What is your savings strategy? Do you wipe clean your bank account everytime you have to pay for a big commitment, and then start from zero again for the next one? Read on to learn the Art of Saving
Goldilocks and the three bears
Just as nutritionists recommend that we consume a different amount of calories for our breakfast, lunch, and dinner, we should also allocate a different percentage of our monthly income towards our short term, medium term, and long term savings. But before we can do so, we must first understand the general description of these 3 categories.
Short-term savings: To be utilized in <10 years. Examples: Emergency funds, to buy and renovate a house, get married, or for unexpected purchases such as to replace a broken/lost phone, or an old laptop/tablet.
Medium-term savings: To be utilized between 10-20 years. Examples: To purchase a family car after starting a family, to renovate your house or change new household furniture/appliances again after 10+ years, to down pay for a private property if you upgrade from HDB.
Long-term savings: To be utilized ≥20 years. Examples: To support your retired parents, pay for your children’s university, to prepare for your own retirement.
For a 25-year old who is just entering the workforce, he/she can expect a typical savings and life events timeline to look like this:
Short-term savings
Since you will require this money in less than 10 years, you will be more concerned with liquidity and stability than returns. Hence there will be limited options where you can park your money for this category. The 3 most common are a normal bank account, bank time deposits, Singapore Savings Bonds (SSB). You are unlikely to risk investing this money as you will have little to no time to ride out any sudden economic downturn.
Medium-term savings
With a horizon of 10 to 20 years, investments and endowment plans become additional options for you. At the very least, you expect your money to keep pace with inflation. You are also most likely to set aside a sizeable amount of your income (20%) to save/invest in this category as
1) you are almost guaranteed to be gainfully employed,
2) you probably will not have any foreseeable big financial
Long-term savings
Although you have the most amount of time to save for this category, the 3 main purposes also have the biggest price tags.
1) Annual university tuition fees cost around $28,000 - $50,000 locally, and up to $100,000 for overseas
2) Both you and your parents’ retirement will easily cost around $500,000 per person.
As such, you are most likely to be concerned about getting the best returns for your risk appetite, and having a diversified portfolio to reduce your overall risk exposure over this extended period of time that does not even have a fixed end date.
#PROTIP: Side category of lifestyle savings for recurrent expenses
While saving up for big ticket items in the 3 categories discussed earlier, it is easy to overlook that we can also save strategically for certain recurrent expenses that are life-style related.
Examples: Annual holidays, car insurance and road tax.
The best option would be to park your money where you will still receive returns even when you make yearly withdrawals.
Be it whether you’re already great at saving but don’t know if you’re allocating wisely into the different categories, or that you’re unsure if you’re even saving enough at all, always consult with Chloe first!
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