Ultimate Dummies Guide On How To Start Saving Money

Avocado poached eggs on toast for $20. Atas coffee that costs $7 a cup. Taking a Grab when it’s surge pricing–all these things add up fast! The point is, that spending money in this day and age is easy. Although we know the importance of saving that cash, putting it into practice is much, much harder.

So even though many of us might think “There’s no way I earn enough to have any savings”, there’s no such thing as “too little” when it comes to starting off on your savings journey. Even if you’re putting away $50 or $100 a month in savings, that’s a start and, often, just getting started is the hardest part. 

Fear not, though. For those of us who do want some guidelines and a helping hand in terms of how to navigate this savings landscape (or minefield as some of you might feel), we’ve come up with the ultimate dummies guide on how to start saving in Singapore.

 

Ultimate Dummies Guide On How To Start Saving

1. Why saving money matters
   • Emergency Fund
   • Retirement
   • Achieving financial goals
2. Understanding Your Finances
3. Setting Up Your Savings Plan
4. Strategies To Boost Your Savings
5. Staying Motivated

 

Why saving money matters

Look, we know that spending money is fun. Who doesn’t like dropping a cool G on the latest accessory or taking that awesome 2-week trip to Europe? But to actually do all that, we also need to save some money. Saving is important for a variety of reasons but first and foremost, it allows us to attain a level of fiscal discipline in our lives.

This can then allow us to better understand our spending while also simultaneously putting money away for our longer-term financial goals, like retirement. Of course, we can put our savings towards different purposes and we certainly should do that.

By putting our savings goals into various (and separate) sections, we can get a better gauge on how much progress we’re making towards meeting each of those individual targets. So, here are 3 ways we can think about splitting up our savings goals in a methodical manner.

 

1. Emergency Fund

First up is the good ol’ “Emergency Fund”. You may have heard of it but, just to be clear, a last-minute holiday to Thailand or visiting the most lit Michelin-starred restaurant doesn’t count as an “emergency”. An emergency fund is for unforeseen expenses that are critical for your daily life and is held in cash or cash-like instruments, such as money market funds or in short-term savings vehicles like Singapore Savings Bonds (SSBs).

Think of your costs as falling into 2 buckets; discretionary (going out for dinner, travelling, massages etc.) and non-discretionary (i.e. absolutely necessary costs, like rental/mortgage, groceries, healthcare). The emergency fund covers the latter of these–the non-discretionary expenses.

Common examples of an “emergency” might be losing your job (and monthly income) or there being a particularly large medical bill that you need to pay off. The emergency fund allows you to have some flexibility in meeting your monthly expenses when the need arises.

Don’t worry, if you’re just starting, you likely won’t have a sufficient emergency fund right off the bat. But you can slowly build it up and that will take some time so be patient–it’s certainly not a race.

 

2. Retirement

One of the places you could be directing your savings is into your retirement goals. That’s because we have a great system in Singapore that helps us save for retirement–the Central Provident Fund, or CPF. Check out our super comprehensive guide to everything CPF here.  

Basically, we have the ability to grow our savings through various CPF accounts–like the CPF Ordinary Account (CPF OA) or CPF Special Account (CPF SA)–but also we can grow our savings by just investing ourselves, outside of the mandatory CPF contributions.

All investing is based on the whole premise of “compound interest”. We’ve all seen that chart where your S$1,000 grows into some crazy amount over 30 years but that illustrates a few great points about compounding.

---

ALSO READ: Retirement Planning in Singapore: A Starter Guide for Confused Millennials and Gen Zs

---

First off, it’s important to actually start the process of compounding by trying to contribute regularly to a retirement savings goal. Second, that small amount of initial capital, if added to, can grow significantly over many years.

As the table below shows you, if you can even save more in your CPF SA, then you’ll more than double an initial $1,000 investment over 20 years. If you decide to take on more risk and invest those savings into global stocks, then the average return over the past 120 years has been in the range of 8% to 10% annually.

Compounded over 2 decades, your $1,000 at a 10% annual return can turn into more than $6,700! The difference between a 6% annual return and a 10% annual return shows you the power of compounding as the amount you’d have after 20 years with a 6% annual return is less than half that of a 10% annual return over the same period. Maths is boring but it’s also magical!

 

Compounding of $1,000 with various rates of return over 20 years

Annualised return (%p.a.)	Total amount after 20 years ($)
2.50 (CPF OA)	1,639
4.05 (CPF SA)	2,212
6	3,207
7	3,870
8	4,661
9	5,604
10	6,728

Source: investor.gov

 

3. Achieving financial goals

Third, savings can be used to reach anything from a short-term financial goal to a long-term financial goal. That’s the beauty of saving. It’s more a methodical and organised way of you trying to reach your own #goals–whatever they may be.

