About a decade ago, when the investing bug first struck me, a nice little book called Financial Freedom On $5 A Day (Chuck Chakrapani, M.Sc., Ph.D., C.I.M., Self-Counsel Press) was fed to my voracious investment-reading appetite. The book is aimed at "small investors" and shows people how can achieve financial freedom through investing, but can start small by saving just $5 a day. While the book was originally published in 1983, my copy was dated 1996. Still, I think that the wisdom presented therein are still relevant today. In fact, a quick Googling shows that the book seems to have been revised since.
The book was sitting in a stack at home and beckoning me to re-read it - something I haven't done in many years. Although I did read it over three times when Ipurchased it, to absorb all the great information.
Chakrapani, a Certified Investment Manager (C.I.M.), writes in a very down-to-earth, honest way about all the options that a small investor has to go from nothing to something, with only $5 a day. Granted, when the book was first released in the 1980s, interest rates were through the roof. They haven't been that high again since.
Still, his advice is relatively easy to understand, and even discusses how you can start investing with just $100 - although he recommends $300. (His advice is good for both Americans and Canadians.) And nowadays, with the Internet available as a tool for both people who want to invest and those who just want to save, it's even easier to start an investment and savings project.
Chakrapani presents dozens of very simple-to-follow suggestions to get yourself into a mindset of saving. These include review of concepts such as dollar-cost-averaging, the magic of compound interest, and my faves, pay yourself first, and the related minus ten and plus ten techniques.
I'll expand on some of these concepts in the future, but in a nutshell, here is a synopsis of the last three.
The idea behind paying yourself first is that if you don't subtract some money from each paycheque, there's a strong possibility that you will not save. When you add up all your necessary monthly expense, including extras like life insurance or credit card payments, or unexpected travel expense, etc., you are going to feel like you just cannot think about saving.
But if you do pay yourself first, you are likely to adjust to the "decrease" in your paycheque - as you would have to do if you suddenly had to change to a lower-paying job.
The difficulty is in justifying the pay-yourself-first expense. Chakrapani presents three methods, including the aforementioned minus-ten and plus-ten techniques. With the minus-ten technique, you have 10% of each paycheque deducted and put into a savings account so that you "never" see it. I used this method very successfully when I first started investing.
The plus-ten technique, which Chakrapani says is his favorite, involves taking an extra 10% for your savings whenever you spend money on anything, including rent, food, a coffee, etc. I also used this technique successfully, by averaging my monthly expenses, deducting 10% of that amount at the end of each month, and depositing it my plus-ten into a money market mutual fund. (Of course, if you're spending everything you are making, this technique is difficult to implement.)
One of the fundamental steps in Chakrapani's book is to save up your proverbial $5 per day until you have enough to invest. As I've mentioned in my last post, your options for saving are limited these days, if you want to keep your money liquid - for emergencies, or if you actually want to invest in the near future - without having to keep a high balance or be penalized for early withdrawal.
Some choices are a money market mutual fund - which pay high interest but sometime incur front- and/or back-end load fees - or an online savings account such as Emigrant Direct, Ing Direct, or HSBC Direct. Online savings accounts pay as much as 8 times the interest rate of regular bank savings accounts and are insured by the FDIC for up to $100,00, just as for any American bank account. Online savings accounts are ideal for the small investor that Chakrapani's Financial Freedom On $5 A Day is aimed at.
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