I’ve always been prudent when it comes to savings because I was taught from a very young age that money is hard to earn. Growing up, I learnt how to make every dollar count and do odd jobs to earn as much as I can. But I never really learn how to invest. Furthermore, the bad investment decisions that my parents made in the past had deterred me from buying stocks and going for riskier investment options.
The wake-up call.
The turning point for me comes when it dawned upon me that my current savings are not going to last. And I will never be able to enjoy my fruits of labour if I kept thinking at the back of my head that what I earn isn’t enough. Even if I chose to retire early, I still wanted a constant flow of money into my bank account. That’s when I know investing is that one key thing I needed to achieve my financial goals.
We were only taught how to save, not invest.
Surprisingly, I would say that not many Singaporeans are equipped with sufficient financial knowledge to make wise investment choices. Some are still leaving their cash in their bank accounts. I only learn how to save money in my POSB account at Primary School and since then, I am pretty much left on my own to manage my finances.
But times have changed. Bank interest rates are not as high as they used to be in the past. My parents told me that bank interest rates in the early 1990s can go as high as about 5 to 6%! I remembered that those were the days where my grandparents would hide their cold hard cash under the bed or pillow. I wondered why they did not believe in leaving in their money in banks back then. Today, the bank interest rate is as low as 0.05%. It is just not sustainable to leave your cash in the bank!
By the time they enter their late twenties or thirties (as they are looking into buying an HDB flat or car), that’s when they start taking a hard look at their finances. Can I earn more with what I have? Like myself, I only start charting my financial portfolio and journey this year – after turning 30.
It is only this year that I started to re-educate myself about investing(after being persuaded by my boyfriend to start investing). I used to associate investing with gambling. But after learning more about investment (through financial websites, blogs and etc.), I know that investment is about making smart choices to grow your funds. It is somewhat like investing in a business.
My Investment Style
If you believe the growth and potential of this company, then invest it in. Once the company is doing well and making profits, you get to reap from it as well. Trust me. I was once an idiot when it comes to financial literacy but now, I am slowly picking up bits of information and trusting the Lord to steward my savings.
Even then, I still leaning towards low-risks investment opportunities as I am still learning about investments. Also, I see myself as a lazy investor as I do not like to deal with numbers and I have no interests in reading any financial news or analysing data. So if you are just like me, I would recommend starting slow and going for the low-risk type of investments. As you progress, you can go for medium-risks or high-risks type of investments once you have built enough capital.
How do I manage my finances?
By sharing my financial portfolio with you, I hope you that you will have a better sense of how you can expand your own portfolio if you are new to investing. Looking back, I wish I had started investing when I started working at age 16. It is never too young to start learning about investing.
But to note that my financial portfolio may not fulfil everyone’s financial appetite or in agreement with some of your philosophy in managing finances. For instance, I do not believe in getting life insurance at this point. I might change my mind in a couple of years but as of now, I still contemplating what else to add to my financial portfolio. Hope you find this useful!
1. Savings and Expenditure
The suggested 50-30-20 budget rule doesn’t work for me. In fact, when it comes to savings, you don’t have to follow any specific ratio rules. As a rule of thumb, save as much as you can and be prudent with your spendings.
I started to embrace minimalism years ago and felt more contented about owning fewer things in life. Previously, I would spend my money on items which I want but do not actually need it. Most of these items ended up in the dump. Imagine how much money I could save if I was more prudent back then?
As of now, I try to set aside at least 40 to 50% of my income on savings. 10% of my earnings go to God (tithings), 20% to my parents and 20% on other expenditure. Most of my budget is spent on necessities like groceries, food and transport. Occasionally, I would splurge on my travels.
And I also kept most of my savings in DBS Multiplier Account so that I can earn a higher interest rate. I get to enjoy about 1.8% interest every month. That’s some extra pocket money to treat yourself to a good meal.
I just leave about $500 (which is the minimum average daily balance) in my POSB savings account so that I don’t get charged for a fee.
