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A common piece of advice on saving.

Friday, December 30, 2011

I want to say something about a very common piece of advice dished out by many financial advisors and that is to save at least 10% of our take home pay. 

Now, this is an easy enough one liner but is it easy to put into practice?

For me, however, I have always said that saving even 10% is too little. Of course, everyone's circumstances are different. 

So, for some, 10% is all they can manage. For some, even 5% could be a challenge. I have found out, over the years, that many do not save anything at all.

For people who are saving 5% to 10% of their salary every month, they want to work on increasing that percentage. For those who are not saving anything at all, it is worrisome indeed.

These people should sort out their needs and wants and see if they could start saving some money regularly. 

If they have made all possible reductions to their expenses, they might want to find ways of increasing their incomes. This will power up their savings rate assuming that all additional income earned is saved.

It might sound trite but saving is the very first step in an average person's journey towards financial freedom. Remember, it is always hardest in the beginning. Start and don't stop. As we gather momentum, it gets easier with time.

Remember Newton's first law? Yes, it is the law of inertia. Without exerting a force to make a change in our lives, we will remain where we are and inertia is bad company. Once we force ourselves to move and stay the course, inertia becomes a good friend.

Remember also the POSBank mascot, a squirrel. We were always encouraged to save in our school days. There is no reason why we should stop once we leave school. 

Squirreling away even a small amount each day would definitely add up. The result could be amazing when coupled with prudent investments.

Shall we perhaps start with that drink we always buy in the canteen during lunch? Could we instead drink from the water fountain in the office or make a cup of coffee in the office pantry?

Saving $1 each working day would mean $20 a month or $240 a year. A cup of coffee from Starbucks would cost many times more. Quite unhealthy too, in more ways than one. Seeing stars?

Invest the $240 for a 10% yield and we would have 24 cups of "free" coffee in the following year. If we like Starbucks' coffee, it would work too.

Now, assuming Starbucks' coffee costs five times more, if we should be willing to "downgrade", we could be looking at 120 cups of "free" coffee instead of just 24. Downgrade? Another sacrifice? If we can live with it, why not?

Trust me when I say that frugality has a way of growing on us. Saving $240 this year might yield 24 cups of "free" coffee in the following year but once we are used to not paying for coffee as a working adult, we could have "free" coffee for the rest of our lives when we finally retire. Amazing, isn't it?

Sacrifices made today could transform into huge gains over time. Believe it.

Related posts:
1. Wage slaves should be fearful.
2. Do you want to be richer?
3. Seven steps to making passive income from the stock market.
4. Roads to wealth creation in the stock market.


OT83 said...


Good Piece of advice. The first step is the hardest! To be frank, now I find it hard not to save.

Haha, now my challenge is to up my income.

AK71 said...

Hi OT,

Once we have the habit, it gets easier and easier. We get "addicted" to saving money, so to speak. :)

Up your income and save most of that additional income and you would have a stronger base! You can do it! ;)

OT83 said...

AK you are right! I am addicted to saving. I felt very uncomfortable when I don save. Due to my taiwan trip, I felt uncomfortable of not saving much this week!

Up income is not easy given that I am pig in nature. Haha, I must learn from AK more.


la papillion said...

Hi ak,

My wife always tell me that I always have no money because I saved too much. she's right ;) So, I 'spent' too much on savings by saving too much on spending :)

AK71 said...

Hi OT,

I am a pig through and through. Can't be helped since that's my Chinese zodiac sign. ;p

We need to spend money on recreation once in a while although I must admit that I did not start spending on long trips until a few years ago.

I still look for value for money deals on vacations. Haha..

My annual vacations for the last few years were funded by dividends from my investments in the stock market. That makes me happy. :)

AK71 said...

Hi LP,

Yes, I remember you blogging about it before. Seriously mind-boggling stuff. Your wife is a natural philosopher. :D

INVS 2.0 said...

Hi AK71,

I created my own 80/20 rule while receiving peanuts to avoid cashless situations. :)

80/20 rule - 80% of your income will be channeled to your assets - savings in the bank, cash on hand, emergency funds, investment equities, properties, etc, while 20% will be channeled to your personal expenses.

However, this rule is not applicable to everyone, particularly those with a big social circle and lots of appointments to attend. :)

AK71 said...

Hi INVS 2.0,

In short, you save and invest 80% of your monthly take home pay! That is commendable! Good job! :)

INVS 2.0 said...

Hi Ak71,

This rule is for misers, but I have to adopt it, no choice (peanut NS allowance of only >$400). :) :)

AK71 said...

