Does Saving Money Rank Highly In your Financial Priorities?

Last week, there was a harsh report from DBS that Singapore may lose 90,000 jobs due to the worst economic recession in recent decades, pushing the jobless rate to 5 per cent by mid-2010. It was further postulated that the economy may contract 4.8 percent in 2009.

Singaporeans have not felt the brunt of the economic hardships just yet. Yes, manufacturing and exports are in the doldrums but many companies are holding back on their layoff plans. Firstly, it is not popular, given that DBS was roundly criticized for using ”retrenching as a first resort” to save costs.

Then, budgetary measures like Job Credits have softened (or delayed) the blow and everybody is keeping their fingers crossed on a swift recovery in consumption. However, if global demand doesn’t pick up, the axe will certainly fall at some point. Meanwhile, the construction sector is still alive and kicking, a lot of construction companies have order books stretching till late 2010. After that, it is anybody’s guess what happens to this sole pillar of our economy.

In view of a protracted downturn in the job market, talking about financial freedom and retirement seems premature. The path to riches is fraught with pitholes, many investors have fallen by the wayside and need to slog even harder to make their portfolio whole again. Nevertheless, we should pick ourselves up, learn our lessons, and not lose sight of our financial goals.

Let’s go back to the basics of wealth building. There are essentially two ways to increase our cash. One way is to earn more money through investments, entrepreneurship or taking on another sideline job – seemingly futile exercises in this economic climate. Alternatively, we can cut costs by being frugal. In fact, saving money has now become a top financial priority among my friends, and me included.

A massive wave of frugality is expected worldwide. There is nothing wrong with saving money, it is only when everybody do it at the same time, that a self defeating effect of shrinking demand is felt keenly on the general economy. I am conscious of this downward spiral and have only cut back significantly on investments, rather than my spending on essential items.

Over the last two months, I planned a budget to improve my discipline in conserving cash and tracking my money. Being an easily contented person, I am happy with what I have without purchasing fancy and luxurious “stuff” to keep up with the Joneses. Thus, there was little adjustments to make as I have always lived well within my means.

Of course, there are always fat to be trimmed off. I have targeted some “big ticket items” which allow me to save hundreds of dollars a year, like gym membership, credit cards, car, cell phone and internet service. These may be chopped or renegotiated in the coming months.

To be sure, frugality is good, it is not to be confused with being stingy. I have no qualms about channelling my money into providing the best for my child’s education, going on a vacation, paying down the mortgage and setting up an emergency fund.

I can make do in areas which are deemed less important. For example, I eat hawker fare or have my meals at home instead of restaurants. I buy coffees from coffee shops or boil my own 3-in-1 coffee instead of patronizing Starbucks. I turn the lights and computer off when I’m not using them. I wear clothes which cost 3-for-$10 or buy my professional work attire during year-end sales. I avoid hot baths and recycle the water from washing vegetables and rice to water the plants.

These savings may be peanuts but if your savings have allowed you to accumulate a large down-payment to buy a house, you will be a very happy person today as you avoid massive top-ups, high premiums and additional interest when your asset goes underwater.

By the way, don’t underestimate the savings from a cup of cappucino. Your daily visit to Starbucks could cost you upwards of $5 and in a year, that is a whooping $1825. Now, you are wondering where all the money goes to. If you add compound interest on this for 20 years, that is worth a mighty fortune.

Does Saving Money Rank Highly In your Financial Priorities?

Frugality also means we take little for granted. We value what we have and become self reliant by using creativity and learning new skills to avoid middlemen. Being frugal also ties in with sustainability, a new buzzword as we experience declining fossil fuels and adverse climate changes on a ravaged Mother Earth.

When I rewash a towel or plastic bag, it can be used again for different purposes instead of being disposed like tissue papers or paper bags which add on to the tons of litter generated per day. These activities do not waste a lot of my time and though they do not result in huge savings, I am happy to do my part to create an environmentally friendly planet.

While we go about building up our wealth, the fact that all our assets are illusory has always been at the back of my mind. This financial crisis has driven home this point further. We become self-serving by measuring all our actions in terms of dollar and cents, only to have our fortune destroyed by the irresponsiblity of others at the end of the day. What an irony!

Indeed, as our society becomes more affluent, we become more wasteful and uncaring of our surroundings. We often ask, “why repair and not just buy something new?” In certain circumstances, like a spoiled TV, it does cost cheaper to buy a new one rather than repairing the old set. However, that does not mean that throwing away things become the default for all our belongings.

Saving money can take many forms (moderate to extreme), because our financial positions, values and requirements differ. For those who are rich and have much disposable income for spending, saving $100 or $200 per month is insignificant, but it could mean the world to an unemployed person or a family struggling to put food on the table.

Does saving money rank highly in your financial priorities too? It certainly does, for me. What other steps you have adopted to increase your savings, living green and leading a more fulfilling life in this recession?

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Filed under Business, Economy, Stocks, environment

6 Responses to Does Saving Money Rank Highly In your Financial Priorities?

  1. In modern life saving money is critical. You need to prepare for periods of life when your income may decline or you have emergency expenses. Saving is not that tough. You just don’t buy stuff unless you have the money to do so. And you take a portion of your income and save it before it goes into the money you use to buy stuff.

    John @ Curious Cat Investing Blogs last blog post..Low Mortgage Rates But High Eligibility Requirements

  2. Don’t save what you left after spending; spend what you have after saving.

    I think it’s good to treat savings as a percentage to one’s income. If one saves at least 10% of take home pay per month, it’ll contribute greatly to one’s net worth. Personally, I’ll save to the point when it just feels uncomfortable. If 10% is too little, it’ll up to 20% and so on until it becomes a little irritating. Currently, i’m saving near to 70-80% of my income.

    One impt trick: if you eat out, just don’t order drinks – you’ll shave off a good amt of calories and save a good amt of money :)

    la papillions last blog post..Value of time

  3. @ John -

    Yes, emergency funds are important especially when you lose your income.

    Indeed, saving money is not that difficult once you get into the habit. A lot of people want instant gratification even if they do not have the money. That is a very dangerous path to adopt and the debts will eventually come back to haunt you.

  4. @ La Papillion -

    Spend what you have after saving… that is a good approach. A budget will help greatly and with of course discipline to implement it.

    You are right that saving at 10% of take home pay per month will contribute greatly to one’s net worth. Being able to save 50% of take home pay is already considered an achievement, thus I am impressed that you are saving near to 70-80% of my income, presumably you are still single.

    I am implementing your trick too. I hardly order drinks when eating out.

  5. Hi jeflin,

    Yes, i’m still single. Even when I get married, I still aim to save min of 50% of income. If I can’t save that, I’d either spend less or earn more. There’s no other way to get around it.

  6. I agree on your points about the basics of wealth building. Being frugal is good,and we will obviously see the benefits of saving in the small picture analysis, which of course is a good thing for our own personal wealth. But the big picture would be like you said if everyone is doing it at the same time, it will have a self-defeating-shrinking -demand-effect on the economy as a whole. Jobs and entrepreneurship may seem futile in this economic climate. But I believe this is gives us an even greater opportunity to do good, smart investments that will yield great returns if we do our homework and due diligence.

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