Tan Kin Lian's Blog: Difficult to make regular saving?

Wednesday, August 17, 2005

Difficult to make regular saving?

A young person told me that his salary is not enough. He has to pay back a university loan. He finds it difficult to make regular saving. What is my advice?

I replied that his priority should be:

- be frugal and modest in his expenses
- repay his university loan in installments
- make regular saving of 10% to 15% of his salary

After that, he can use any spare saving for travel, entertainment and other expenses. He should avoid taking a loan for a car or other major expenses, as the interest charges are high.

It is important to have regular saving now, when he has a job. In the future, jobs will be less certain. He may be retrenched or the company may close down. At that time, he will have to draw down on his savings.

The best way to invest the saving is in a flexible plan, such as a ILP (investment linked plan).

I hope that this advice is useful for other young people.

3 comments:

K.S. said...: I am 31 this year - no longer young, still not middle age (35 and above). So I am stuck somewhere in-between without classification.

Well, my understanding is that for a young people who has just stepped out onto the working society, he/she should not dream of saving in the 1st 2 years. I am not asking him/her to spend her money on unncessary stuffs.

Well, the savings (minus expenses) should be plouded back to further education, enrichment course, better working clothes (presentable is a must), social events, etc. These are self-improvement cultivation.

After that, start to work out a saving plan for yourself. And most importantly, keep to the expected expenses! It tends to increase proportionally to the increasing salary - not a good side. For example, my salary is now more than 1.x times my 1st salary and my expenses is now 1.x-0.1 times of my 1st monthly expenses (yes, I do keep track of daily expenses). Very hard to control, esp. with a car!

Nevertheless, with the savings after 1 year, start to invest into the single-country unit trusts (moderately aggressive) and stocks (if you are aggressive) and NOT ILP! I consider ILP for the middle-aged people - those who have shrink away from risk-taking. Invest with whatever is inside your CPF since you don't need it now. Split the cash on hand for the raining days and liquid investment (stocks).

If nothing goes wrong (9/11 case, SARS2003 case, Asian Crisis 1997 case, etc) you should be doing fine! Just don't speculate like me and get burnt! :)

My investment link: Fndsupermart; August 17, 2005 7:37 PM
Tan Kin Lian said...: Dear K S

It is better to invest in a well large, diversified global fund, rather than a single country fund.

Making adequate saving is of higher priority to maintaining a car.

Many people found that it is cheaper to use taxis.; August 18, 2005 10:19 PM
K.S. said...: Dear Mr Tan,

Thank you for your advise. Don't worry. My salary still >> expenses :) I waited quite long to buy a car because I want to make sure that I have savings even with a car.

The rationale for a large diversified funds is when you have a bigger pool of $ and when you are not so much of a risk taker.

Also, I find it 'not correct' to invest and ignore the investment till much later. Maybe at the end of the day, you might earn 10% out of it. But the opportunity loss of the CPF 4% and the inflation of 1% mean in actual fact you are earning less than 5% in adjusted value.

It's important to keep track of your investment and sell them (3-6 months) to capture the peak of the bull run and window dressing. Of course, I am talking about the more aggressive fund.; August 19, 2005 12:31 AM