The biggest assumption made by writers who encourage their readers to invest is that the readers have sufficient capital to invest. For most young Singaporeans just entering the workforce, there is limited cash flow to start investing with. Also, there are tertiary education loans to pay off and other #adulting obligations (such as giving parents a monthly allowance), which makes it hard for them to save.
Before any of us can start working towards loftier financial goals, as the Chief Financial Officer (CFO) of our own wealth, we need to first understand why it is important to start saving more money. Here are five easy steps to help you start saving towards your financial goals.
Why do we need to save?
At the start, it is easy to defer the decision to save more until you earn more. It is difficult to save a significant portion of your income when you earn a low salary. After all, our fixed expenses on necessities make up a bigger proportion of our pay when we start working.
While the impact of saving may not be immediately gratifying, the process of budgeting, understanding trade-offs in spending/saving, and reviewing your own cash flow in a disciplined manner is a habit that will help you in the long run. Much like exercising, it is easier to start small and early. It is less financial demanding to manage your personal finances well from the onset.
Tips to help yourself save more money:
1. Set realistic timelines and targets
Identify your aims in terms of the outcome: This could be going on the perfect getaway, being able to afford your desired BTO flat, or buying a nice watch, bag or shoes. Identifying these goals helps keep you motivated, as your discipline will be rewarded with something tangible.
Apart from immediate targets, consider aspirational goals such as financial freedom, being able to give back to society, and legacy planning. Setting both short-term and long-term goals makes it easier for you to to feel some sort of gratification, no matter how big or small it is.
2. Start planning — use a budget as guidance
Know how much you need to save to meet your goals, then you will be able to work backwards to find out the maximum that you can spend to reach your savings goal. After that, break down your expenses into different buckets. This will help ensure you do not overspend. For more tips on managing your personal budget, click here.
3. Automate to keep you disciplined
Let's keep it real — financial prudence for longer-term goals is neither immediately gratifying nor something we prioritise daily. Setting up automatic transfers can help us remain focused on our goals and stay on track.
A common trick used is the "pay yourself first" concept. Rather than spending our money and then saving whatever that is left, we can save our money first before spending whatever that is left. This is done by setting up a recurring transfer of your planned savings to another bank account once you received your salary, and then paying for your expenses with the remainder.
This is similar to how CPF helps us with financial planning, where 20% of your salary is automatically debited. Part of our salary can be set aside before using it to pay your bills or buy necessities.
For your own budget, you'll have to decide how much to set aside each month. This ensures that you will be comfortable with your daily expenses.
4. Get the best value, not just the cheapest
In a world where we are bombarded with advertisements daily, we may be tempted to get the latest, shiniest new gadget or product. This could be the latest smartphone, sneakers, or even investment trend.
Our thought process around saving is then often around getting the cheapest price out of this new product, rather than looking at getting the best value for our own needs.
Here are some questions to guide you to make the best-value purchase:
- Do I need this purchase? (Wants versus needs)
- Is there a cheaper alternative that can serve my needs or wants?
- Are there any hidden or recurring costs that I need to be aware of?
5. Review your goals and budgets periodically
A plan should persist as long as the assumptions behind it remain constant. Our income, expenses, and financial goals are likely to change at least annually.
Similar to how CFOs review their company's annual budget, you should broadly track your spending against your planned budget. After identifying any significant deviations, you should be able to understand the cause of the deviation and consider ways to circumvent it.
With all these tips in mind, you may consider doing a recurring transfer of your cash savings into Endowus Cash Smart, a higher-yielding, low-risk cash solution that can help you pay yourself first, store your emergency funds, or enable you to attain short-term savings goals. And because there's no lock-in period, you can withdraw your funds anytime for that goal you have finally attained, to reward yourself.
To get started with Endowus, click here.
Next on the Endowus Fin.Lit Academy
Read the next article in the curriculum: Creating your savings plan with a robo-advisor
This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endow.us Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.
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