Earning and spending style determines success

From the time of our birth and up to the time of our death, we are all consumers and spenders.

On the contrary, we are earners and producers only during our employment era or during the time of our first pay cheque up to the time of our retirement. While parental support was given to us in our childhood, we are obliged to provide for ourselves thereafter. During that period, we design or follow "earning and spending pattern" that are summarised below:

Earn now, spend now pattern

This pattern is ideal if life has no uncertain tomorrows. Under this scenario, it is assumed that your income is continuous up to the time of your death. This is the most satisfying among all the earning-spending patterns since it involves a trigger ­happy spending behaviour. The bad side of this, we are not providing for our old age.

Spend now, earn later pattern

This pattern merely delays the hardship and uncertainty of earning. People who are following this pattern usually incur added burden of interest expense as they live from debt-to-debt.

Earn now, spend later pattern

It simply means saving today for more benefits in the future. This is the deliberate choice of future benefits over present enjoyment, plus the added benefit of interest income earned by our savings during the interim.

It should not be difficult for us to choose the best earning and spending pattern from among the three. But for ordinary households, the "earn now, spend later pattern" is the most ideal if we want to build a personal investment portfolio.

Proper management of your household finances will eventually result in a successful personal investment portfolio.

An investment portfolio is merely a list of our earning assets.

It generally refers to securities, but may include every type of personal earning opportunity such as bank deposits (savings accounts and certificates of time deposit), unit trusts, treasury bills, deposit substitutes (money market placements), real estate, money lending, jewellery, bullion, or collectible such as paintings, works of art, rare books, antiques, coins, and even stamps when these are intended to be earning assets.

If your investment portfolio is sustained and managed properly, you are actually securing your future as well as your family's future.

Building a personal investment portfolio should always start with a change in mindset.

As we all know, investment is equal to savings. If you have no savings, you have no means to invest. Most of us thought that savings is a product of an excess income and we need to acquire substantial amount of income before we can actually incur a certain level of savings.

Ideally this is true, but life is not always generous and it is wrong to assume that it will always shower us with an abundant income. Instead, think of savings as an expense.

It should be included in your list of monthly payables but the difference is you are actually paying yourself not the utility companies.

By doing this, you are actually forcing yourself to save which will eventually be used in the development of your personal investment portfolio.

— Bloomberg