Thursday, May 20, 2010

No better time to save than now

The Straits Times

By Gabriel Chen

Saving money should be at the heart of all of your financial goals.

This advice might sound old-fashioned and unglamorous but it has well and truly stood the test of time.

The question is: How do you save enough to meet all your many needs in advance?

Sending your children to university can be expensive, housing prices are shooting through the roof, and the burgeoning cost of living means that putting away enough for your retirement is looking to be a real challenge.

Still, financial experts say it is possible to save enough to reach all your goals, but doing so requires you to have the correct philosophy and follow-through.

For one thing, stop making excuses.

People often lament that they are unable to save. Often, the problem is simply that they are unaware of where their money is going to or how much they are spending on items they do not require.

These sorts of excuses are just not legitimate.

'There are many myths concerning savings, such as earning too little to save, or the need to save when your life is full of uncertainty,' said Financial Alliance's associate director Tea Eng Peng.

'All the above are excuses. Can you imagine the result of not saving? Will there be more stress or problems with saving or without saving?'

Many financial advisers like Mr Tea believe that saving money is as much mental as fiscal - once you stop making excuses, you will quickly see your money grow.

'A general rule of thumb for savings is 10 per cent of your income,' said ipac financial planning Singapore's senior vice-president Brian Goh.

'However, our experience shows that this sum depends largely on a person's goals and aspirations, and will vary according to personal circumstances.'

Like many financial decisions, saving starts with a plan. Here are a few tips for getting started.

Set saving goals
For short-term goals like paying the down payment on your dream house, first find out how much this will cost you. Then establish a time frame.

Suppose you want to be able to make a down payment five years from today - once you know the cost and time frame, you can calculate how much you will need to save monthly.

Make sure your goal is attainable within that period to avoid getting disappointed.

For long-term goals like saving for retirement, you could enlist the help of a qualified financial planner who will consider your desired lifestyle and the effects of inflation on your capital.

'For someone who is a little less disciplined in putting aside money, he or she can seek help through a structured savings programme,' said Mr Shrikant Bhat, Citibank Singapore's head of wealth management.

'In such a programme, a fixed sum is set aside regularly, either monthly or quarterly, and at the end of a specified tenor, the full sum will be returned with additional interest. Such features can easily be found in endowment savings products.'

Write down a budget
Have a budget so that you will know each month or each pay cheque how much you can spend on any given item or category.

If you cannot fit all your savings goals into your budget, take a look at what you are saving for and cut out the less important things - or adjust the time frame.

'Cut your expenses or find ways to increase your income if your total expenses and your targeted saving amount are more than your monthly income,' suggested chief executive Christopher Tan of wealth management firm Providend.

Put aside savings first
Always pay yourself first before settling other monthly bills. Money for savings should come out of your income first and set aside where it cannot be easily touched.

Doing this will compel you to be more careful with your spending habits as the other bills must be paid.

Have an emergency fund
In life you should expect the unexpected, and this is why you need an emergency fund - a special account that can be used for unexpected bills which may arise.

Financial emergencies can come in the form of the loss of your job or significant medical expenses.

This article was first published in The Straits Times.

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