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, #adulting obligations (i.e. giving parents’ allowance) to meet, 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, and the 5 easy steps to help you start saving towards your financial goals.
Why the 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 are a bigger proportion of our pay when we start.
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 start off managing your finances well, than to later on manage the finances of your family at the get-go.
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 for the perfect getaway (when we can travel again), being able to afford your desired BTO, buying a nice watch, bag or shoes. Identifying these goals helps to keep you motivated, seeing that your discipline has something tangible to be rewarded with.
Apart from immediate targets, consider aspirational goals such as financial freedom, ability to give back to society and legacy planning. Setting both short 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. Then breakdown your spends into different buckets. This helps to ensure that you do not overspend and rationalise your expenditure. Here are some tips on managing your personal budget, summarised from an Endowus article.
3. Automate to help keep you disciplined
Let’s keep it real, financial prudence for longer-term goals is neither immediately gratifying nor something we prioritise daily. To help us keep to our goals, we should set up automatic transfers to help us keep on track.
A common trick used is the “Pay yourself first” concept. Rather than spending our money, then saving whatever that is left (not much for poor savers), we can save our money first then spend 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 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 our own budget, we have to decide how much to set aside each month. This ensures that you can be comfortable with your daily expenses and not set yourself for failure.
4. Get the best value, not just the cheapest
In a world where we are bombarded with marketing messages daily, we are influenced 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.
Some questions to guide you along making the best value purchase includes
- Do I need this purchase? (Wants versus Needs)
- Is there a cheaper alternative that can serve your 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 to help you pay yourself first, as well as using it for other emergency funds, 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.
Get a head start on financial literacy & general investing by watching our Investing 101 with Endowus 4-part series here.