The basic concept of saving money is not as easy as it sounds. Like many things in life, it is easy to understand but difficult to apply.
There are those that don't even bother trying to develop proper savings habits and jump straight to investments. I've seen this work well when they know that they are not able to save if they set aside money in the bank, especially if they know there is a readily accessible fund and so they may put it into a unit trust or investment-linked insurance policy, with a monthly installment that is blocked off from monthly income no matter what.
Although I can't say that this approach is bad in any way because it creates an automated system that forces a person to save, I would like to suggest a different method purely because if you able to master it properly, you would have better emotional maturity and self control over money.
The method is simply...to save. Apply basic budgeting tools to your monthly income and make sure that it's allocated to the various areas and implement it with self discipline and self control. If you're able to do this, it will enable you to develop a more active sense of what it means to save, which is a more solid foundation to then move into investing.
I am a strong advocate of a step by step pyramid approach to personal finances although this goes against some modern philosophies which cut corners and emphasise more on building quick wealth. I believe in first of all building a proper savings fund in an account with guaranteed returns with little or no risk (such as FD), then moving on to low risk investments as the next layer of finances, with the highest risk investments rising to the top of the pyramid and correspondingly with the least amount.
So before moving on to higher risk investments, I'd recommend to calculate three to six months of living expenses, and have that amount in an easily liquidated account with guaranteed earnings before moving on to other investments.
Then, after that base is in place, going into lower risk investments would usually involve unit trust and low risk stocks (blue chip and on the main board), moving on next to property and then finally to high risk stocks.
Of course this is just the general rule and does not account for different financial goals. As for where I'm at, I'm still saving for the three to six months expenses account, and at the same time, building the baby fund.
Of course, if you don't want to go through the trouble and temptation of having a savings fund which can be accessed whenever you want, it might be better to just go with a forced saving system.
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