Hi INVS 2.0,

This rule is for misers... I think I save about that much too... or more. Miserly me... :(

INVS 2.0 said...

Hi Ak71,

LOL! Well, your $5k's 20% is at a different league compared to my 20%. :/

AK71 said...

Hi INVS 2.0,

Yes, it is all relative, isn't it? ;)

Relative to many people from my cohort, my earned income is considered very low, for example. :(

Hahaha.. enough of self-pity. Happy New Year! :)

Bill said...

Hi bro what about saving 5 cents a day by walking 1 more bus stop Home that's 6 dollars a month and 72 per year now u know how much transport earns


Musicwhiz said...

Hi AK71,

Your personal finance posts always resonate with me because I feel we are on the same wavelength. Though we may have different strategies for investing/trading, it seems we can find common ground when it comes to saving and spending.

I was actually pretty shocked to read that you actually know people who do not save at all! I mean, 5-10% is still OK and the usual "rule" is to save 10% of your income, but to not save at all or to "dis-save", meaning spend more than you earn, seems really weird. How do people survive like this? What do they fall back on during tough times?

For myself, I have been maintaining the 50% savings rule (of my take-home pay) for quite some time. For 2012, I am hoping to be able to up my income and thus also up my % of savings to perhaps 60%. Wish me luck on this!

Happy New Year!


Anonymous said...

It is always difficult to change one's habit at the beginning. I have been a saver all my life. I don't have a lot in my savings account though. Not wanting to burden my parents who earn ringgit, I used whatever savings I accumulated to finance my degree, my wedding, home renovation and furnishing.

However, I realised that I have to balance between saving and spending. While there are simple (and inexpensive) things we can enjoy in life, there are occasions that we should spend despite having cheaper alternatives around. As long as we live within our means, I think itis fine.
What I want to stress is that it is important to save (and invest) for rainy days & retirement, don't overdo it at the expense of things that are equally or more important to you.


Alex said...

I would think that the young adults these days would want instant gratifications rather than to delay it and save for their future.

There are too many temptations, ie. Car, Clubbing, Holidays etc

Just heard my nephew who just worked less than one year and bought a DBSS for about 600k. I am thinking, isn't that ridiculous?

AK71 said...

Hi Bill,

Whatever works for you. All of us are probably able to make savings in our daily lives. We just have to be more aware of where and how we spend our money.

For example, a friend decided to cut down on smoking and we know cigarettes are very expensive in Singapore. Just like your suggestion, what he is doing is also good for his physical health. :)

AK71 said...

Hi MW,

Yes, I think we are not very different when it comes to managing our finances. :)

I am no longer shocked when I learn of people who do not have any savings. There are people who do not have any savings and who have credit card debts and loans. A nightmare!

Remember reports of how the retrenched from the finance industry tried to sell their fast cars and branded watches in the last crisis?

You are a prudent fellow and I have no doubt you would be able to hit your new target of 60% savings.

All the best in 2012. :)

AK71 said...

Hi CH,

I agree with you. We are all different and we will have to find our own way. :)

I am impressed with your personal story. You have made good in life largely through your own efforts.

I think anyone would feel encouraged reading your comment. Thank you for sharing. :)

AK71 said...

Hi Alex,

I don't think it is just younger people these days. I think people who seek instant gratification can be found in all age groups. However, anecdotal evidence seem to suggest that it is more prevalent amongst the young. :)

As for paying $600k for a DBSS flat, it might have turned out to be a good move since newer DBSS flats seem to be going for much higher. No? Haha.. OK, I am just playing the devil's advocate here.

Personally, I won't buy a property now as I think prices are too high and yields are too low. There are signs aplenty that prices could correct in the next couple of years. Anyway, I could be bias since I sold my properties and I am waiting to buy again. ;p

Anonymous said...

I like this very much, thanks for sharing this sincere advice.

I have been saving 40% of my income, and also force my wife to save 30% of hers.

It sounds good, and I should have 60% balance of mine for spending. However, the other part of story is my wife has been spending all 70%balance of hers on herself. To support kids and parents of both sides, I spend another 40% of mine, subsidizing wife spending takes another 10%. All my passive income goes to my kids education fund. So, I have only 10% for myself which is even lesser than a general cleaner. Now, I am spending like the bottom 5% and still being labelled stingy by my wife & in-laws, haha... They do not know that I have been 'spending' all I
have on them.

Saving requires teamwork and common goal for a family, or else it will be ending like me, wife with prada and LV, husband with Hang Ten and Bata. 10% savings is indeed a more realistic guide.

To those who are still in their twenties, save early and invest early. Time is your most valuable capita.


