Let’s start our day with a nice thought. What would you do if a thousand dollars fell into your hands right now?
I think many of you will be getting your tax refund soon. Some of you may even be waiting for some dividend cheques to come along, since another financial quarter has gone by.
I asked myself this question recently and immediately my first instinct was to think what I could buy with RM1000:
- An iPod Touch
- A nice pair of work clothes
- Get a new TV
- Subscribe to ESPN
- Buy a new wardrobe for children’s clothes
The list goes on. I’m sure you have your own list.
Many times we get some extra money (tax refund, bonuses, commissions, festive seasons, birthdays) and it seems to disappear before we know it.
Today I’m going to share with you an easy tip to handle any extra money that falls into your hands. This tip can be applied to any amount. RM50, RM1000 or even RM1 million if you ever hit a jackpot.
Step 1: Identify Your Savings
The first step is to identify what you want to save money for. Do you want to go for a vacation? Do you want to get an iPad?
I have four things I save for:
- Children Education
- New Car / House / Reduce housing loan
- General Savings (used for emergencies or large purchases)
Step 2: Allocate a Percentage
Assign a percentage to each of the savings categories. It is completely up to you how many percent to assign. It depends on your situation and your financial goals. You can even split it equally if you like.
My percentages are:
- Retirement (20%)
- Children Education (30%)
- New Car / House / Loan (40%)
- General Savings (10%)
Step 3: Divide the Money
When the money comes in, just bank in to the savings account and divide the money accordingly. I use a spreadsheet to track how much money is in each category.
When the amount gets to a certain threshold, I will move the money into an investment vehicle to get more returns.
Easy As 1-2-3
I also use this same method to allocate my savings each month. I find that setting up a ‘system’ makes it easier and automatic.
The only time I don’t follow this system is, if the money is specifically meant for that category. For example, any money given to my children will automatically go into their education fund.
Any dividends from an individual savings category will be put back in the respective category for further re-investment.
So how about you? What would you do if you found RM1000 today?