail to understand this concept, and even though they earned millions, they spent millions more, and it may be surprising but a fair number of these end up with little or no wealth despite the big bucks they earned in their heyday.

It takes discipline to spend less than you earn, but once you have gotten into the habit, then it becomes second nature. Singapore is actually a great place to save and invest money because income taxes are low, and more importantly, there is no capital gains tax for gains from stocks and unit trusts! This is very significant because it allows money invested to build up even faster. So, get into the habit of saving, and regularly investing and your wealth will build up naturally over time. The best thing about this is that everyone can do it. You don’t have to inherit some large amount of money, or build up a dot com company to sell off, or gamble at the casino, you just need to spend less than you save!