Cash Management: How Much Savings Should I Have Saved by 30?

18 August 2023

In the journey towards financial security and independence, a key component of effective cash management is understanding “How much should I have saved by 30?" and "How much cash should I have on hand?" The answers to these questions largely depend on various factors and individual circumstances, but a common starting point is understanding the concept of savings.

Understanding 'Savings'

When we discuss 'savings,' we refer to the portion of your income that you choose not to spend but rather set aside for future use. It's the cornerstone of personal finance, pivotal in both short-term and long-term financial health. Savings can be categorised broadly into several types, including:

  • Liquid savings: This refers to the cash you should have on hand, readily accessible in case of unexpected expenses. These funds can be quickly accessed, making them ideal for emergency funds. They're typically low-risk but also offer low returns.
  • Goal-oriented savings: These are funds set aside for specific short-term or medium-term goals, such as buying a house, going on a vacation, or purchasing a car. These savings could be kept in regular savings accounts or time deposits, where the risk is minimal.

Singapore's Savings Landscape

In Singapore, the culture of saving is deeply ingrained. This commitment to financial discipline is evident in the latest data from the Department of Statistics Singapore, which shows that the personal savings rate climbed to 37.6% in the first quarter of 2023, up from 36.1% in the previous quarter. This signifies that, on average, Singaporeans are setting aside over a third of their income for savings.

Setting Personal Saving Targets

Singaporeans' income levels can vary greatly, affecting how much they can save. To better understand how much you could potentially save by the age of 30, it might be helpful to break it down into a step-by-step calculation using average income and savings rates:

Step 1 - Median monthly income: According to the Ministry of Manpower, the median monthly income from work per full-time employed resident in 2022 was SGD 5,070.

Step 2 - Monthly savings: If we apply the average Singaporean personal savings rate of 37.6% to this income, we get:

SGD 5,070 (median monthly income) x 37.6% (savings rate) = SGD 1,906 (potential monthly savings)

Step 3 - Cumulative savings: If you start saving at 22 and continue till 30, you have eight years or 96 months of savings. To calculate the total savings over this period, we multiply the monthly savings by the total number of months:

SGD 1,906 (potential monthly savings) x 96 months = SGD 182,976 (total savings)

However, these are median figures, and individual circumstances can greatly differ. The amount of cash you should have on hand will depend on personal factors like income, living costs, lifestyle preferences, and financial goals. A good rule of thumb is to save more than you spend to build equity and a stable financial foundation.

The Importance of Stability Before Investing

Before investing, it's crucial to establish a solid savings base due to the inherent risks associated with investments. The investment landscape offers the potential for significant financial growth but carries the risk of capital loss. The world of investments is often turbulent, subject to the volatility of markets and unexpected influences of economic factors on the value of your assets. Savings serve as a financial safety net, enabling confident investment decisions aligned with your risk tolerance and long-term goals. 

Creating a stable savings foundation is not merely a preparatory step; it's a crucial prerequisite to successful and responsible investing. It equips you with the financial armour to face the challenges and risks of investing while safeguarding your fundamental needs and financial well-being. It provides financial resilience, protects your essential needs, and forms the bedrock that supports your investment structure amid market volatility.

Striking the Balance: The Risks of Holding Too Much Cash

While a solid savings foundation is crucial, there is also a danger of holding onto too much cash. It's important to remember that cash does not grow on its own. In fact, due to inflation, the purchasing power of your cash decreases over time. This means that if your money is not invested or earning interest in some way, you are effectively losing money each year in terms of its real value.

Keeping large amounts of cash also means you could be missing out on potential investment opportunities that could grow your wealth. This is a concept known as 'opportunity cost.' The money you keep as cash could potentially be invested in stocks, bonds, real estate, or other investment opportunities that may offer a higher return.

Here, the principles of simple cash management come into play, emphasising the importance of striking a balance between having too little or too much cash. Too little cash, and you may not be prepared for emergencies or unexpected expenses. Too much cash, and your wealth growth could be hampered by inflation and missed investment opportunities.

StashAway Simple: Simplifying Savings

This is where StashAway comes into play, offering two excellent options: StashAway Simple™ and StashAway Simple™ Plus. There are no barriers to start – no minimum balance, no cap on the balance that earns returns, no investment, insurance, or salary requirements. Plus, the flexibility is unmatched with no restrictions on withdrawals or transfers.

But the beauty of these solutions lies in the balance they strike. StashAway Simple™ and StashAway Simple™ Plus are not just about safeguarding your money but also about enhancing its growth. Offering a projected rate of 3.5% p.a. and 4.6-5% p.a., respectively (as of 24 June, 2023), they ensure your cash is not just stored but also grown. This way, you can maximise your money's potential while keeping a liquid reserve for emergencies and immediate needs. In other words, StashAway Simple gives you the best of both worlds – financial security and optimal growth. 

Building a Secure Financial Future

Setting savings targets is a personal and subjective process that depends on various factors such as income, expenses, and financial goals. Remember, the goal is not just to save, but to build a secure financial future that allows you to live comfortably and fulfil your dreams. Start your savings journey today with StashAway Simple, and take a significant step towards achieving your financial goals.

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