AK71 said...

Hi Casey,

You are a good son, a good husband and a good son-in-law. If I know your family, I would tell them so. Actually, I think they probably know and are only teasing you for being stingey.

I agree with you that as a family there should be common goals and having meaningful savings should be one such goal. Everyone should chip in, even the kids.

When I bring my 9 year old niece shopping sometimes, I would teach her how to compare prices, like for like, and she does it so well now. She is a sensible kid and knows what are needs and wants.

I am definitely a Hang Ten and Bata man as well. :)

Marco said...

Very impressive!
A bachelor shall be able to saved more than 10%.
A family man will hardly save up to 10%

AK71 said...

Hi Marco,

I guess you save quite a bit yourself. ;)

Musicwhiz said...

Hi Marco,

Perhaps that's not quite an accurate way of putting it. I know of bachelors who give their parents a huge allowance, and so their savings rate also dips.

For myself, I am a so-called "Family Man" with a kid, yet I am able to sustain a 45%-50% savings rate.

It really depends on each individual's circumstances, wants and "needs".


Kelvin Tan said...

Hah, while I definitely agree with what you say about the tips on drinking water from coolers, for the large part, it is a very male perspective.

Women are like the rake in poker, once you are dating/married, its not easy to get the lady to agree on such things. They like to eat at fancy restaurants and so on and so forth. Once that happens, its not easy to save.

AK71 said...

Hi Kelvin,

I think a third or at least a quarter of my readers are females. Ahem... I am not going there. ;p

Ray said...

Have been saving almost half my salary every mth but blew everything when bought resale flat with COV, renovation, honeymoon etc. Even though tried to do everything within tight budget, still manage to end up with ngeative assets :( so I guess marriage sucks money away. After marriage, kids suck money too. Haha. But I guess money cannot buy the priceless family bonding so I shant complain :)

AK71 said...

Hi Ray,

Thanks for sharing your experience with us. :)

We are all made differently. We each have different priorities and visions. Of course, we would have varied expenses as a result of our different lifestyles.

However, as long as we are prudent in managing our finances, living well within our means and diligently planning for retirement, we are all walking in the same direction. :)

qinzheng said...

If people can manage their needs & wants properly, saving 20~50% of their income is not difficult...
I always believe in Xian Tian Hou Ku(先甜后苦).... :)

Spending $ that was growth from my $

Is all about upbringing i believed.

AK71 said...

Hi qinzheng,

Be the ant and not the grasshopper? ;p

To be a happy peasant.

I think you mean 先苦后甜?

qinzheng said...

Hi AK,

ya, should be 先苦后甜... haha
saving is just the first step, growing your wealth is the ultimate aim...

AK71 said...

In a news release on Monday (27 Apr), Mastercard said Singapore slid four index points to score 68 index points in financial literacy, while New Zealand ranked second with 71 points, losing the top spot to Taiwan.

The annual survey, conducted between July and Aug 2014 on 8,087 respondents aged 18 to 64 in 16 countries in the Asia Pacific, covers three components:

Basic Money Management, Financial Planning and Investment.

The key reason for the decline in Singapore’s financial literacy is the fall in consumers’ understanding of basic money management, said the release.

“Going by the survey results, people in Singapore are finding it harder to keep up with bills, budget effectively and manage unsecured loans.”


Solace said...

I have a laugh when i saw this article:

Two Thoughts from me

1) Investment View: While it may be "unethical" to some on what BreadTalk is doing, i applaud the management for always thinking of way to boost their revenue. Very in line with what Philip A.Fisher says:

"Does the management have a determination to continue to develop products or processes that will still further total sales potentials when the growth potentials of current product lines have largely been exploited?"

2) Personal Finance view: It once again confirm my views that buying drinks from outside stores are not value for money. If one really needs canned/soft/caffeine beverages, it is still best to get them from super market :)

In investment, i like stocks that thinks of way to increase sales and revenues. What breadtalk is doing is pretty straight forward and it banks on people to get drinks while they buy bread. Very good move on their part.

On the other hand, as a consumer, i will not fall prey to such tactics which i think is not value for money.

Seems like my investment methods and consumer habits contradicts one another. What kind of investor am I? hahaha I am confused myself :)

AK71 said...

Hi Solace,

You need to consult a doctor with regards to suspected split personality disorder. Make an appointment at Buangkok Green. Hmmm... I might have to do so too. ;p

Well, this is some negative publicity for BreadTalk. Misrepresentation is a big thing. However, it is just soya bean drink. So, damages, if any, should be negligible. ROFL. ;)

What is more worrisome is the possible negative impact on the company's image which already took a hit when our founding Prime Minister passed away. BreadTalk went into damage control mode and gave out free bread to people in the queue to pay their last respect. What would BreadTalk do this time?