2. Emergency Fund and other Savings
You should have at least 10k of emergency funds in your bank account just in case you need the cash urgently. If you have more than that amount of cash sitting in your bank account, it is time to ‘put your eggs in another basket’.
In the past, the bank interest rate can go as high as up to 9.5% (the highest POSB bank interest rate recorded in 1981.) Putting your hard-earnt cash in the bank seems like the best investment move to do back then. But now, not anymore. Even going for low-risk investments such as Singapore Savings Bonds can fetch at least 1.5% interest rate (depending on which month and year you purchase).
3. Singapore Saving Bonds (SSB)
If you had no idea what to do with your cash, you can at least use it to purchase Singapore Savings Bonds. These are bonds issued by the Singapore government to provide Singaporeans with a safe and low-risk option for long-term savings. You typically have to hold your bond longer (up to 10 years) in order to enjoy a slightly higher interest rate.
Since there is no penalty for early withdrawal, I actually use part of my savings to purchase SSB. If I would like to invest part of my savings on insurances, bonds or shares, I can always sell my SSB bonds. However, you need at least one month notice for the principal amount(along with accrued interests) to be placed back into your bank account.
To buy SSB, you will need to open a CDP account. Once you have set up your CDP account, you can easily purchase SSB online through major local banks like POSB and OCBC.
4. Saving Endowment Plans by Insurance Companies
In addition to that, I also bought saving endowment plans from my insurance agent. It is another low-risk option with a guaranteed return of about 2% interest rate. I bought mostly short-term plans (e.g 3-year or 5-year plans) as I would need the cash for my future big purchases like buying an HDB flat and throwing a wedding celebration.
After saving sufficient funds and getting all my big purchases, I would invest more in the stock market and do away with saving endowment plans.
5. Central Provident Fund (CPF) Investments
Whether you like it or not, this CPF scheme is here to stay in Singapore. As long as you are a Singapore citizen or PR working in Singapore, you will have to contribute part of your income to your CPF account. It is like a retirement savings account to force us to save from the moment you enter the workforce.
Even though the savings interest rate is much higher than leaving in banks and buying bonds, not many Singaporeans are pleased with this scheme. Why? Here’s the catch. You can withdraw the money from your CPF account until you reach the age of 55. And you might not be able to withdraw fully due to the limitations and rules that CPF set. But since part of our money is (literally stuck) in there, so why not just make full use of it?
I would top up my CPF Special account and my parent’s CPF account every year to enjoy income tax savings. CPF’s interest rates can go as high as 6% depending on the amount you have in CPF and your age.
Another tax-saving method is to open an SRS account but I am not too sure if it worth depositing my money there due to the restrictions and limitations set. It is yet another way for the government to force Singaporeans to save.
6. Singapore Dividend Stocks and REITs (Medium risks)
After I tried all the low-risk investments, I was wondering what’s next? If you have a greater risk appetite, you can move on stock investments which is a medium-risk investment option. I just started buying blue-chip stocks this year using DBS Vickers, an online trading platform managed by DBS Singapore. It is a different ball game altogether when it comes to buying shares from a company. I was just starting to understand the basic terms used in the stock market and how this investment system works.
My current stock portfolio consists of mainly REITs and other dividend stocks. They are mostly low to medium-risk stocks that generate dividends. If you are new to the stock market, it is best to do some reading up and talk to people who are well-versed in stocks.
Other low-risk investments to consider
You can also consider other low-risk investment options like ETFs and unit trusts. I purchased ETFs through POSB Invest-saver before but I find that I do not really gain much out of it. Dollar-cost averaging can be powerful if you hold on to your ETFs or unit trusts for years. But based on our current economy, you may need to wait for years before you reap profits.
So I rather invest in REITs and dividend stocks. Yes, my risk appetite has definitely increased after learning more about all the investment options. And I’m not supportive of Robo-advisors as you are unable to make smart decisions based on your own discretion. You might reap profits out of it but not as much.
In a nutshell, there’s a lot more you can do with your money, other than just leaving it in your bank. And you don’t necessarily have to work hard skrimping and saving all your life without enjoying ‘the fruits you have gathered’ for yourself.