Manage your finances

Hi everyone. Welcome to this new video. The topic today is very important because here we are speaking about trading and investing. But we never touch a very important topic. That is how should I manage the money I have in terms of how much should I spend for necessity, how much should I put in my investment account and things like that. So today I want to touch this topic and I want to give you a very easy set of rules to follow when you manage your finances. Okay, so let's start with this. The first thing I will do, number one is this. I would put six to 12 months of expenses in some, we can call it, I don't know, security account. So what does it mean? Well, let's say that you know how much you are spending every month, okay? And if you don't know, you should start tracking down your expenses and you can do it with Excel. And I will also put in the description of this video some link for some application that you can download easily on your phone. And every time you are spending something you can note down. And then at the end of the month you can have a better idea about your expenses. Anyway, let's say you know this number. Now why you want to save 6 to 12 months of expenses in a security account? Because you want to have some money in case something happens, right? You never know what will happen in the future. So it's good to have some money there just for security. Now this means that the money should be safe. It should be on some account, bank account that is protected somehow or some kind of fixed deposit, but definitely not something risky that can go to zero. Okay, so this is your security account. It's for emergency. So this is step number one. When you've done this, the second step is what? Well, the second step is to take whatever you are earning and any can be your salary. It can be passive income, whatever you are getting. And your income should be divided in five buckets. Okay? So number one is necessity. Okay? Then you have education, Then charity, Entertainment and investing. Okay, so you have these five buckets. So what is the idea here? Well, the idea is that you need every month to know how much you want to allocate to your education, to your investing, charity, necessity and so on. Of course, as I said before, if you have an idea about how much you are spending, this is much easier. What I suggest you is first thing to do. Okay, the first thing to do is to put money on your investing account. And here you should put at least 10%. My suggestion is 20 or more. Okay? After you have done this well, this really depends on you. One way you could do it is to put, for example, 50% here. 10, 10 and 10. Okay, so you have 50, 60, 70, 80 and 100. This is a possibility, but it really depends on you. Maybe 50% of what you get is too much for your income level. Then you can increase your investing. Or maybe you're not spending too much for education, even if actually you should. But let's say this is just to give you an indication. Now what is the idea here? If every month when you get your salary, your income is divided in these buckets, then you can only use the money in the corresponding buckets for your expenses. What do I mean? Let's say that you have, I don't know, you want to attend a course, so it's under education, but you don't have enough money on your bucket, then you cannot attend the course. Okay, let's say you want to do some kind of fun activity, trip, whatever for holiday, and you don't have enough money in this bucket, then you cannot do it. And you need to be very strict with that. Why? Because if you do that, actually you will start to find other ways to create more income so that you will have money in your bucket to do what you want, right? If you don't have this structure, what will happen? Okay, I want to spend some money for my entertainment. Well, I just take the money because it's not divided, right? Everything is in the same account. And so you may end up spending too much on entertainment, for example, or too much on necessity. You have no control on what you are spending and probably you are not even saving money for your investing. That is very important. But this way you will have first a control over what you are expending and for which purpose. And at the same time this will give you the motivation to get additional income sources. Because when you cannot afford something, then your mind will start thinking at other ways to create the income that you need. Okay? So again, the important thing is don't cheat. If you don't have enough money on your bucket, don't take from another bucket. Okay, now this is step number two. And step number three is about your investing. Now whatever you have here, you have to decide what to do, right? What I suggest you is to follow the so called financial pyramid. So what is the idea here? The idea is that you divide this in three. You put 70% of your investing in something that should be very, very safe. And this can be your saving or fixed deposit, or maybe some very safe government bonds, but it should Be safe. Okay, Meaning maybe you get not much, maybe 1, 2, 3%. But you know that the capital is safe. Now you need to be careful because today nothing is actually completely safe. Even we have seen banks failing and things that we didn't expect, they happen. Right? So my suggestion is, even if you are saving money, diversify. For example, in Singapore, where I am, each person has got a