【The China Post 每日精選】：一

TAIPEI, Taiwan -- "Don't spend more than you have."

This is how Shirley Hong, board member and lecturer at the Financial Literacy & Education Association, summed up wealth management at the start of an exclusive sit-down with The China Post.

▲圖／翻攝自中國郵報

While personal wealth management may sound simple, many of us don't abide by its key pillars, leading to the credit card debt and overdue loans that really hit the Taiwanese economy hard during the last global recession.

As Hong revealed, the first step to personal wealth management is bookkeeping: make a point to jot down your daily expenses and review them to see what you're spending your money on.

Smartphones are a good medium for keeping tabs on expenses, Hong continued, saying that there are a lot of great apps available to track your monthly spending.

The key with bookkeeping, however, is "not to just continue to write things down," she said, but rather to review what you have written down and analyze where your money is going.

Expenses, Discretionary Income and Savings

The Financial Literacy & Education Association is a non-profit organization that teaches students of all ages, from elementary school to college, how to best manage their income.

Through its animated videos, the association teaches viewers to separate their money into three categories: necessary expenses, discretionary income and savings.

On average, 50 percent of a person's income goes toward necessary expenses such as food, rent and transportation.

The other 50 percent is divided into 20 percent for discretionary income for spending on entertainment and things "you want but do not need" and 30 percent for your savings account.

Of course, as Hong said, the ratio will vary based on the person and their situation. In a simplified example, she said, if a person needs to eat more, then their necessary expenses may be 60 percent of their income.

The takeaway from the video is that everyone must categorize and budget their income, so that they are always saving a bit of money and not spending too much on recreational activities that make up extra, non-essential expenses.

Hong highlighted a key figure during the interview, saying that you should always have six months of essential expenses saved away as an emergency fund in case of unexpected layoffs.

Save with Purpose

There is a common notion that there is no point for young people nowadays to save money — because of unaffordable housing prices — that Hong and The China Post want to debunk.

Hong emphasized during our interview that we must save money with a goal in mind and not hoard money with no purpose.

At different junctures in a person's life, there will be different things to save for, like travel in your twenties and starting a family in your thirties.

Whether it's saving for travel, advanced education, a scooter or even a house, these varying goals help determine how much of your monthly income you should be tucking away.

With a fixed goal and date in mind, you can work backwards to figure out how much to save each month to be able to afford the item for which you are saving, she continued. 

Investment Basics

While no one can tell you which stock is sure to make money, there are a few investment basics that Hong wants us all to be aware of.

First, it is that all investments involve an element of risk. The definition of an investment is that you cannot get all of your money back at any given time, Hong noted.

Therefore, when choosing to invest, you must "look at the risk level and gauge whether you have the appetite for the risk," she said.

To understand how great a risk an investment poses, you have to ask whether the money you want to invest is important to you for covering other expenses in the immediate future.

If it is, you should hold off on the investment.

There are diversified portfolios and mutual funds that carry low risk, but at the end of the day, smart investing is about knowing your expenditure needs, the investment market and corresponding regulations, and taking calculated risks that you can live with should the investment fall through.

For more information from the Financial Literacy & Education Association, check out their Youtube videos: https://youtu.be/rD-MfF7EP-g?list=PLHwSVHFacs3ZBlpGzUeBnoiqIUJCWA41W