NEARLY half of Singaporeans make a habit of saving some of their pay, but they seem to lack discipline when it comes to setting and sticking to a budget.
Less than a third of all Singaporeans stick to a monthly budget, and the main culprits are in the free-spending 18- to 29-year-old age group, according to Citigroup- Asia Pacific's latest survey. The survey attempted to measure what it called the 'financial intelligence' of Singaporeans.
The findings indicated that only one in five young adults aged between 18 and 29 was able to set a monthly budget and follow it. Older people tended to spend within their budget.
To assess the financial well-being of the younger set, financial advisers from wealth management firm New Independent conducted a 'financial clinic' on three people. Below are the results of the clinic.
Cut down on taxi rides to save more
Mr Michael Chee, New Independent's senior consultant, says:
Hidayah Hassan, 23, single
Started work: 2004 Current job: Magazine editor Monthly pay: $2,900-$3,500 Savings: $200 per month Investments: $400 monthly on insurance Concerns: Difficulties in saving Goals: Start a business in five years with a capital of $50,000-$100,000
MS HIDAYAH Hassan has been aiming to save at least $200 a month since she began working. She hopes to save more but it has been difficult. She gives nearly $1,000 to help supplement the family income. Her father is a delivery driver and her mother, a factory worker. In addition, part of her salary goes towards a part-time degree course.
A check showed that the bulk of her monthly expenditure is spent on transport. She often travels by taxi.
Being wary of falling into a debt trap, she settles her credit card bills in full each month. But she believes she can do more.Her work exposed her to many articles on personal finances and that made her aware of the need to track her finances more often and to diversify her savings. But implementation has proven to be hard.
Her approach towards investments is conservative and she prefers insurance-based products or tangible assets like property compared to equities.
Recommendations:
AT $200 a month, her savings ratio is between 6 and 7 per cent. This ratio assesses one's ability and capacity to save. The rule of thumb is to save a minimum of 10 per cent of one's salary. In order to improve her ratio, she has to increase her monthly savings to $290-$350. The desired level can be achieved through the following steps:
Goal setting. Commit to a savings target. Put down in writing the exact amount you want to save a month and force yourself to keep to it.
Open another bank account. Currently, she has only one bank account. Having a separate account will help draw a clear demarcation between expenses and savings. Ideally, the new account should be used only to hold her savings and have no link to bill payments, removing the temptation to pay from this account.
Reduce big expense items. She can attempt to cut down on the number of taxi rides by planning her journeys and schedule. Setting off earlier and making use of public transport will help lower her transport expense. She can also ask her employer to review her transport allowance in view of the recent hike in taxi fares.
Make savings work harder
Mr Stanley Sim, New Independent's financial advisory manager, says:
MR MARCUS Lee saves about 30 per cent of his income.
Marcus Lee, 26, single Started work: 2006 Current job: Maritime insurance claims specialist Monthly pay: About $3,000 Savings: $900 per month Investments: $300 monthly on insurance Concerns: How to make money work harder Goals: A small car in three years
Although he does not have a systematic approach to keep track of his expenses, he has developed a good habit of consciously controlling his spending urge and making sure his cash flow is positive every month. In addition, he has taken care of his insurance planning needs by allocating about $300 a month to insure himself.
Recommendations:
BY HAVING a good habit of living below his means, Mr Lee has saved a total of $20,000. However, the money he has deposited in his savings account earns him an annual interest rate of only 0.3 per cent.
As such, he should consider ways to make his savings work harder for him.
He should set aside an emergency fund of about six months of his monthly expenses, which works out to $12,600, to ensure that his monthly expenses are taken care of in case he loses his job.
The emergency fund can be parked partly into his savings account and into some money market instruments, which are liquid and can give him a higher return of between 1 per cent and 2 per cent per annum.
For the rest of his current savings, he can consider investing the amount in a globally diversified portfolio of equities and bond unit trusts.
Also, as he is a high saver, he can consider channelling a portion of his monthly savings into a separate investment account or an insurance savings plan rather than using his bank account to achieve higher long-term returns.
By adopting the 'paying yourself first' strategy, he will gain good long-term savings' discipline.
He has a short-term goal to buy a car in three years.
As the cost of car ownership and maintenance is very high, especially for Mr Lee who works in the central business district, he should calculate the monthly expenses (petrol, parking, ERP charges, depreciation) and their impact on his monthly cash flow and savings before he switches to using a car.
Control impulse buying
Mr Geoffrey Ying, New Independent's senior consultant, says:
MS RITA Marini's difficulty in building up her savings can be mainly attributed to her impulsive spending habit.
Rita Marini, 25, married with no children Started work: 2003 Current job: Marketing specialist Monthly pay: $3,000 Savings: $900 per month Investments: None and not familiar Concerns: Prone to impulse shopping, followed by guilt feelings Goals: To accumulate more savings and to own a private property
Recommendations:
THIS can be alleviated by the following strategies:
Cooling-off policy - This requires her to shop purposefully, preferably by making a list.
If she encounters an item that has not been planned for, she has to make it a point to step away and give herself a few weeks to assess more objectively whether it is something she really needs and can afford.
Track spending - This requires her to compile her expenses accurately on a weekly basis.
The spending patterns that emerge from this exercise will give her the awareness to act on them better.
Schedule impulse buys - One way to keep impulse shopping in check would be for Ms Marini to mark a future date to buy an item that she would normally buy on impulse.
When she has planned for the purchase of this item, it can be treated as an event to look forward to and make her less prone to impulse buying.
Financial goals - By crystallising her financial goals, Ms Marini will be clearer about how much she should set aside regularly.
A comprehensive financial plan will be able to work out savings goals that are practical from a cash-flow perspective, while leaving sufficient room for that occasional treat.
She should bear these goals in mind at all times and weigh them against possible impulse buys.
Account management - She has close to six months' worth of expenses in her savings account. This is a very decent-sized emergency fund and the recommendation would be to park a practical portion of this in a money market fund.
In addition, a regular savings plan that automatically sets aside a fixed monthly amount for an investment portfolio would impose a discipline that will help her reach her larger financial goals.
