The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Many people use a savings plan, but not nearly as many as you would think. In Singapore, an international financial hub filled with banking and finance professionals, it has been surveyed that 2 in 3 working Singaporeans between the ages of 21 to 65 do not have savings to last them beyond six months if they were to lose their jobs.
Singapore has relatively stable job security and as a developed nation, sees many high-income individuals. However, savings plan are not just for these individuals. In fact, they are essential for many who make a modest income.
What is a Regular Savings Plan?
A Regular Savings Plan is a type of savings account that is held at a financial institution such as a bank. It is a type of relatively stable investment that provides principal security and a modest interest rate, allowing you to compound your savings in the long term.
Most providers require you to save a fixed sum of money on a regular basis, such as monthly, and it uses dollar-cost averaging to protect the investor from stock market volatility. You can invest your money in blue chip stocks, real estate, and/or ETFs. Most of the time, investors are in for the long-haul, investing for years or decades.
What does a Regular Savings Plan include?
A savings plan is not simply an account for you to store money and watch it compound through the years. These days, a savings plan can help you achieve both short- and long-term financial goals by helping you budget, plan for retirement, and other major life events.
A typical savings plan includes your goal for saving, how much of your income you are willing to put aside per month, an interest rate (which may depend on the account you choose and your net worth), and for how long you plan to save. You will also have to choose the type of investment you would like to make with your money and decide on your risk tolerance.
Typical reasons people have Regular Savings Plan
Each person has a different reason for why they are saving money. Below are the most common goals of a Regular Savings Plan:
Buying a home – with a large population inhabiting a small country, Singaporean real estate can be quite expensive, and many young professionals find it necessary to set up a savings plan to afford a home.
University planning – many parents open educational savings plans for their children when they are young and invest a small portion of their monthly income to the account. This way, when their children are grown up, they would have benefited from 18 years of investments, which may have accumulated significant, positive returns.
Retirement fund – finally, one of the most common reasons people save is so they can retire at an appropriate age and enjoy their life without being worried about money.
How to create a Regular Savings Plan
The good thing about a Regular Savings Plan is that they are a good option for novice investors. This is because they are relatively stable and risk is spread across the long-term. Investors will not have to monitor markets closely, nor will they need to worry about short-term market volatility.
Therefore, if you are interested in creating your own Regular Savings Plan and want to start as soon as possible, below are some steps you can take to get started.
Start by evaluating your financial situation
You should first understand where you stand financially. At this stage, take a look at how much money you have in assets and liabilities. Assets can be divided into two types: liquid and less liquid assets.
Liquid assets are those that could be tapped into for cash fairly quickly. This includes the money you have in cash, in your checking account, in any employer-sponsored retirement plans, health savings accounts, and brokerage accounts. You may also have assets that are less liquid and cannot be easily exchanged as cash, such as real estate and vehicles.
Liabilities, on the other hand, are any outstanding payments that you have not paid or are in the process of paying off. This includes credit card debt, mortgages, medical bills, student loans, car loans, and business loans you may have taken out.
After identifying both your assets and liabilities, you can have a clearer understanding of your total net worth by subtracting the value of your liabilities from the value of your assets.
Determine your savings goals
Many people create a savings plan for a reason. You should determine your own goals in a realistic and specific manner, and you should ensure that any progress you make in your savings plan should be measurable.
For example, you have a six-month old baby and you plan to save for their university tuition. This is a long-term goal, and you will not require immediate cash. Therefore, you might set a goal of investing $300 SG each month, for 17 years.
The most important thing is to be realistic about how much money you can save each month. Even though many of us would love to forge straight ahead and save as much as we can, we will also need money to pay our bills and rent, and not to mention groceries and for occasional fun.
Decide where to open your Regular Savings Plan
You should decide where to open your Regular Savings Plan depending on what they have to offer. As these plans require you to pay in a fixed sum of money on a regular basis for investment, you should pick a bank that offers the type of stocks, real estate, or ETFs you would be interested in investing in.
Some of the top five providers in Singapore include DBS Invest-Saver, OCBC Blue Chip Investment Plan, POEMS Share Builders Plan, FSMOne Regular Savings Plan, and Saxo Regular Savings Plan. They offer different products, and you should double-check to ensure you sign up with a provider that works for you.
Monitor your savings and make adjustments
Once you have created your savings plan, you can monitor it continually, checking in every couple of months to see how your investments are doing. If they are not raking in as high a return as you would prefer, you could switch to investments in different products and revisit your portfolio down the line to see if there are improvements. If you decide that you can increase your risk tolerance, you can also adjust your plan to start investing and make a more aggressive move.
At any rate, you should remember that plans are not set in stone, and you can always make adjustments depending on your lifestyle changes. However, you should avoid making too many changes, as results take time. You will not find yourself with huge earnings the same way you might expect to if you were trading stocks, and you are not supposed to, because Regular Savings Plans bank on stability and long-term growth.