AK71 said...

betta man said...
The following is extracted from Workforce SG facebook:

"My retrenchment was a huge blow to me. I didn’t see it coming at all.

"The first few days after the news, I woke up in cold sweat. I thought it was just a bad dream. After all, I was 48 years old then and I had been in the marine and offshore industry for over 20 years. I have three children, the youngest is eight years old. I couldn’t afford to be jobless...."

Fortunately, the person found a job eventually. Frankly, in a future world of disruption and uncertainties, in my view, it is better to keep family size small and not to have children too late. Coz in your later years, chance of getting retrenched is higher and getting a job is tougher. Unless one is wise enough to save up aggressively in his 20s or early 30s.

AK said...
In a world where job security is almost non-existent, unless we are born with a spoon made of some precious metal in our mouth, saving money aggressively when we are able to is a sensible thing to do.

AK71 said...

Reader said...
I am a 29 year old with an estimated of $30k in cash, $35k in investments, $10k in savings plan and CPF OA: $46k / SA: $16k. The key point is I am going into marriage next year and my house will be ready in 2020, which means risk appetite needs to be well managed. While on the way to 2020, I will be saving around $2k/month in savings (excluding CPF).
Recently, I have been considering to deposit $5k CASH into low risk segments like SSB bond OR the CPF SA for the long term. So..

1.Do you think that this is on the right track to retirement?
2.And is this a good situation to add $5k into SSB or CPF SA?

Blogger AK said...
Unless they are born with a spoon made of some precious metal in their mouths, people who do not save any money at all are definitely asking for trouble.

For people who save a meaningful amount of money regularly and invest for income, financial freedom is not just a dream.

I like the CPF-SA and I think it should form the cornerstone of our retirement funding strategy. That is key. We put money in the CPF-SA with a very long term view.

The SSB is definitely near money compared to the CPF-SA. So, if you are thinking of an emergency fund or short term savings, the SSB is a better choice.

WTK said...

Hi AK,

I think that it does not matter how much one saves as long as there is positive addition at the end of the month as compared to the last month's balance.

There is no need to compare with others in term of the savings. There will only be someone who is better than one. I think that one just need to gauge own saving progress in respect of the previous record. I think that this is good enough for one who intend to save and invest for the Financial Independence. One can choose to retire early if he or she want to do so and not have to do so. Retire early does not mean doing nothing at home. In my prespective, it refer to focusing on doing things he/she has strong interest and enhance his/her spirtual and mental means.

Having said the above, I opine that there is no need to follow the norms like most of the people do. The usual route will study, NS (for guys), work, get married, have children, children grow up and retire at the stipulated retirement age. Won't the usual routine be boring and predictable? I myself do not follow such route. I do things which is in my interest.

I am reaching 40 this year. I currently still has a full-time employment. I currently focus on developing my interests into side hustle. I am not bothered on whether I will be able to enable the side hustle which can generate side income. Blogging is also one of my interest. I write on topics which are of my interest and share it with the general public. I communicate with the viewers and have learn a lot of insights from the viewers and bloggers which include you.

I continue to channel the monthly savings from the remuneration derived from the full-time employment into my existing investment share portfolio which will generate dividends on a continuous basis for a lifetime. Since I still have the full-time employment, I do not need the dividend at this juncture. So I re-invest the generated dividend back to my investment portfolio which will generate more dividends in return. As for the full-time employments. I have ups and downs. I know that I can quit my full-time employment at any point of time if I want to do so. Having the investment portfolio as back-up gives me a lot of options and I know that I can afford to take risk in my career by changing job if I want to do so. Having no burden of career failure will help me to focus my chose direction without fear and hesistation.


AK71 said...

Hi Ben,

To be fair, there is never a one size fits all solution.

We should all have a plan, our own plan. :)

AK71 said...

Lee Jiahui says...
I was in the same situation at 28 yo.

After i assessed the situation i decided i need to change to higher pay job so that i can save more than 2k a month.

I was glad i made that job switch (of cos more siong too and got OT but bonus higher) because after that i managed to get better pay and save 40k/yr instead.

After that just keep saving.

Then only started doing OA to SA transfer and SA top up from 32 yo.

I owe my cpf 150k now cos used for hdb downpayment and monthly mortgage but i reached FRS liao and i take it as a FD placeholder for my future when i have more money then i put back in my cpf.

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