How to Allocate Your Money for Investing

I am recently researching into various ways to allocate one's funds for investing.

There is a book -"I Will Teach You To Be Rich" with an accompanying Blog with the same name at
http://www.iwillteachyoutoberich.com/blog/

advocates allocating your funds this way

• Short-term account

This is money that will e spent within the next 12 months.

So if you were to save about 10% of your monthly paycheck, you may need to allocate a percentage of that 10% into the three accounts. Take for example, a person who saves $1000 per month, he may need to allocate $300 to his short-term account to pay for forthcoming expenses like an upcoming wedding gift, travels in the year or for some 'unexpected ' expenses that may come up.

• Mid-term account 

This accounts is allocated for funds that will be needed within the next 3-5 years.

Your mid-term account is an account which will help you grow your wealth as well. 

Since these are funds you only need within the next 3 to 5 years, you can use these funds to invest in bonds, preference shares or currencies to earn higer interest.Again, you may allocate 30& of your savings to this account.

• Long term savings

Long term savings as the terms suggest is allocated to funds that you will need only 10 years or more down the road.  You can afford to invest in equities, preference shares, REITs and other investment vehicles that have a longer investment horizon but yield higher returns. Your long term savings are used for a down payment for a house, your desired vacation with your family, etc, etc etc.

This is another method of allocating your savings besides the investment approach used in the previous post.

How to Start Investing

I realized that most people have it backwards when it comes to investing.

To me, investing is supposed to be a tool to help you build your wealth and not a 'stumbling block'.

Hence in order to invest, one has to have one's finances sorted out first.That includes making sure that your basic needs such as

• day-to-day expenses are sufficient
• insurance needs are fulfilled
• emergency cash cushion is in place.

If you already have the above 3-pillars in place, then now'e the time to start to consider on investing in order to build greater wealth.

Here are the steps to take before you begin investing

• Sort out your finances
• Figure out how much you can invest monthly.
• If the amount is too small per month, you may like to combine cash from several months before investing. Alternatively, you can also invest in DRIPS or fractional amounts until you have built up sufficient amount to purchase the whole lot.
• Split the funds for investing into a separate account. 

How to allocate your investment funds

This is what I have read from the book Value Investing for Women" which I find useful here in terms of the allocation of funds for investing.

• Split up your investment funds into 3 accounts and label a) 30% into a Financial Freedom Account b) 30% of the funds are allocated when a mini-crisis happens c) 40% of the funds are allocated for buying when a crisis event happens.