There are big landmarks that many of us want to achieve, whether that’s saving for our own home or doing an absolutely sick trip to Japan/Europe with your friends or spouse/partner.

Either way, setting these targets means you have something to work towards when you’re building a savings plan. It also gives you an avenue to “manifest” these goals by hitting certain landmarks. Nothing feels better than setting ourselves a goal and then reaching it, that’s also true of achieving our own financial goals.

 

So you want to start saving? Check out these useful guides: Short, Medium, and Long-Term Financial Goals: How Do You Save Up for Each Type? Retirement Planning in Singapore: A Starter Guide for Confused Millennials and Gen Zs Why Every Singaporean Needs an Emergency Fund—And How You Can Build Yours 10 Best Savings Accounts in Singapore with the Highest Interest Rates (Oct 2024) 12 Best Savings Accounts in Singapore with No Minimum Balance (2024)

Back to top

 

Understanding Your Finances

Track your income and expenses

Getting a really good hold of your finances is one of the first crucial steps to successful saving. How does that start? By religiously tracking your income and expenses. Otherwise known as your “cash flow”, you want to have an overall picture of what’s coming into your bank account and what’s going out of it.

You can always use Microsoft Excel to build relatively basic models but if you’re not an Excel geek and prefer something a bit more user-friendly, then there are plenty of budgeting apps out there that can help you manage your monthly cash flows.

By getting an overall picture, you can better understand where you want to cut back on your expenses or where you could try pushing more of your savings towards.

 

Create a budget

The word “budget” tends to elicit groans because it means we actually have to control our spending but we can turn this on its head and frame a budget as a “guide” to your monthly spending. We don’t need to stick to it within 0.000001% of every budget allocation but it can give us a rough framework for what we want to achieve.

How do we go about doing this? First off, understand what your take-home pay is (so after income tax payments) so that we have a clear picture of what is coming in. After that, we can focus on allocating a certain amount to our needs, such as housing, utilities, and food, and our wants (trips overseas, dinners out).

Finally, you can still indulge in your guilty pleasures. Despite what was said at the start of this article, you can still have your $7 coffee if it works within your budget and you place that pleasure as more important than other “wants”. Always do the maths and figure out what works for you without living like a Scrooge.

 

Identify areas to cut back

We all have spending habits that are less than ideal. Think of those bad habits as excess fat that you want to burn in pursuit of your financial health. We can cut out areas that are not doing anything for us–that don’t bring us “joy”.

Do we really need an extra streaming subscription if we already have Netflix? Can we forego one dinner out per month and put the funds we would have spent towards our savings goals? These are important questions to ask ourselves and to really examine where we can cut back without severely impacting our happiness. 

If we take a magnifying glass to more of these expenses, we might be surprised how quickly we find that there are multiple costs that can be saved on.

Back to top

 

Setting Up Your Savings Plan

Start with an emergency fund

Begin your savings journey by trying to build up your emergency fund. Traditionally, an emergency fund should be sufficient to meet a minimum of 3 months’ worth of your non-discretionary expenses. Ideally, you’d actually want to have a minimum of 6 months’ expenses.

And if you wanted to be uber conservative and have a larger cash buffer then 12 months’ expenses is cited as the maximum because we don’t want to have too much cash in our emergency fund as we could be putting it to better use elsewhere!

Remember, meeting your expenses when an emergency truly strikes (like a job retrenchment or a sizeable car repair payment) is paramount. Again, trying to build up those “emergency fund” savings will take time so allocate a certain percentage to it each month and track your progress.

---

ALSO READ: Why Every Singaporean Needs an Emergency Fund—And How You Can Build Yours

---

 

Choose the right savings account

While you do need to carry out the act of saving money, where you put those savings is just as important. There are different types of bank accounts that can make the most of your savings (like emergency funds) that are in cash.

Right now, interest rates are relatively high so there are some great deals to be had on high-interest savings accounts if you do your homework and compare them. The bigger banks like UOB, OCBC, and DBS will offer higher interest rates for these but you will need to do things such as crediting your salary, spending on a credit card, and saving a specific amount of money each month in order to get the headline interest rate.

Beyond that, there are just regular savings accounts that can be used for your month-to-month expenses. Choosing the best option for your savings needs will depend on your time horizon of your savings, i.e. are they short-term or long-term savings?

If you don’t need to access the savings in the short term, you could consider putting it into a fixed deposit in order to earn a higher yield but if you do need the savings in the next 3-6 months then having your funds in a high-interest savings account could be the best option.

