When it comes to saving and investing for the future, one of the most frequently asked questions is: how much of my salary should I be putting aside? 5%, 10% or 15%?
It can sometimes be difficult to know the exact percentage of your income that you should invest in. That is when the services of a financial planner will come in handy, as they can help you decide on the best investment plan in Singapore for you. While you don’t need a lot of money to get started investing, the most important thing is that you keep adding to your account regularly, so that your money has a chance to grow. A good financial planner will always be able to advise you on the best wealth accumulation plan tailor-made for you in Singapore.
While the financial gurus are divided over which model to follow, one of the most widely practiced models is the 40-30-20 model.
What is the 40-30-20-10 Model?
As someone wanting to achieve financial stability and financial independence over time, you must always aim to:
1. Spend Less Than 40% On Loans
Loans shouldn’t consume more than 40% of your monthly income. Loans are long-term obligations that drain your resources and reduce your emergency fund, so consider twice before taking out a loan or agreeing to unrealistic monthly installments.
2. Spend Less Than 30% On Your Expenses
Enjoy a splurge every so often as long as your monthly expenses do not surpass 30% of your monthly income. Follow this rule to sustain the current quality of life and avoid excessive shopping.
3. Save At Least 20% For Retirement
Saving is a beneficial habit, but not an end in itself. Saving money is only relevant if it is directed towards certain financial goals. To ensure a more secure retirement, you should save at least 20% of your monthly salary. Use this savings calculator (bit.ly/CPFSavingsCal) to figure out how much you need to save!
4. Save At Least 10% For Insurance
Even the best-laid long-term plans could be susceptible to life’s unpredictability. Therefore, always aim to allocate at least 10% of your monthly salary for insurance.
Also remember that irrelevant of which tried and tested method you opt for, your circumstances and financial situation and the inflation rates of the economy will require you to make certain adjustments
Another Desirable Financial Planning Model To Follow
50-15-5 Rule
Many financial experts believe that 15% of your pre-tax salary is the ideal investment you must make and many believe the 50-15-5 rule is a good model to follow.
According to this model, under ideal circumstances, your take-home pay would be allocated as below.
Allocation 1: Essential Expense 50%
50% of your income would be allocated to meet the essential expenses. This would cover your housing, food, transportation, healthcare, child care, loans, and debt repayment expenses.
Allocation 2: Investment: 15% / Retirement Fund
The money you save needs to be productively invested. A 15% investment towards your retirement fund is a good practice to begin with. Consistently contributing each month is the key to a good return on investment.
Allocation 3: Short Term Savings: 5%
It is always best to have a contingency fund; an extra 5% allocation as short term savings comes in handy as an emergency fund too.
Allocation 4: Non-Essential Spending: 30%
This could be utilized for entertainment and dining out as well as additional savings and investments subjected to your spending habits each month.
This rule presumes that the investor begins making investments at a young age and encourages young people to save upfront as much as possible and continue to raise their contributions, reflective of the income increase over time.
What Must You Consider
Investing money isn’t just about how much money you have; it’s also about how much money you’ll need in the future. It is always good to ask yourself: “What am I attempting to accomplish?” before deciding on the best wealth accumulation plan in Singapore for you.
Re-Evaluate Your Investment Contributions From Time To Time
When your job or personal life changes, so will your financial situation and so must your goals for investment. Depending on your gross salary, the percentage you can invest every month and the return of investment you will receive, a financial planner could rightly advise you on the best wealth accumulation plan available for you in Singapore.
Developing an investment discipline early and sticking with it can help you achieve financial freedom early. Let an experienced and reliable independent financial advisor representative talk to you about the best investment plan in Singapore and set you up on your path to financial freedom. Contact us today!