So, you’ve created that budget and have a few dollars to save. What now?
0:60 Create a Rainy Day Fund
Boring though it may sound, we all need savings – and most importantly, a Rainy Day Fund/Emergency Savings account. While things may look rosy at the moment, we just don’t know what’s around the corner. How would you cope financially if suddenly faced with redundancy or unexpected medical bills?
Assuming you’ve repaid any expensive debts, consider opening an easily-accessible savings account and stash away between three and six month’s worth of household expenses (check your budget for the sum required).
Should times get hard, you can tap into your Rainy Day Fund to pay your mortgage/rent, bills and other costs and hopefully avoid getting into debt until things settle down again.
Knowing it’s there can even help you sleep better at night.
Once that’s in place, it’s time to save for the future – be it college funds for your kids, future plans or good old retirement.
As a rule of thumb, we should aim to save at least 10% of our income each month – on top of what you’re squirreling away for retirement. But where you save it is up to you.
Cash vs Stockmarket
Any money you will need to access in the near future should be saved as cash into a savings account. You can even set up your bank account to ‘sweep’ the money over to it each month automatically.
But if you’re looking at the long term (say for your baby’s University education) you may choose to take a little more risk for potentially higher returns and try the stockmarket.
0:20 You don’t miss what you never had!
Singapore’s cost of living is pretty high though, and many of us find even after strict budgeting there’s not much left over to put away. So how can we save more?
Try one of my favourite psychological tricks. Whenever you get a payrise, arrange to put some, or all of the extra into your savings immediately. You never had it, so how can you miss it?
Do the same with any bonuses, tax refunds, 4D winnings, inheritance money or other cash you come into and you’ll find those savings build up fast!
And why not take a look around your home for any items you no longer use and sell them? You’ll de-clutter your home and make a surprising amount of cash to boot.