Saving, Where to Begin?
Save money and money will save you.
— Jamaican Proverb
We were all taught that we should always set some money aside for a rainy day. However, many of us may not know where to start. After all, the advice to ‘save more’ isn’t very different from ‘exercise more’ — it’s something we all know is beneficial, but very often don’t know where to begin. For instance, a search on exercise videos on YouTube brings up 308 million results! Which video is the right one to begin with?
While past surveys showed that the majority of Singaporean had woeful savings levels, the COVID-19 pandemic likely jolted many into the realisation that jobs could disappear quickly and that there was a need to get their financial affairs in order — we can see a shift toward certain better financial habits like saving.
Whether you’re just starting out or you’re already mid-way through your journey and want a quick check-up, here are some tips. While “savings” may sound pretty abstract and vague, by attaching a specific goals to corresponding saving amounts and segregating those funds into different accounts can help even those who are less disciplined to be more successful in sticking with your financial plan. These goals also help you visualise what’s at stake and the amount of risk you are able to take (if you need to invest in order to hit those goals). For example:
Emergency Funds
Imagine for a moment that your income dropped to $0. What payments would you still need to make? Some examples are your mortgage, food, utilities, medical bills, and maybe some transport costs. By calculating these essential payments per month, you can set aside an emergency fund equivalent of around 6 to 12 months worth of these in a savings account. These are for emergencies only and should not be invested as you cannot afford the lack of liquidity or worse — a loss.
Large Ticket Items, Retirement, and Legacy
The priorities between the contents within the second and third bucket in the illustration is up to your personal preference of priority. Some may place a greater importance on saving for their retirement to ensure they are able stop working at an earlier age. Others, confident that they have many more years before they hang up their work boots, may want to focus their efforts on more tangible items first e.g. becoming a home owner.
Whatever you choose, just remember — the longer the timeline for the goal, the more leeway you have in terms of risk-related investments that can boost returns. Always remember though, stay strong and don’t meddle with it during a downturn as the time you have in the market will ensure that you receive a good return.
Dreams
The last bucket of funds are for goals or fantasies that you hope can come true but will not severely impact you or your family’s lives if it doesn’t come to pass. Maybe you want to open a brewery so that you could host friends as a “towkay”, or own a private jet so you can travel without worrying about crowds or a schedule. If you are able to, set aside some money into the dreams bucket with the highest risk investments, and if it materialises, great! But if not, life still goes on.
It’s now the perfect time to relook at your savings and financial plan as it’s still the beginning of the year. Research shows that we are motivated to “do something” at the start of the month or year — taking advantage of a clean slate if you will. If you still feel that you need some guidance on where to go and what blind spots to eyeball, get in touch with us for a second opinion.