protection of up to $50,000 for each bank account. What do I mean? If I have a bank account and I have $70,000, in case something happens, some bankrupt of the bank, I don't know, you are protected up to 50. But if you have two bank accounts in two different banks, then you are protected 50 here and 50 there. So in case you own 70k, it's better to create two accounts and put 50 here and 20 there, for example. Right? So that's what I mean by being safe. Always think that the worst can happen and try to do the best you can in order to minimize the risk. Now this is 70%. Another 20% can be put in medium risk. Okay, what is medium risk? For example? Medium risk could be, I don't know, trading or investing, if you know what you are doing. So meaning you need to have a system. You need to have risk management. Okay, so it's a kind of is more risky than the first one, but is not completely speculation. Okay, so that's why I put trading and investing where you have risk management when you know how much you are risking, when you are quite conservative. So it's very hard for you to basically destroy your account. Okay, and finally we have 10% and this is pure speculation. Speculation can be, for example, crypto or other kind of risky investments where you may also lose everything. Okay, why 10%? Well, the idea is this. If you lose 10% on your capital, how much do you need to make to go to break even? Well, if you lose 10%, to break even, you may have seen this already. You need. Around 11%. Okay, so with the remaining 90% that you have, you can make this 11%. But let's say that you put 50% here. Now if you lose 50%, you need to make 100% on what you have left in order to break even. And this is much more difficult. Okay, so this is basically the the idea. First, let's recap. We need to save six to 12 months of expenses in our security account. That is something safe and is something we use for emergency. Then whatever we get as income, like salary. Most of the cases we need to split in these buckets. Again, these percentages are like an indication. But everything is important, you know. Necessity, of course is important. Education is important. You need to spend some money to improve your knowledge. So you may still be relevant in the world, in the job market. And at the same time you can learn new ways to create income. Charity is also important. You may not believe it, but I believe that if you give to others, you also get back something. So don't put this to zero. Entertainment, of course, is also important. We cannot just work, we should also do something fun. And investing. Again, minimum 10%. I would say 20 if you can, even more. Okay. Especially if you don't have much capital, is better to save. Because if you have a very small investing account, even if you make 100% on $1,000, it's still $1,000. It's not much. Right? And number three, as we said, your investing bucket needs to be split in these three ways. 70% on safe. Okay? So something that may give you 1, 2, 3%, but the capital is safe. Then you have a medium risk where you may do your trading, investing. Of course, I want to stress this. You need to have risk management and a system. Otherwise this will not be medium risk, but it will be speculation and eventually speculation where you may even lose everything. And why only 10%? Because this is a situation where it's possible for you to break even. You can make 11% with this, but if you lose more than that, it may start to be hard to break even. Okay, and again, I want to mention three things that I already mentioned in this video. Number one, remember that nothing is safe. So again, the example of the banks, be careful that everything can happen. So what we can do is to diversify. Diversify by putting money in different banks, by using different brokers as well. Even if you are investing or trading, if it's possible, it's better that you use different brokers, regulator brokers. So you are basically reducing the likelihood that a bad event will affect you a lot. And number two, why these buckets idea? Because this will force you to find other ways to generate income. You can imagine if your friends are going to the trip, and then you are strict with that, as you should. And then you say, you know what? I don't have enough money to buy the ticket to come with you. Even though you may have this money in the charity or education bucket, but you can't take the money from there. So what will you do? Well, probably since you feel bad that you cannot do that, you will find new ways to create the account. Something that maybe before you will not even consider. And also finally, for tracking your expenses, that is very important to know how much you need for necessity, for example, and to know every month how much you have used of your buckets. I will link some under this video. Some application that you can download for your phone or another option if you use credit card is to, you know, every month you have the the summary. But I will use this application. Maybe would be not really easy at the beginning, but after a while it will be automatic and it will be really, really fast. So with that, I would like to conclude. Thank you for watching again. Remember that it's very important even before you start investing or trading, this kind of concept must be really clear and you need to follow that if you want eventually to be able to increase your wealth. So thank you again and see you next time.