A common question asked by many Singaporeans is, “How much savings should I have by xx years old”. Mostly, Singaporeans just ask this because they want to know if they’re above or below the median. But the answer is not so simple and varies somewhat among individuals in Singapore.
How much savings should I have by 35?
As a bare minimum, the correct amount to have saved up – at any age – is six months of your income. Any amount beyond this should be redirected into a retirement fund. This is because savings are just to deal with emergencies, whereas investments are for the long-term.
So if you have an income of S$5,000 a month, your savings are good if they are at least S$30,000. Note that your CPF doesn’t count, as it’s not savings you can immediately draw on.
Here’s an alternative way to look at it:
The typical Singaporean makes around S$3,700 a month (median income). After CPF, this comes to about S$2,960. Assuming you save 20% of this (an average savings amount), you would retain S$592 a month.
Let’s say you’ve saved this amount since you started working at the age of 25. You use a standard bank account, with an interest rate of around 0.125% (you don’t put the savings in a fixed deposit, as you want to be able to use it immediately in an emergency).
You would have, after 10 years, around S$71,540.
That’s not very efficient by the way, as after around S$22,000 (about the six months income mark), you should be putting the rest of the money into an investment, such as an endowment plan or mutual fund, to grow it.
Hold on, I don’t have this much money
Of course, that’s because projections are ideal situations. The practical reality with personal finance is that ideals and reality seldom match.
Everyone’s financial situation is different. You may have responsibilities that others don’t. For example, some people have parents or siblings with medical conditions, who need more expensive healthcare. Some people have an income lower than the median, which makes it hard to save. There’s also one element that many people in their 30s have in common.
Your 30s are typically the age in which you’re saddled with heavy financial commitments like buying a flat or car, or raising your first child. It’s quite possible that you did save diligently from your 20s, but your wedding has wiped out a significant portion of those funds.
In fact, a survey conducted by HSBC in 2013 revealed that 41% of Singaporeans have never even saved. For many of us, our CPF are our savings, and our flat is our retirement asset. So if you’re 35 and have less than S$71,540 in the bank, don’t panic. You’re not alone.
Savings should not be an age-specific goal
It’s unhealthy to focus on age. Ultimately, your savings goal should be a dollar amount and not an age.
If you earn S$5,000 a month and your savings goal is S$30,000, then of what relevance is your age?
If you don’t have a single dollar saved and want to start right now, then save aggressively in the coming year (maybe save 50% instead of 20% of your monthly salary). You’ll be done in 12 months. It doesn’t matter if you’re 25, 35, or 45. As soon as you start making an effort, you can resolve the situation.
Don’t panic over how much you have right now, and whether that’s “right” for your age. Focus on how much you need, and how you’re going to get there. Don’t be under the impression that it’s “too late” now, or that you missed the boat on being financially responsible.
There’s a limit to how much I can save each month
This happens because you’re relying solely on budgeting. Building up your savings requires more than just a tight budget.
Just because the word “saving” is used, it means always mean buying less. Yes, financial discipline and budgeting is required, but building up your savings also means finding ways to earn more. And just like setting aside more money, it’s never too late to start.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.