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20 Jun 2019


How do you save up for short and long-term goals?

I came across an article recommending to separate our savings into short-term and long-term in a 1:2 ratio. How would you do yours? Is simply setting aside an amount monthly will be enough?

For example, let's say the short-term goal is buying a house and the long-term goal is retirement planning.

Discussion (21)

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Ultimately, it’s about:

1) Pre-empting or estimating the cost of future expenses (e.g. wedding, BTO, insurance, car), taking into account estimated annual inflation rates

2) Identifying how flexible your timelines are for each of your milestones (e.g. first home by 2022)

3) For short-term savings – placing it in a high yield savings account like OCBC360, which offers 1.2% interest on the first S$35k, and 2% interest on the next S$35k (capped at S$70,000)

4) Ensuring you’ve set aside a minimum of six months’ salary – a rainy day fund – for unforeseen circumstances, whether a medical emergency or retrenchment (God, no!)

5) Taking stock of your progress quarterly

Short-term savings

My salary is credited to my OCBC 360 account, of which around 45% is then transferred to my POSB Savings account for monthly expenditure – which could include anything from food and transport to taxes. In order to finance the down payment for my BTO, I plan to funnel $20,000 into a short-term endowment plan like the Aviva MySecureSaver. I’m also looking to GIRO 20% of my monthly salary to my CPF Special Account, which would yield up to 5% interest annually.

Long-term savings

Some level of risk comes into play if you hope to grow your funds at a quicker rate – so diversification is crucial.

I’d recommend:

i) investing in stocks that can withstand inflation, e.g. Singapore Savings Bond (averaging 2.13% interest p.a if held for ten years, based on interest rates for the June 2019 bond), and

ii) dabbling in higher risk investments like bonds, stocks (e.g. STI ETF) and REITs.

At the same time, topping up your CPF in January rather than December could earn you 20% more interest on your savings over ten years.

Tough question, and I see quite a bit of good answers. For somethings like retirement planning, its really hard to come up with an absolute amount. And there are unexpected things that happen that would dip into your reserves, so it wont be something that actually has a fixed pattern.

1) nowadays there are psuedo bank accts. They are called saving goals in ocbc, and I think dbs / uob has theirs too, maybe with a different name. Using saving goals you can do the long term and short term goals theoretically all in the same bank account. This would be the same as envelope budgeting.

2) with saving goals, you can set the target amount, required date, and whether to enforce monthly saving / accrual into the goal. They "lock" up the money and it is no longer part of the "available" balance.

3) someone else answered on monthly or quarterly check-ins. I do quarterly balance sheet at a minimum to get overall view. Getting disciplined once per quarter is not demanding. Plus do at least annual budget.

4) within the budget, plan on expenses first. Tally up expected income and then work out the possible savings. Portion out the savings according to your saving categories and readjust.

In practice, after working out expected income, I budget expenses according to:

  • recurring monthly expenses
  • annual / periodic expense like travel, investments etc.

For the so called short term / long term goals, I set up four goals / categories (i find that's better, too many categories usually means spend more time doing fine splits, and you may get distracted from overall picture)

  • rewards to cover basically travel, clothes, tech toys and just others
  • angpow + family emergency reserve
  • investment reserve to redeploy into investments, or srs
  • backup reserve = 6 month expenses + next yr annual expenses + built in component for inflation

Each of the reserves has an monthly savings / accrual debited from the free balance 2 days after my salary is credited to the 360.

Anytime a use comes up against the category, eg parents hospital insurance bill, I withdraw the amount from the goal, while it continues saving for next years bill.

At each quarter, I record the balance under each of the goals, and do my santity check against this year budget to see if the monthly accrual is enough or not. If under, I may need to adjust investment lower to topup saving under the other category.

For three year plan, I built in the target % of total net worth and then compare balances against the target %.

First, find out how much u need for short term and long term goals.

Then, work backwards and set a budget and stick to the savings. If this is ur first time budgeting, review it monthly for first 3 months. This is to see if the budget set is challenging, yet achieveable. Once u get the hang of it, u can reduce the frequency of reviews, to say, a quarterly or even yearly basis.

For long term goals, u might wanna review if u can achieve consistent returns. For this, u would likely have to do it over at least a decade.

When deciding how much to save, short term goals are slightly easier to project, as it is less likely to be affected by things such as inflation, economy, etc as compared to long term goals.

Luke Ho

09 Jun 2019

Founder and Director at CFX Money Maverick Pte Ltd

You should probably be as specific as possible.

1) Ratio

2) Defining Short Term

3) Defining Long Term

1) I'm not too sure your ratios should work like that because objectives have a price regardless of your timeline. So if I want to get a house in a year and I haven't even started, it's more likely that my short term savings would be 5 to 1 compared to 1 to 2, for example. Not that the general idea isn't there and its a good base for someone to start, but financial planning done generally is typically done poorly.

2) Short term has a huge range. For traders, its a couple of hours and for investors, it can be impossible to predict a year record.

If your short term is 3 years or higher, there are some asset allocations (investing) and short term bonds or structures which you can place your money in. This can help you to get a higher interest on those yields with specific predictability.

Common short term instruments are your enhanced bank accounts (e.g. Multiplier, 360) as well as SSB. For more return, you can speak to a Financial Advisor like myself to design an investment asset allocation depending on how short the term is.

Of course, thaht kind of investment also needs to be liquid because if you're looking at the most common short term things from start to finish, it can typically go in such an order:

1) Initial downpayment of house

2) Wedding preparations 1 (e.g. bookings)

3) Wedding preparations 2 (e.g. purchases of specific items)

4) Wedding preparations 3 (e.g. miscellenous)

5) Renovations

6) Moving in

7) Items for the house

Etc. You kind of get it. Some people will bypass this entirely and stick with the common options, while some people whose short term is longer than they'd expect (1 year or higher) might even go for P2P lending, where you can get 8% yields pretty easily.

3) For long term its fairly straightforward in the sense that you know you'll be investing in the market - Unit Trusts, Stocks, Bonds, ETFs, REITs, etc.

Speaking purely from an advisory/investment specialist perspective, the asset allocation is important because your long term may be longer or shorter than a general view (e.g. retirement at 65). A portfolio that I plan for someone who wants to retire by 45 is going to have different components from someone who can retire at 65, assuming they start at 30 years old.

This is because you have to sell at some point, and unless you're a skilled trader you ideally want the probability of the portfolio to have a positive return at the end of your tenure.

In summary, you save up using short term instruments and long term instruments with precision and careful planning.

Do talk to a professional like myself if you require further advice and yields.


HC Tang

09 Jun 2019

Financial Enthusiast, Budgeting at The Society

As most of us were not all born well to do and there's limited resources we have on hand as we striv...

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