Budgeting, Investing, Personal Finance

Getting into Financial Shape in 2020

Happy new year! If you are like me, losing weight and getting into shape are two of my top new year resolutions every year. However, I always ended up gaining more weight every year. I have the feeling that this year will be different. Believe me.

As we start the year fresh, let’s also make a resolution to improve our financial health. One aspect of personal finance is wealth accumulation – amassing enough money to meet your future financial needs.

The process of wealth accumulation involves two main exercises – budgeting and investing. Let’s draw some parallels to their twins in the realm of physical fitness – dieting and exercising.

Successful dieting is just simple math: total calorie intake must be lower than total calorie output.

Exercising accelerates calories consumption and strengthens your body to function optimally. Both activities are needed for better physical health.

In personal finance, instead of cutting calories, we will cut expenses and increase savings via budgeting.

Just like exercising, investing helps grow your savings faster. Both play complementary roles in getting you better in financial health.


Whenever we think about budget, we think cheap. Budget airlines, budget hotels, budget meals etc etc…

Budget is actually a plan on how you should spend your money. In this context, we are planning on how to reduce spending with the purpose of saving a portion of your income.

The main goal of dieting is to cut down calories. There are many ways to do it, there are also better ways to diet. For example you can either:

  1. Eat smaller portions of what you normally eat in a day while do nothing to change the food you eat each day. Chances are you will feel famished at night. 
  2. Analyze your diet. Look at the nutritional content of each food you consume. Look at where most of your calories are coming from? Your soda? Your greasy deep fried stuff? Ice cream?

The first strategy is easier to implement. The second strategy is a better one because it identifies and targets the root causes. 

Similarly in budgeting, you can either just spend less of everything. Or you could examine your expenses, organize and focus on areas where you can cut down spending while tailoring to your needs and comfort.

Categorizing Expenses

There are two main categories in expenses: fixed and variable expenses.


Fixed expenses are like your essential macronutrients – you need them for you body to function properly. Some examples are like your rent, utilities, transportation, auto insurance, health insurance, student loans, taxes etc etc.. These are unavoidable expenses and should be listed down first. So once you receive your paycheck, subtract all these expenses. The leftover amount will be allocated to variable expenses. 

Wait a minute, isn’t cable subscription a fixed expense too? Yes, in a sense, you will need to pay a fixed amount as long as you are subscribed. However, I would argue, do you really need Netflix, Hulu, Disney+, AppleTV…? I regard fixed expenses as unavoidable expenses that you will need to pay to survive. I guess it can be argued that you need those to survive, so fair enough, you may put them as fixed expenses.


Variable expenses are expenses that are in your control and usually the trickiest part to get it right. You can choose to spend more or less of it. Within variable expense, I like to break them down into two sub categories:

  1. Essential expenses
  2. Luxury items

Essential expenses are kind of like carbs – You need them but too much of it and it will eventually turn into fats. Let us look at some examples:

  • Food. You will need to spend money on food for survival. However, this is a category which you have control over and it is your choice to spend more or less of it. For example, you can choose to cook at home, pack for lunch in office, or you could choose to eat out or find at fancy restaurants. 
  • Transport. You can also choose to commute by bike or public transport if you live in the city or choose to cab around

Luxury items are like your desserts that are high in sugar and fat. Clearly, you want to spend on them sparingly. Used sparingly, these items can be used for rewarding yourself.


Everyone knows that fibre is good for you but you do not get any nutritional value out of it – it just goes through your gut and gets eliminated. However, it is essential for maintaining good digestive health. I have one category in my expenses labeled as ‘charitable expenses’. These are the fibre of my financial diet. Although I do not get any benefits directly, indirectly I get this feeling of contributing to a cause I believe in or helping others in need – a cleansing for my soul. Sometimes, it has the added benefit of giving me slight fulfillment and pleasure and prevents me from going on a shopping spree to fill the voids of my empty heart. Of course, there is the added tax benefit but I fall in the income bracket that is too low to reap any sizeable benefits from it.



If you suddenly change your diet from bacon and pancakes in the morning to fruit and salad, chances are you will be unlikely to stick to it for the long term. You need to gradually transition to the new diet slowly swap for healthier alternatives, gradually reduce the processed foods, reduce the sugar otherwise you are going to have withdrawal. Trust me, I know what sugar withdrawal feels like.

Budgeting needs to be gradual too because this is a huge lifestyle change. You don’t suddenly cooking everything at home and stop eating out completely, bike to work and watch Netflix at your friends’ houses all of a sudden. Consistent small improvements is the key to long term change.


Your body is unique. If a diet does work for you, change it, adapt new ones. If you find a low carb diet doesn’t work for you, try a keto diet. If you find that the budget doesn’t work, change it. Adapt it to your needs and lifestyle.


Investing simply means committing capital to something (a venture, property, a share in a public company, etc etc) in expectation that it will generate a profit or an income in the future. Here, I will use exercising to explain a few basic concepts in investing.


Risk and return concept is rather intuitive, the most risk you take, the more profits you reap. Everyone knows that.

Exercising makes your body stronger. Your muscles need to be exposed to strain or some kind of resistance for them to grow bigger. The more strain, the bigger and faster they will grow. This is also a double edged sword as the more strain you exert, the higher the probability of injury. And when you are injured, you will need time to rest and recover from it.

Hence, the term risk-return tradeoff is often used. You cannot have both low risk and high returns. It is just like your body. You cannot expect to put minimal effort (resistance and strain) and get a stronger faster.

You need to know whether you body can handle the stress whenever you run a marathon. Similarly, you need to know your own tolerance and ability to handle risk before you start investing. That is the first part you need to understand before starting.

So how much risk should you take?

When you are younger, you risk appetite tends to be higher

Also, in general, the younger you are the easier it is for you to recover from injuries. Hence, young people can withstand intense exercise better than older people. Their bodies are usually stronger and heals faster.

Same goes for investing, the younger you are, the easier it will be for you to recover.

  • Time: Time horizon for you is longer to recover your loss. 
  • Ability to generate income: Generally when you are younger, your source of income is comes more from your main job and less dependent on your investments. You have the ability to generate income and replenish your investments. When you are old and retired and you main source of income is from your investments, you will have a lower risk appetite.
  • Less to recover: When you are younger, you will have less capital to lose. When you are old, your capital could be your life savings which took many years to accumulate. Even a small percentage of that could be more than a large percentage of a young investor’s capital.

Time is needed to grow

Everyone knows that you do not get stronger overnight. You put in those reps consistently to get stronger. You have to keep pumping your heart regularly to get stronger.

Your investments need time to grow as well. The longer you stay invested, the larger it will grow due to compounding.

Consistency is key

If all these sound so simple why isn’t everyone in great financial shape?

Everyone knows the hardest thing to getting back into shape is because we do not practice consistency and persevere long enough to see results.

Track regularly and stick to it even when results are not showing

We try to weigh ourselves daily and get disappointed when the results are not showing. Similarly, you won’t get into financial shape overnight. It might even take you years before you begin to see any results.

Be patient and continue working on it.

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