Savings in General

It’s important to save and invest in general. But it’s often one of the hardest things to do. For most, it would be far easier and happier to spend money that it is to save it. Saving money usually means you have to forgo some nice things. And the problem is, the more you save, the more nice things you can buy!

I personally feel that leaving money in your savings account with the intention to invest it once it has accumulated to a certain “amount” is a little counter productive towards actually saving unless you have a lot of discipline. The money sitting there is just too tempting because it is just so easy to access and use. Chances are before you reach your “target” where you will invest it, you would have spent at least some of it on something already.

Furthermore, such savings give very little interest. Singaporeans are currently getting barely 0.12% from leaving money in their savings account. So, if the intention is to accumulate that money until you have a decent amount to invest, then while you are still accumulating, you are earning essentially nothing. And all this while every time you look at that account balance, you will be tempted to spend some of it!

Using dollar cost averaging by adopting a regular savings plan is a good way to instill some discipline to this whole process. This is called paying yourself first. A regular savings plan which can be done with most unit trusts will automatically deduct a specified amount each month from your bank account and invest that into a unit trust. If you are willing to bear the higher risk and do a regular savings account for an equity fund, it’s actually a good thing in the long run because the monthly deduction ensures that you will buy more units when the unit price is low, and buy fewer units when the unit price is high.

Even if you would rather still accumulate because you want to time the market better, you can also choose to do a regular savings plan into a short duration bond fund like the DBS Enhanced Income fund, or the United SGD Fund. These are only just slightly riskier than leaving money in a savings account, but their returns historically has been significantly better than what you get from savings account. Then once you have accumulated enough, or when you think its an appropriate time to enter the market, you can then utilize the amount you have in the short duration bond fund.

Not only does this instill discipline, it also solves the problem of seeing you bank balances grow and getting tempted to spend all of it in a buying spree. It also requires one more step. You have to liquidate your investments first for the money to go back to your bank account, and you will of course think more carefully as you are doing so. Saving in the end is about discipline and being willing to forgo some nice things in the short term for longer term gain. It’s hard, but it’s a necessary step towards building up your wealth. And utilizing regular savings plan is a great way to help instill the discipline to save. I put my wife on a regular savings plan just so that she will regularly set aside money to invest, and this way, both she and I don’t have to worry so much about the timing of her investments.