 

Automate your savings

It’s important to “pay yourself first” so to speak when you’re drawing up your savings plan. Remember that you should try to automate everything so you’re not left at the end of the month trying to gather whatever’s left over from your salary and outgoings towards your savings.

Do it the other way round. When you get your salary, put the funds earmarked for “savings” aside first and then go about allocating the rest of your budget to your expenses. By doing this, you’re taking the temptation away from spending that wad of cash as soon as you get it and you’re making the whole budgeting process just way less stressful–which is a good thing!

Back to top

 

Strategies To Boost Your Savings

Specific savings goals

Now that you’ve got all your accounts sorted, you can start setting those #goals. By defining exactly what your goals are, you’ve got measurable numbers to hit–that’s what we want. Number in our head gives us the determination to hit them, sort of similar to us going on a workout/diet regime and trying to reach a target weight.

Common goals can include anything from saving for a short holiday trip with friends/family or building up enough funds for a down payment on a property. Every person will have different goals they set for themselves but the most crucial part of this process is to visualise the goal so that it can motivate us to stick to our savings plan.

 

Use the 50/30/20 rule

Don’t worry, we’re not getting into advanced mathematics with this. It’s more just percentages and what they mean when applied to your monthly spending and saving. By adopting the famous “50/30/20” rule, you’ll give yourself the right foundation to start planning.

Essentially, the rule refers to how you allocate your after-tax monthly income–50% should go to needs, 30% to wants, and 20% to your savings. Again, we should try to be vigilant about what counts as a “need” and a “want”. 

It’s just a template for us to try to follow and obviously, not all of us can meet these spending allocations straight away. Or perhaps, we can do better on the savings part! Because the rule allows us to adjust where we currently are and see if we can reach these percentages. Say we can’t save 20% of our income straight away, it’s still completely fine to start with 10% and try to gradually make our way towards that 20% goal.

If you want to give yourself some breathing room, you could also be a bit more liberal in how you could save and include your mandatory CPF contributions as part of that (because we don’t actually ever see that money come into our bank account).

 

Take advantage of discounts and rewards

It goes without saying but it’s kind of important to save money where possible when we’re actually in the process of building our savings. One of the best ways to do that is to seek out the best ways to optimise your spending so that you’re getting the most back for your “needs” as well as the “wants” portion of your budget.

Cashback credit cards can help us to do this. That’s because many give us a certain percentage back in cold, hard cash when we spend on their card. Make sure you research thoroughly which ones work best for your spending and, importantly, do not spend more than you need to.

Back to top

 

Staying Motivated

Track your progress

By actively tracking your savings goals and progress, you can better adhere to your overall budget. By having small “landmarks” along the way which you want to hit, you can then celebrate once they have been met.

However, that doesn’t mean you should be inflexible in adjusting these goals along the way. Just like life, and your investing journey, your savings progress won’t always be a straight line up and to the right. If you happen to lose your job or you need to meet a large expense, you may have to pivot and be more flexible temporarily in that 50/30/20 rule of spending.

 

Avoid common pitfalls

By trying to adhere to our goals, we have to try our hardest to “practice what we preach”. That also means trying to avoid some of the most common pitfalls that we can all succumb to when we set out a savings plan.

One of the most widespread mistakes is not “paying yourself first” when we get paid and instead spending that money on our “wants” first before allocating towards our savings goals. Additionally, the struggle of “lifestyle inflation” is real. 

We all like to experience the finer things in life but we can only adjust our lifestyle wants as long as our income is rising at the same/faster pace. We can always learn from our savings mistakes (if we do make them) so just remember to stay on track when things get tough and come out of any experience with a positive takeaway.

 

Surround yourself with a supportive community

Coming up with a comprehensive savings plan can be a lonely process. Always try to seek out someone who can “spot” your financial health and practices. That way, you have some level of accountability to not only let yourself down but also not to let down your group of like-minded individuals.

Linking up with a savings group or a platform that can help keep you motivated can be an important psychological boost to the whole savings process.

Back to top

 

Conclusion

Overall, starting your savings journey requires the first step of setting goals. With a methodical process and framework, we can better prepare ourselves for the future. It can also instil in us financial best practices so just get started, even if it’s with just $50 a month!

Remember that the whole compounding process can help us grow our wealth and patience is required. The savings journey is a long one and it’s not always smooth. But if we can make progress each month–no matter how small—then we can see that progress towards our financial landmarks.

Don’t forget to keep learning on this process. If you want to check out more insightful personal finance content, check out MoneySmart’s personal finance content on topics such as Budgeting and Property. In the age of the Internet, there are also many newsletters out there that can help support our journey. At the end of the day, get started with a small amount and keep yourself motivated along the way.