Savings For Young Adults – How To Start And How Much Is Enough?

In your 20’s, when you start to earn, you might feel like buying everything that you wanted to have till date. Some young adults spend all their income and save not a single penny in their twenties which is a huge financial mistake one can ever do. We know your twenties are the years when you fly high, travel places and loads of adventures are there on your check list, but savings is necessary as well. The primary reason behind savings at this age has to be some financial goals and aspirations shortly like higher studies or travelling abroad, but you cannot forget that life is uncertain and anything can happen within a blink of an eye. Savings is necessary from the very first day of your earning as you won’t like to depend on your parents or any other person in case of any financial crisis or job loss, once you have started earning already, isn’t it?

Understand the reason for your savings

To start saving from the time you start earning, you need to identify the reason for which you want to save. Being young adults, you might not gauge the risk of uncertain events in the future, but there are positive avenues as well for which you need to save. You might want to plan a beautiful wedding for yourself or your sister; you ought to go for a dream vacation to the foreign lands. Wedding photo shoots and the wedding rings can be on the check list for the millennial as well. Renovating the home of your parents and buying them a new car might be what you are exactly thinking about while saving a portion of your income and even saving for a child if you have plans to get married soon.

How much is enough to save as young adults in Singapore?

In Singapore, the median income of the young adults in around $4000 per month out of which the take home salary would be around $3200-$3300. Every individual has different financial aspirations, so one cannot fix a particular amount that is needed to be saved every month. You can save a certain portion or percentage of your salary that you think is enough to achieve your financial goal in the long term.

It is better to divide financial goals into time periods like what you want to achieve in 5 years, ten years and so on so forth. So, for example, if you want to buy a car in next five years of worth $90000, then you need to save at least $1200-$1500 per month starting from now. But wait for a second, there is a positive inflation in Singaporean market so that the car price would go up in next five years. But if you just don’t save rather invest your savings, you can cope up with the growing inflation and your wealth can grow at a faster pace than the inflation as the inflation is around 1.5% whereas the bank rate on saving starts at a higher percentage of 3%-5%.

The amount you want to accumulate in a given period says 5 or 10 years determines the percentage of income you need to save every month. But only saving will not help in this market; you need to invest in certain assets which can provide a positive return on a YOY basis so that your savings keep growing.

How to start and where to start?

If you don’t have a savings account in the bank, open one on the day itself you get your offer letter. Make up your head and understand why you need to save, once you have decided the reason, analyze the amount you would like to keep for the coming year. Once you receive the paycheck, deposit or transfer the amount, you have decided to save into your savings account before spending any penny from that paycheck as Warren Buffet once said that you should spend what is left after saving not save what is left after spending.

How Much Is Enough For Retirement?

As per the report of “Worldwide Cost of Living” produced by the Economist Intelligence Unit in 2016, Singapore ranks as the most expensive city in the whole world. This should intrigues a question in every Singaporean that how must do they actually need to save when they would retire. Retirement planning is necessary for every individual and every family as after retirement, the constant flow of income stops and one need to use his or her savings for the rest of the life to survive and maintain the livelihood. Without proper retirement planning, you might need to cut down your expenses and have to adjust to a lifestyle which you might not want for yourself and your family. This is why savings is really important as well as investment in various financial instruments, especially which are designed for retirement benefits.

There are few questions you need to ask while thinking/planning about your savings for retirement.

  • What is your net asset?
    Net asset or the money/financial asset/physical asset you already own, you need to analyze them. This is the source for your savings, you cannot consume all your income without saving or building asset as doing so will land you up in a big trouble when you will retire. For a proper retirement planning, you need to properly estimate your net assets as well as your expenses.
  • How much you need to save or you can save?
    The amount you would require for your retirement will solely depend on two things that are; (i) Your lifestyle
    (ii) The amount you would require to maintain that lifestyle.
  • What is your income from your assets?
    Now, this is solely dependent on the amount of risk you can take or willing to take. Risks and rewards come hand in hand, the more risk you take, the chances of having higher return increases. You must analyze how much income you can get from employing your assets into investments.

A general idea of income requirement after retirement in Singapore

If you analyze your monthly expenses, you would find that an average of –

  • $350 is required for groceries.
  • $700 is spent on outside food like if you dine frequently in restaurants or visit cafes in the evening.
  • $1800 is spent on car expenses including all the payment for fuel, road tax, insurance, maintenance etc.
  • $200 is required for utilities like a phone bill, broadband charges etc.
  • $350-$400 for shopping of accessories and attires.
  • $150 is required for healthcare checkups and medicines.
  • $800-$850 is required if you opt for domestic help service.
  • $100-$150 is required for personal expenses like salon expenses, grooming etc.
  • Holidays are must and you might spend at least $5000-$6000 in a year which will come down to a monthly expense of $500 on an average.
  • $150 might be spent on gifts and other social engagement.

