The art is not in making money, as the proverb goes, but in keeping it. If you often find yourself lamenting about not having enough money to spend, much less save, consider a new method of thinking about money this year.
Whether your goal is to save SGD$50,000 in the new year, add to your investment portfolio, get married, purchase a home or see the Northern Lights, you can realise it by mastering the bucket savings strategy. Here’s how to do it:
Treat saving as a form of consumption
After receiving your salary each month, the first thing you should do is put aside a fixed portion as savings. Treat monthly savings as a form of recurring expenditure, rather than the leftovers (if any) at the end of a month of spending. As Warren Buffet said: “Do not save what is left after spending, but spend what is left after saving.”
“Many little drops make an ocean” – be disciplined with saving and even a small monthly amount can grow into sizable wealth.
Classify daily expenses into separate buckets
Below four buckets should covered expenses for most people:
1. Must-have bucket: Apart from savings, for other recurring expenses like electricity and water bills, basic living costs such as transportation and food, as well as children’s school fees.
2. Emergency bucket: for use during unexpected loss of income due to unforeseeable setbacks like unemployment.
3. Investment bucket: for growing your wealth by making your money work harder to earn even more money for you.
4. Entertainment bucket: for enjoyment of life. Researches have affirmed that restraining expenses excessively can adversely effect your overall savings plan.
Allocate your salary to the buckets
Assign a percentage of your income to each bucket. It is not necessary to fill up all buckets with the same amount. How much should you save? Consider your savings goals, the time horizon you have for each goal, and work backwards to calculate how much you need to save monthly.
You don’t have to open a separate bank account for each bucket. Consider a budgeting and book-keeping app to keep track of your monthly income and expenditure, so you can manage your finances without hassle.
This article is written by Fidelity International