Saving Smart in Singapore: How Much of Your Income Should You Set Aside?

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Saving money every month is essential for building financial security and preparing for both unexpected events and your long-term goals. However, working out exactly the right amount to save can feel like a bit of a puzzle, and the answer truly depends on what your individual goals are. 

While you might hear general advice suggesting saving somewhere between 10% and 20% of your income, it's important to remember that this is more of a common expert suggestion rather than a rigid rule.

How much should I save each month?

The popular 50/30/20 rule suggests saving 50% of your income for needs, 30% for wants, and 20% for savings and extra debt repayment. 

But at the end of the day, the right amount depends on your unique circumstances, income, outgoings, and financial aspirations. Thinking in terms of your savings rate (percentage of income saved) can be helpful.

For instance, in Singapore, "needs" might include monthly transport fares and contributing to household expenses, while "wants" could include ordering in instead of cooking.

Although general guidelines can be a useful initial step, tailoring your strategy is crucial for reaching your financial goals.

What's realistic given your circumstances? 

Figuring out what's truly realistic to save each month involves taking a good hard look at your unique financial landscape. The relatively high cost of living in Singapore, particularly when it comes to housing, transportation, and education expenses, will significantly influence what feels "realistic" for your savings contributions. Furthermore, what might be an easily achievable savings rate for one person could be a significant stretch for another.

It's also important to consider that a portion of your income in Singapore is automatically directed towards long-term savings through your Central Provident Fund (CPF) contributions. This mandatory saving for retirement, healthcare, and housing should be factored into your overall savings picture, especially when thinking about your long-term financial goals. 

Additionally, you may have various financial obligations such as home loan repayments, car loan payments (if applicable), education loan repayments, providing financial support to family members, and paying insurance premiums – all of which will impact how much disposable income is available for additional savings. 

Therefore, it's crucial that you assess your current financial situation, taking all these factors into account, before setting a savings target. A budget planner can be an invaluable tool in this process, helping you track your income and outgoings. It might even highlight areas where you can stop spending money unnecessarily.

Taking the first step

The most important thing is to begin saving, even if the initial amount feels small compared to your overall income. If you’re just starting out or are on a tight budget, aim to start with an achievable and non-overwhelming amount.

For example, consider saving just 5-10% of your net income initially. This helps you build the habit of saving regularly without feeling too much of a pinch. It's crucial to remember the power of compounding over time. Even small, consistent contributions to your emergency fund or other savings will gradually grow, thanks to the interest earned. 

To make it easier to take that first step, you should consider leveraging tools like automated transfers directly from your salary account to your designated savings account. This "set it and forget it" approach can significantly boost your savings without requiring constant manual effort.

Is there such a thing as saving too much?

While the focus is often on saving more, it's also worth considering whether you can, in some circumstances, save too much. 

Consistently sacrificing reasonable enjoyment and experiences for the sake of maximal saving can diminish your present quality of life. You might miss out on valuable social connections and personal growth opportunities, or even neglect your well-being by constantly cutting back on important things. 

Moreover, while diligently saving for the future, consider the opportunity cost: Could aggressively saving in a low-yield savings account mean missing out on potential higher returns from investments or investing in personal development that could boost your future earning potential?

Simple steps to save regularly

To actively increase how much you save each month, adopting practical strategies is key.

Budgeting: Creating and sticking to a budget is fundamental. Explore popular budget planning methods such as the 50/30/20 rule, the envelope method, or various budgeting apps available in Singapore.

Track expenses: Get a clear picture of where your money is going by diligently monitoring your spending. Utilise mobile banking apps or expense-tracking apps to identify areas where you can potentially make cuts and stop spending money on non-essentials.

Set clear financial goals: Link your savings efforts to specific goals, such as saving for a down payment on an HDB flat or private property, planning for your children's education, supplementing your CPF contributions, or saving for that well-deserved holiday. Having clear savings goals provides motivation and direction.

Automate savings: Reinforce the habit of setting up regular, automated transfers from your salary account to your designated savings account immediately after payday. This ensures that saving becomes a priority.

Reduce unnecessary expenses: Identify and cut back on non-essential spending. This could mean choosing to eat at hawker centres more often than restaurants, using public transport or cycling where feasible, and regularly reviewing your various subscription services to see which you can go without.

Compare prices: Become a savvy consumer by actively comparing prices for groceries, utilities, and other recurring expenses to take advantage of better deals.

Utilise savings tools: Explore and utilise high-yield savings accounts offered by local or digital banks, consider fixed deposits for a more locked-in approach, or even look into low-risk investment options suitable for shorter-term savings horizons available in Singapore.

Review and adjust: Make it a habit to regularly review your spending and savings habits.Be ready to adjust your budget and savings plan as your situation evolves (like a pay rise or a new expense) to keep you on course towards your financial goals.