Monday, December 8, 2008

emphasize on Automated Saving again

Some of you who has been reading my blog may have seen this picture below many times.


Basically this diagram is almost all about what I preach about in personal finance.

The first thing to do is not to buy insurance nor any investment plans.  The first thing to do is to transfer money from your income into a "Money earn Money" (MeM) acount.

It should have a few unique qualifying features:
1.  It always have a positive interest, no matter how low it gets.
2.  has limited convinience to withdraw money out from this MeM acount.

So it could even be just a normal saving account with low interest.

The 'flow' from Income to MeM should be Automated.  Once setup, you should forget about this MeM account too.  That way this MeM is really passive, definitely accumulating and safe from weak EQ withdrawal.

3 comments:

Anonymous said...

your idea is great :)

this is the practice I implement for myself with CIMB bank:
1. open one Basic Saving account type2 as "income account"
2. open one Air Asia Saving account as "budget account"
3. open one Basic Saving account type2 as "expense account"

income acct is my receive the $$$ I earn
budget acct is where I keep my 3-6 mth emergency fund and budget for any annual expense.
every month, the standing instruction from income to budget and from budget to expense is automated.
and I only keep expense ATM card with me, so my spending capability is limited to what I have in the expense acct.
whatever left in the income acct will be used for investment purpose.
if I ever want to buy something in future, I just add the SI into the flow I had above.

would my practice contradict to "pay yourself first" idea? what is the loophole/drawback in my practice?
thanks:)

Michael Tsen said...

Thanks for the info, this seems good at one glance but definitely worth looking into further, give me sometime to look into this and perhaps a new post to answer in detail. Cheers !

Michael Tsen said...

detail respond added at http://malpf.com/2009/09/case-study-was-raised-in-automated.html