Wednesday, January 21, 2015

Readers' Challenge - Cutting Down Your Expenses in 2015 To Save 50% of Your Money

You may have heard advices to save 10% or 20% of your money every month. But, is that enough to grow your money to achieve financial freedom? The average people out there would just be saving 10% of their money or worse still have no savings at the end of the month. If your take home pay is $2000 and you save just 10%, its only $200 per month and $2400 a year. In 10 years time, its only $24,000. That's not a lot assuming you start working at the age of 24 and end up with only $24,000 at the age of 34. If you're good enough to have a take home pay of $3000, saving 10% would only be $36,000 in 10 years time.



Here's the 10% savings scenario:

Take home pay $2000 at age 24, save 10% and have $24,000 at age 34

Take home pay $3000 at age 24, save 10% and have $36,000 at age 34

That doesn't seem like your money is growing fast enough isn't it?


What if we bump up the savings to 50%?

Here's the 50% savings scenario:

Take home pay $2000 at age 24, save 50% and have $120,000 at age 34

Take home pay $3000 at age 24, save 50% and have $180,000 at age 34


A 6 figure savings is not difficult if we save 50% of our take home pay. That is assuming that we take home about 2k-3k per month which is on average what most of us would be getting. If your pay is higher, that's good news for you. If it is lower, you may want to consider upgrading your skills to increase your pay.

Before you say its difficult to save 50% of your salary, here are some ways which will make it easier:

1. Record your expenses daily

Why record your expenses? The primarily reason is you will see where your money goes to when you review it at the end of the month. This will allow you to cut down on the unnecessary stuff in your life. It'll also allow you to tweak some of your expenses and use creative ways to reduce wastage. Recording your expenses everyday seems like a difficult task to do but with mobile apps now, it is much easier. You just have to key in at the end of the day in your phone while you're on your way home.

I personally use an app called expense manager. It's easy to use and you can set your salary to be automatically input in every month.

2. Set up an automatic savings plan

Saving money need not be done manually. I've wrote a few times on setting up an automatic fund transfer to transfer out a portion of your salary once its credited into your bank account.

Here are the steps to do it (For POSB accounts):

If you've not set up any bank accounts payee to be linked to your existing account yet, start with step 1 below. If not, you can go straight to step 2.

Step 1
Add a new payee to be linked to your existing account.


When you log in, you'll see fund transfer at the left hand side of the page. Go to Funds Transfer -> Manage Payee List and Settings. 

Then, select either Add new DBS/POSB payee if you're going to transfer to another DBS/POSB account or Add New Other Bank Payee if you're going to transfer to an account in another bank. 

Step 2

After you're done with the add new payee, on the left side bar, go to Standing Instruction: Manage Instructions & Settings.



Follow the instructions and select your debiting account and beneficiary's account. Type in the date you want it to be deducted (ideally 1 day after your salary is paid  to you). Under the standing instructions, select the frequency of payment to monthly.

There you go, 2 easy steps and your money will be automatically transferred out as savings for you every month. 

For other banks, I suppose you have to add new payee and set up standing instructions also. Shouldn't be that much of a difference. 

The good thing about setting up this automatic fund transfer is you can just spend all your money in this bank account without worrying about having no savings at the end of the month. Just remember not to touch the money in the other bank account which you had transferred to. 


Not Just Cutting Expenses but Increasing Income

Saving money is important. It is a good habit to have. However, there's a limit to cutting down our expenses. If you're alone and living a pauper life, probably nobody would care about you. But if you got a family with your spouse and kids, or you need to go out for dates, there is a need to spend a certain amount of money. There is some reality we have to face here. In the next round of readers' challenge, look out for ways to increase your income. Stay Tune!

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Related Posts:
1. Why extreme savings is more powerful than investing
2. 35 and totally broke or $100K savings by age 30?
3. Save 75% of your income to retire in 7 years

21 comments:

  1. Hi SGYI

    I can definitely take this challenge out on my own :)

    ReplyDelete
    Replies
    1. Hi B,

      The challenge quite easy right? Lucky I never put 75%. Haha

      Delete
    2. Hahaha that was not what I meant.

      50% is defintely a sweet spot challenge for me as it coincides with a balance view of easy and difficulty at the same time. Anything higher would hv been impossible for me. Hahaha

      Delete
    3. Haha, glad to hear that.

      Delete
  2. Hi SGYI,

    I think depending on one's income, 50% may be nearly impossible or very easy. It just doesn't scale proportionally, unfortunately. If you earn 8k a month, saving 50% is probably a different sort of challenge from saving 50% from say 2.5k per month. The quality of the challenge is very different :)

    For me, because my income is variable, I prefer to set an absolute amt for savings. This means I can either set aside more money by spending lesser or work harder to increase my income to achieve that target.

    ReplyDelete
    Replies
    1. Hi LP,

      Agreed. For everyonr its different. But I think for most of us as average income earners, it is quite possible to save 50%. If we have variable income then just adjust accordingly with an estimated absolute amount like what you've said.

      Delete
  3. 50% is incredibly difficult - if I save 50%, give 20% to parents and 20% for CPF, i'll be left with $500. That's like back to college pocket allowance.

    ReplyDelete
    Replies
    1. Hi JC,

      You have to increase your income then. $500 is quite impossible to survive on in oir current society.

      Delete
    2. Wow you reply pretty fast! Yes I would say $1000 is more reasonable to survive on actually, so will have to double my income to $10K a month. Thumbs up for your blog. I enjoyed reading plenty of the posts!

      Delete
  4. I use expense manager on Android too. It's been a mainstay app for me for a few years now

    ReplyDelete
    Replies
    1. Hi Retail Trader,

      Its easy to use. I like it too. Have been using it for the past few years.

      Delete
  5. In addition, i suggest doing active budgeting instead of expense recording. A software which is recommended to me is 'You Need A budget' which uses zero based budgeting. I started using that and it is really supplements expenses tracking very well.

    ReplyDelete
    Replies
    1. Hi dowz,

      Yup, budgeting can help us to know where our money is going to. It'll help us to spend more efficiently on things that matters. Thanks for the recommendation and suggestion.

      Delete
  6. i will take up your challenge :)

    ReplyDelete
    Replies
    1. Hi Jimmy L,

      I'm glad to hear that. All the best to your savings goals!

      Delete
  7. Hi SGYI,

    Really good idea there about setting an automatic savings plan. Really forces us to save for the long term. I'll probably set that up for my own use too!

    A complementary idea is to learn to invest some of that savings and let the compounding effects work for us.

    Have added your bloglink in my blog too. Care to add mine as well if its possible? :)

    ReplyDelete
    Replies
    1. Hi secretinvestors,

      I'm glad you like the automatic savings plan idea. Yup, investment is important too once we go through the savings part. I'll add your blog to my list also. Thanks!

      Delete
  8. expense manager is a good app! thanks for introducing.:)

    ReplyDelete
  9. Nice article, I have in fact been actively saving 50% of my salary for a few months and continuously thinking of ways to increase the amount.It is tough at first to do so but over time it actually 'forces' you to rethink your budget strategies and think of creative ways to cut costs and to increase your income. Some people may have higher income but if they cant manage their money they will just be saving as much as someone else with half or less of their income. Taking up saving plans also helps to enforce savings habits as well.

    ReplyDelete
    Replies
    1. Hi,

      Yup, saving does help us to be more prudent in our finances. Good job in saving 50% of your salary. Your money will definitely grow fast.

      Delete