An accomplished salesman once penned down these words: Money is not everything, but it is something you cannot live without, and most certainly do not want to run out of it. Therefore, it behooves everyone to devote considerable resources to having in-depth knowledge about how it works and how to ensure you never run out of it. This is one thing the understanding of proper investment budgeting provides. In case the term “Investment Budgeting” seems strange and unfamiliar to you, relax. This article is for you. Here, Mr. Desmond Sim takes you through what proper investment budgeting entails and how it can safeguard your money.
Investment budgeting is what individuals and organizations use to evaluate whether expenses or investments are worth funding, based on their income or the organization’s present capital. Apart from evaluation, it is the financial plan that channels the income/capital for investments. Such investments can be long-term investments or short-term investment/ expenses.
Safeguarding Your Money with Proper Investment Budgeting
To safeguard your money, you have to make more than you spend. And that is the role of investment budgeting. It helps you plan your money and map out strategies to increase it rather than squandering it. Below are a few points on how to safeguard your money by using proper investment budgeting.
1. Personal Financial Management: Mr. Desmond Sim is Evergreen Group‘s Business Development Director. He defined personal financial management as a process of controlling your income, expenses, and investment. An example of a personal financial management technique he proffered is the 6-3-1 budgeting system. The 6-3-1 budgeting system safeguards your money by dividing your income into three parts, preferably using three separate bank accounts. The breaking down process is 60% for all your fixed monthly expenses and also segregation for rainy days fund , 30% as your investment fund, while 10% serves as your play fund, which can be used for getting the things you want or for getting a nice meal with your friends or colleagues.
2. Making Use of Investment: There are times when your income is higher than expected. Now, that’s a good thing. This additional income can be added to the 30% budgeted for investment in your 6-3-1 budgeting system, as suggested by Mr. Desmond Sim. By doing this, you have created a safe abbey for your money. Whatever the case, here are a few things you must consider before using the 30% investment funds to venture into investments.
- Pay-out Tenure: When choosing a path in investment, you must identify the time required to yield financial returns. This helps to calculate your profit by representing it as the percentage of investment over some time – quarterly or annually.
- ROI: Return on Investment is the ratio between net profit and the cost of investment. The higher the ratio, the more favourable the investment. You can use it to compare prospective companies before investing.
- Quantum: The quantum of investment means the measurement of the quantity or amount of investment. Therefore, investment decisions must be made with respect to the quantum of investment out of available finance on either long-term assets or short-term assets.
- Security: The security of every investment is one of the most important factors to take into consideration. Every investment carries risk. Be it high or low. It’s all about mitigating it. Hence the security of it, such as Physical Assets, is essential to safeguard our principle in any case of uncertainties.
- Risk Factor: When choosing an investment, this is one of the considerations that one has to make. Normally, a higher risk factor will equate to a higher ROI and a lower risk factor will generally have a lower ROI.
With this information, it becomes clear now that you no longer have to be at the mercy of your expenses. In the event that the whole of the 30% investment funds are wiped out due to the failure of all the investments you have made, you will still be safe. The rest of your 70% budgeted funds will still allow you to continue paying for all your expenses and all your needs for survival.
For more information, you can sign up at Knowledge Academy and join Mr Desmond Sim, who has been invited as a guest speaker in a recent episode, while he shares with you his in-depth knowledge on investment and personal financial management.