All these expenses sum up to an average monthly expense of $5200 and an annual expense of $62400.

But have you taken inflation into consideration? I think no, right? In March- April 2017, inflation rate again splurged around 0.40% and if you check the average annual inflation for last 5 years in Singapore, you will find the inflation index around 1.5%. So, if we assume that the inflation rate will be around this figure (1.5%) then this yearly expense of $62400 would be $93600 in next 30 years.

So, how can you cope with this growing inflation and save for your retirement?

The first idea of saving for retirement has to be an insurance product which is specifically designed for retirement. There are many such products which promise to provide a constant income flow after you retire. Depending on the amount you would require for your retirement, you can invest in insurance product from an early age so that you can build up a huge corpus. Moreover, saving will help you to dismiss the effect of inflation as your money will also grow with time and it will grow higher than the inflation in the country.

How To Teach Your Child To Save?  

Financial planning and saving money are important concepts which you need to make your child understand from an early age to make them more conscious and rationale. For having a financially secure future, one needs to save and plan from an early age. Making your child learn the importance of saving will help you save as well. Most of the people learn to save by following trial and error process as saving money is not taught in schools. It is your duty to make your child realize the importance of saving for future and spending rationally.

What is the right age to teach your child to save?

If your child is within the age group 3 to 5 years old, then you can start telling them about saving. This is the age when a child learns new things and is highly responsive to things that you make them learn.

Things you can do when your child is 3-5 years old

  • The first thing you need to make your child understand is to wait; wait for the thing that they want, because nothing comes free of cost and nothing comes as easily as it seems. For example, if your child is waiting in the queue for the slip in the playground, make them understand why they need to wait. This habit will help your child to wait for the right time for the things they want. This will, in turn, help them not to spend on things that they don’t require and also wait till they have the required amount of money to buy what they want.
  • Make them understand the importance of saving before they spend or consume. It is one of the biggest economic factors that people of any age must understand, that one needs to save before spending. Create “saving” and “spending” jars and ask your child to divide the money they receive at any point of time equally in the two jars. You can also create another jar; “sharing” jar for making your child understand the need for sharing money with them who are in need.
  • Next thing you must do is to set them a goal such as buying a toy which they like but make sure it is not too expensive that it takes months to save for that. Then provide your child with small allowances every day or every week and ask them to add, how much they have saved and how much they need more for buying the toy. At this age, every child is very curious and they find joy and happiness in everything that is new to them. Engage your child in such activities so that they understand the real meaning for saving for a future goal.

Don’t worry if your child has crossed the age of 5 years because you can make them learn to save even when they are 10 years old or more. When your child is around 10 years, make them learn to choose between things they need and the thing they want. It is one of the most important aspects for saving. Most of the people cannot save as they cannot prioritize their wants and needs.

When your child asks for buying them something, ask them whether they need that item or not? If they don’t require that thing, make them understand why they should not spend money on that item rather buys something that they would require.

If your child is above 12 years or so, make them understand how money can grow. Make them understand the concepts of simple and compound interest and ask them to save periodically for a future goal.

Discuss with your child

Many of the parents think that discussing money matters with children is not right or it will affect them negatively. But in reality, discussing these things with a grown-up child will help them realize the importance of money, family values and about saving for the future.

 

Will Our Next Generation Get To See Money?

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What are the drawbacks of a cashless society?

Singapore is one of the most affluent and attractive markets in Asia, and it understands how to keep track with the global markets. When the western world is changing their whole currency system into electronic, tap payments, Singapore is no way behind them. According to a report produced by the MasterCard (GLOBAL), Singapore’s spending via electronic mode is 69% which is more than the average of the global electronic payment which is around 66%. The new age technology is paving way for Singapore to become more powerful in terms of trade and business as payments can be easily made from one part of the world to another.

Like everything else in the universe has some good and some bad features, a cashless society is no exception to that rule. Singapore is on a ride to become one of the top cashless economies in Asia, but there are certain drawbacks which will come with it.

A Cashless Economy might overspend

As per various reports from countries across the world, it is evident that a cashless society seems to spend a lot more than society or economy with tradition cash in hand. The reason given by most of the consumers is that it is difficult to keep a track of the spending while paying via electronic mode. One is more cautious about the money when they hand it over in cash because you count in on your own and you know how much you have and how much you can spend. But if you go cashless, then you just check the bill and the slip after paying the amount which leads to an excess of spending.

A cashless society is a threat during disaster

It may be a financial crisis or any natural disaster, but without cash, it becomes worst than the rarest nightmare. For example, if there is an earthquake and the electronic grid is down for few days or even a week or more, how will you pay for your daily food and other requirements?

