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Budgeting 101

How You Can Start Adopting A Saving Habit

 

Most Singaporeans will admit that we do not have good saving habits. If we look around our circle of friends, it is easy to find people who are struggling to save – possibly ourselves as well. There are simply some who spend as much as they earn, essentially living life a month at a time.

Contrary to popular belief, a survey done last year by JobsCentral showed that people between the ages of 21 – 30 actually have better saving habits than older folks of ages 41 – 50. The survey found 46% of those between 21 – 30 to have saved over 20% of their salary.

Is that good enough? Probably not. This only conveys the point that more than half of our young adults are saving less than one-fifth of their salary; at an age whereby their life commitments are probably at its lowest (e.g. no kids to take care, no home mortgage yet). It is no surprise that as they grow older, these statistic numbers seemingly decline further.

So what are the reasons for Singaporeans not being able to save?

 

Saving is a means to an end; not the end itself

A child would easily understand this. Parents teach their children to set aside a fraction of their pocket money so that they can save up to buy something they like.

In this case, saving is a means to an end. The end being whatever the child is intending to buy with his or her savings. It is a good habit.

However, adults commonly do not practise what they preach. We tell our children to save up for their toys; yet we are happy to take installment plans for home furniture, IT gadgets, wedding packages, and heck, even our credit card bills when we overspend.

Sometimes we justify it by saying that these are big-ticket items that we need to take a loan for. An example would be a $30,000 renovation loan. A couple with a monthly income of $5000 will take 2.5 years to save up if they set aside 20% of their monthly salary for it.

Our point is, if we are telling our children to save up regularly before they can afford a $50 toy, shouldn’t we all the more so lead by example by exercising proper planning on items which cost far more? These could refer to a $5,000 furniture, a $10,000 wedding package or a $30,000 renovation loan.

 

Taking installment is the problem, not the solution

Adult Singaporeans are not obliged to plan for their savings as there are many avenues out there to fund their purchases in the case of fund shortage. This is better known as buying on credit.

If you do not have enough savings to buy a new set of furniture for your home, there are 5-year installment plans you can tap on. Can’t afford your dream-wedding package? Fret not; you can repay it in installment years after your wedding is over. And if there are anything else that you can’t get an installment for, the bank is more than happy to give you a cash advance for it to be returned in monthly installments, with a hefty interest charged.

The fact is, by itself, these installment plans are not necessarily a bad thing.  However, they provide too easy a solution for adults who do not save – and come with hefty consequences. With these plans readily available, most Singaporeans are able to afford items that they otherwise wouldn’t be able to; in exchange for years of struggling thereafter to pay off the accumulated large debt amounts.

 

What are you saving for?

 Returning to the childlike thinking of asking ourselves what we are saving for can help set our saving mindset in the right direction.

Just like kids, most adults also prefer seeing short-term gratification as a result of the hard work they have put into saving. That is why saving up for a $5000 end-of-year holiday to Japan is a lot easier (and less painful) than saving up the same $5000 for a long-term saving & investment fund that you will not be touching for the next 20 years.

Setting realistic short-term goals are a good way to kick-start a saving habit. For example, if you do not already have a saving account that holds 6 months of your monthly expenses, then you really should get started immediately.

Once you have achieved that, you can start thinking about saving up towards building up your own investment portfolio. Getting a $100,000 investment portfolio isn’t going to come overnight. However, a $10,000 portfolio can easily be obtained within a year with diligent planning. A couple with a combine income of $5000 a month can set aside just 10% of their salary to put towards an investment portfolio. After one year, they would have accumulated $6000. Throw in their 13th month bonus and they will reach $10,000. It is possible, but only if you set it as a goal to work towards.

 

Set a short-term saving goal now

 It really can be anything. A fine piece of jewellery, a holiday, a new MacBook, or dare we suggest, an investment portfolio. If it’s the latter that you are working towards, you can read up on some ways you can start investing after you have accumulated $10,000.

Share with us your views on savings at our DollarsAndSense.sg facebook page. We will love to hear the various views that you may have about savings.

 

Photo from Bizmology Hoovers. Used with appreciation.

 

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