Top 5 Mistakes You Don’t Want To Make With Your Savings
The act of saving might seem simple enough, but there are a few pitfalls you may face that can cause you to lose out on maximising your savings. Here are five mistakes you’ll want to avoid:
1. Not saving at all
The biggest savings mistake you can make is not saving at all, or not saving enough.
Personal finance advice often harps on the importance of saving, and not without good reason – saving is critically important if you want to be able to afford financial wants or achieve financial stability:
- Financial wants. Whether it’s a vacation, a wedding, a new home or your child’s education, saving allows you to afford material purchases that make life easier, better or simply more enjoyable.
- Financial stability. It’s important to set aside some funds in case unexpected expenses pop up. Having easily accessible funds in a current or savings account to dip into makes events like a sudden job loss or unexpected home repairs less stressful. Besides that, you’ll also need savings to sustain yourself during retirement. Having sufficient savings could mean the difference between scrounging for change and living in comfort when you enter your golden years.
Rather than thinking of saving as restrictive, consider it a tool that can help you break out of financial constraints, granting you greater freedom to dictate how you’d like to live your life.
How much you should save depends on your financial goals, but a general rule of thumb is to allocate 20% of your monthly income to savings. If you’ve got nothing saved at all, start with building an emergency fund. Your fund should cover 3 to 6 months of expenses. If you can’t save as much as 20% of your income, examine your budget to see if you are spending beyond your means, and take steps to cut down on spending.
Once you’ve got an emergency fund in place, you can start saving for other financial goals, or even kick-start an investment portfolio.
2. Not putting your savings in a high-interest account
It’s not enough to put aside cash to save – you need to make sure that your savings are safeguarded against inflation. Inflation (the increase in prices for goods and services) can reduce the value of your savings over time. Each dollar you have put aside today will be worth less next year due to rising prices. For example, the inflation rate for 2017 was 0.6% – this means that you would have paid 0.6% more for the same basket of goods compared to the previous year.
This is why your savings belong in a bank account where it can accrue interest, not stashed in your drawers or underneath a mattress to devalue. Unfortunately, interest rates in Singapore tend to be quite dismal, with some banks offering as low as 0.10% p.a. – that’s hardly enough to beat inflation. You’ll need to shop around for a current, savings or fixed deposit account with the best interest rates in order to get the most out of your money. Standard Chartered’s Bonus$aver Account, for example, allows you to earn up to 3.88% p.a. interest – enough to beat the inflation rate in 2017 and provide additional returns.
3. Putting all your savings in volatile or non-liquid assets
On the other hand, you shouldn’t put all your savings in volatile or non-liquid assets in order to maximise potential returns. Here, it might be useful to make a distinction between saving and investing:
While investing is a part of any sound financial strategy, you should avoid investing all your savings, especially those that you intend to use within the next few years. If you invest these funds, you’ll be subjecting them to:
- High volatility. Investing is great for the long-term, but its short-term prospects are often volatile. Even very safe investments, like bonds, are subject to fluctuating prices. More volatile investments, like stocks, can fluctuate wildly within a short period of time. Take for instance, in April 2015, when a major Singaporean telco’s shares were selling at an all-time high of around S$3.93. However, in May 2015, its shares dropped to S$3.22 – that’s a drop of around 18% in a mere month. If you’ve been saving for a time-sensitive financial goal, like a child’s education in the coming year, sudden fluctuations such as this can disrupt your plans.
- Low liquidity. Any savings you’ll need in the short-term should be liquid (that is, easily sold or accessed in a short amount of time). However, investing your money makes it harder to access when you need it – even liquid investments like stocks can take some time to cash out.
The solution is to put these savings somewhere extremely safe, and where they can be accessed immediately – like a current, savings or fixed deposit account. Keep in mind though, that withdrawing funds from a fixed deposit account before its maturity date can cause you to lose part (or all) of the interest on your deposit. If you need somewhere to stash extremely liquid funds, a high-interest current or savings account like Standard Chartered’s Bonus$aver Account would be your best bet.
Of course, if you have funds that you don’t intend to use in the next few years, then investing them would be a great way to grow your money in order to reach long-term financial goals. If you invest in an eligible unit trust with a minimum sum of S$30,000 through the Standard Chartered platform, you can earn a bonus interest of 0.75% p.a.
4. Not consolidating your savings and spending in one account
We get the lure of having multiple bank accounts and credit cards – it’s tempting to sign up for as many as you can to take advantage of all the benefits and rewards being offered.
Unfortunately, this could work against you – spreading your savings and spending across multiple accounts could lead to higher spending. One study suggests that people who allocate their earnings to a single account save more than those who spread them across several accounts. Participants who only had access to a single account spent almost 10% less than participants with multiple accounts.
A possible reason for this is that it’s easier to keep track of your money when it’s in a single account, as you only have to be aware of one number. When multiple accounts are involved, your total amount becomes fuzzy. Fuzzy figures make it more likely that you’ll generate seemingly rational justifications for your desired spending outcomes.
Of course, this doesn’t mean that you should limit yourself to holding just one bank account. There are certain circumstances in which several accounts may be advantageous – for instance, you may want to separate your main income and expenses from those incurred by your side income stream. You may also have both a personal checking account and a joint account with your spouse. However, if you’re not enjoying any specific advantages from having multiple accounts, consolidating your savings and spending may help you save just a bit more.
Besides, your bank might reward you for consolidating your income and expenses, which brings us to our next point…
5. Not taking advantage of additional interest provided by your bank account
An easy way of getting more interest from your bank account is to simply check if they offer higher rates for consolidating your savings and spending. Under Standard Chartered’s Bonus$aver Account, you can get a total interest rate of 3.88% per annum on your first S$100,000 deposit balance if you do the following:
|Spend a monthly minimum of S$2,000 on your Bonus$aver debit or credit card|
|Credit a minimum of S$3,000 monthly salary into your Bonus$aver account|
|Invest S$30,000 minimum in an Eligible Unit Trust, or purchase an Eligible Insurance Policy with a minimal annual premium of S$12,000|
|Make 3 eligible bill payments of at least S$50 each|
The best part is that some of these tasks are things you’re probably already doing on multiple accounts – now, you’ll get to enjoy additional interest just by consolidating existing spending and saving habits.
How many of these are you guilty of?
If you’ve found yourself guilty of one or more of these mistakes, don’t beat yourself up. Instead, focus on how you can fix your financial shortcomings. With Standard Chartered’s Bonus$aver Account, you can be sure that you’re on the right track to growing your savings.
Deposit Insurance Scheme: Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.