In the case of turmoil in the financial sector, the stock market, cash is the safe haven for many. It is witnessed during the financial crisis of 2008 when not only the US but the whole world suffered. At that point of time, various economies witnessed extraordinary demand for their cash as investors were trying to keep their asset safe and locked in cash.

Everyone is not equipped for being a right fit in the Cashless Society

The cashless economy demands every individual be well equipped with electronic devices which are cashless transaction enabled. It demands everyone to be knowledgeable about the latest technologies and gadgets for using the cashless transaction mode. But in reality, everyone cannot be equally equipped with the knowledge and devices of a cashless society. It makes hard for them to transact and most of the time, due to lack of access/knowledge they lose money. A society must have equal opportunities for every person and that is why cash transactions hold similar importance as its counterpart.

Security Theft

It has been normally witnessed that carrying a lump sum amount of cash is risky. The cash might get stolen or you might misplace it somewhere etc. But, is cashless transaction completely safe? Not at all! There is a huge risk of security theft, digital hacking of your bank accounts and cards which can lead to ugly situations. You might lose all the money you have in your banks and nothing can be worse than that.

What about our future generation? Won’t they have any cash in hand?

This is a question which some parents might be asking themselves when they make their first cashless transaction. Cash has its own importance and nothing can beat that tangibility where we can feel and see the physical notes. The future generation might not be able to understand the value of cash or money if everything can be done with the cashless transaction. This trend will result in high spending; probably overspending, thus the following generations might have issues with financial planning and savings.

So parents, do you think you should educate your child about financial planning and balancing the usage of cash and cards so to let them understand the importance of it? Let’s do it so they can continue to cultivate their next generations too.

Save your hard-earned money and achieve your goals with these savings plans

Be wise with your money. Don’t get stuck into a cycle of earning, spending, investing in a fixed deposit and waiting for pension fund. Draw up a Savings Plan.

A savings strategy will give you a goal for your finances. You will then be able to build a plan on how to achieve this goal. Most of this planning will involve using investment tools. A thorough knowledge of financial tools, savings options and financial markets is needed for the same. In Singapore, consulting a Financial Planning Analyst Singapore is always a good option. A FPA or financial adviser will help you plan better. He or she can advise on investment tools and draw up a savings strategy to help you save for the future.

Financial Advisors in Singapore

In Singapore, financial advisors require a license to operate. Only certified and licensed financial advisors are allowed to operate. The Financial Advisers Act (FAA) of Singapore regulates the Singapore financial advisors operations. The FAA is an instrument of monitoring financial advisors and is issued by the Monetary Regulatory Authority of Singapore. It sets standards and lays down procedures on how financial advice is imparted to consumers. As such it seeks to protect consumer interests.

A financial advisor in Singapore is usually

  1. Licensed Financial Advisors
  2. Exempt financial advisors
  3. Financial Advisors Representatives
  4. Independent Financial Advisors

They offer you advice on a range of investment products. These include securities, bonds, foreign exchange contracts, and life insurance policies.

Who is a Financial Advisor?

An advisor is an expert at financial planning activities. As such the financial advisor must consider your current financial situation, risk tolerance, investment objectives and investment experience. Then the advisor must recommend a product suitable to you as per your outlined details and also explain why the product is suitable.

Things to watch out for

Also note that you must take certain precautions while dealing with a financial advisor. Make sure that he has proper certification and license. Ensure that when he recommends an investment product, he is sure about the product. Learn about the product details. Find out the following.

  • What is the type of product? Is the product new in the market or has it been around? What is it’s performance?
  • What are the various benefits on investing in the product? What are the risk factor with the product? Has the product given bad performance at any point of time? If so, when and why?
  • Details of the company or institution issuing the product. Is it a reputed organization or a private non-entity?
  • What are the charges or fees for the product which will get deducted? Are they paid upfront or is there a deduction form interest or dividend?
  • Make sure the advisor explains the disclaimers and warnings. What are the exclusions that is, what does the product not cover?
  • Find out how you can track your investments. That is, does the product provider give any reports or do you have to proactively seek reports?

Conclusion

When you hire a financial adviser, make sure that the he or she has all the relevant documentations and qualifications. Sit with them to draw up an independent income plan or a saving plan which leads to income generation. Discuss what you have in hand and expect on a regular basis. Be frank with details on how much you want to save and what do you expect from your savings plan. Also discuss the risk and contingency factors of the saving plan. If you anticipate a change in circumstances, then prepare an evolving plan which will take into account your revised situation. Don’t rely only on yourself to draw up a risk mitigation or savings plan. Consult a reputed, qualified and licensed advisor for your finances.