Make it Automatic
There are many times in life where making decisions is difficult or muddled with questions, by ensuring an automatic transfer each month, you can effectively overcome the emotional block when it comes to saving money. Set up a standing order in your crediting bank account. This way, it would be easier to transfer money every time as well as to stay the disciplined course.
Each month when you look at your bank account, you’ll be happy to see the bank balance grow. This is called emotional affirmation. You won’t be afraid to check your bank balances but instead take the responsibility or own these decisions and control them from now on.
Pay Yourself First
This is where it gets a little authoritarian, you owe it to yourself to not make (much) compromise. BUT this is not to say to be inflexible or ignore any swings that life bring to you but rather to follow a pre-determined set of rules so that you can stay emotionally firm in making any purchasing decisions.
Think of yourself as a business, all businesses have to allocate money to these accounts that will help you in the long run. They help to buffer for any unforeseen expenses that cannot be fully covered (immediately) by your monthly pay check & as well as to help you grow & make your money work for you.
3 Main Accounts
First Account: Your Emergency Funds
What: As the name states, it’s for emergencies, unexpected expenses that are too large to immediately pay off with your monthly salary
When: Use only in emergencies. Use it like a flare only when you see a search plane flying above.
How: Most people agree that it should be about 6 – 12 months worth of your current salary, 6 months if you currently do not have any liabilities to pay, 12 months worth if you have a big outstanding loan (HDB / Study Loan) to pay. For myself, I allocate the fund to be 12 months of Expenses. Any more than that, you might not be effectively allocating & utilising your money. To achieve the set emergency fund amount, I would allocate 50% of my allowance/ salary to reach it ASAP, thereafter upon reaching the set amount, I would slowly decrease the monthly allocation to be funnelled into other accounts for use. It could be funnelled into other accounts to reach other goals (retirement, investing amount, children’s education fund, topping up CPF SA, own goals, etc)
Where: Store in High Interest Savings Account (HISA) that is liquid (easily & immediately exchangeable for goods/services). I personally use the Standard Chartered Jump Start Account @ 2% interest (sign up soon, for 27 years old and below), the prevailing interest of 2% will continue after your 27th birthday BUT may change accordingly to SCB’s discretion without your notice. The 2% interest can only prevent inflation while the favourable interest lasts, specifically for SCB Jump Start’s interest, is capped at the first 20k, any monies thereafter continues at base interest of less than 0.1%. Currently there’s no minimal balance amount to enjoy the interest rate. SCB has some ATMs but mostly in the CBD area, you can apply for Online Banking as well (App & Web user experience is nothing to shout about – we’re comparing to everyone’s favourite bank POSB/DBS)
Second Account: Wealth Account Fund
What: This account is specifically for wealth management & building, used primarily as funds to invest in the Stock Market.
When: Depending on your investment strategy, risk appetite, investment horizon on top of several other factors, the account’s monies will fluctuate as you’re dipping into it to buy & sell securities, mutual funds or bonds.
How: Your allotment to this account really depends on how much risk you ‘think’ you can stomach as well as how much risk you can actually stomach. Your risk appetite is very much depending on the age group & life phase you’re in. Generally speaking as we are younger, we can withstand more volatility & loss in the Investment Portfolio as our available investing years have a longer runway as compared to the Middle Aged, Mature Adults & Retiring Adults. However this doesn’t account for the dependents we (may) have as well as a potential loss in income (which fuels the 3 Accounts). Currently I have my allotments set to 30% of allowances/income. Yours may differ.
Where: Store in a High Interest Savings Account (HISA). Currently, I have my wealth fund stored in CIMB’s Fast Saver Account which gives a mid interest rate of 1%. The Fast Saver Account has an account cap of 1% interest rate on a maximum of 75k. Minimal Balance to enjoy the interest rate is 1k. The account is also FDIC insured. The interesting thing about CIMB is that it only has about 2 physical ATMs in Singapore, which makes it difficult for easy withdrawal except if you’ve registered for Online Banking (App & Web user experience is pretty slow & shoddy). Thus it adds another layer of discipline for yourself to adhere to.
Third Account: Your Monthly Expenses Fund
What: Your fun account perhaps, the amount you set aside each month to spend is what you should be adhering to. Pro Tip (Psychological Hack?) – Whatever you don’t spend in the previous month will leave you for more spending in the following month, you’re training your lizard brain for delayed gratification
When: You’ll be using the monies in this account for the daily spend. On a very basic level, you’re spending on things that cannot be avoided, transport, food, medical etc. Honestly it’s really up to you to see how much you need to spend. On one hand practice delayed gratification while on the other, don’t beat yourself up over spending on comfort stuff like Starbucks (#mentalhealth #treatyoself). As with anything, moderation is key.
How: I ain’t gonna dictate on how you’re gonna spend. Just remember, what you take from today, you will have to pay for tomorrow. Can you balance your wants against your needs? My allotment is 20% for this account.
Where: Typical Accounts are UOB One, OCBC 360, DBS Multiplier due to salary crediting (added interest for a bunch of spending stuff) – It depends on your preference. I currently still use the basic POSB Everyday Savings as I don’t have a fixed income. The 4 accounts mentioned have Minimal Average Daily Balance but usually waived off cuz we’re under a certain age. But it wouldn’t matter much cuz by then y’all balling.
Miscellaneous Accounts
Supplementary Retirement Scheme (SRS) Account
Just sign up for it in any of the local banks online. Basically put in $1 to lock in the current retirement age (62 in FY 2020) for withdrawal of excess cash that you’ve saved in this account to enjoy differed tax reduction.
DBS Multi-Currency Account
You might be investing in Singapore Securities on the Singapore Stock Exchange (SGX) & currently the cheapest on commissions is thru DBS Vickers (cash linking from DBS/POSB Accounts) as your Broker. Use the Cash Upfront option in DBS Vickers while buying securities to enjoy even cheaper commissions. Watch out for the Minimum Average Daily Balance (MADB) after 27 years of age though. It’s 3k & there’s a $7.50 Fall Below Fee.
Flow of Accounts
Choose the main account that the salary will be debited into, this will be the Current Account where all spending will be done (the most liquid account). Next choose the other accounts to store cash for a long period (Savings / Emergency Account) & for a short period (Investment / Wealth Account). Next set up Standing Orders for automatic transfers of cash. Lastly, record your money inflows & outflows in all accounts to balance your Net Worth every few months or so.
So it looks something like this:
Salary
-> Current / Spending Account –> Spend on dailies (food, transport, insurance)
|
|–> Savings / Emergency Account –> Save for Rainy Day / Black Swan event
|
|–> Investment / Wealth Account –> Utilise for Wealth Creation
| |
| Wealth Created Flows Back into Wealth Account |
|< – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – -|
Well yours could be a little different but the point is the separate the money into different accounts & making money do all the work for you. Eventually replacing your current salary & hopefully you can fire your boss (?).
Closing Notes
Setting up these accounts can be a hassle but hey, it’s just a one time thing. Afterwards it’s all just a matter of checking once in awhile.
Finance & Design 