As a bare minimum, the correct amount to have saved up – at any age – is six months of your income. Any amount beyond this should be redirected into your investment portfolio or retirement fund. This is because savings are mean to remain in liquid cash, ready to use during emergencies, whereas investments are more illiquid and for the long-term.
So if you have an income of $5,000 a month, your “savings” are generally adequate if you have at least $30,000 saved up. Note that your CPF doesn’t count, as it’s not savings you can immediately draw on. A recent survey by OCBC showed that two in three Singaporean and permanent residents (PRs) do not have enough savings to last them beyond six months, a worrying statistic amidst these COVID-19 times.
Here’s an alternative way to look at it:
The typical Singaporean makes around $4,563 a month. After CPF, this comes to about $3,650. Assuming you save 20% of this (an average savings amount), you would stash away $730 a month.
Let’s say you’ve saved this amount since you started working at the age of 25. You use a standard savings bank account, with an interest rate of around 0.125% (you don’t put the savings in a fixed deposit, as you want to be able to use it immediately in an emergency). Pro tip: Make use of different types of bank accounts to optimise your savings.
You would have, after 10 years, around $88,709.50 (not accounting for inflation).
That’s not very efficient as after around $27,400 (about the six months income mark), you should be putting the rest of the money into an investment, such as an endowment plan or mutual fund, with higher interest rates, to grow your savings. At the very least, you should be putting your savings in a high-yield savings account, where interest rates rise the more you do with that particular bank.
