Hey guys! In this post, I’ll talk about how to get started on saving money. Often, people begin by setting a savings target, but I find this approach flawed. Our incomes vary, and with the cost of living these days, maintaining a rigid savings goal can be challenging, leading to feelings of defeat and abandoned savings plans.
Instead, I like to calculate my monthly needs and work backward. Drawing inspiration from the startup concept of a minimum viable product, we can apply this to our savings by determining our own minimum viable expenses. This refers to the amount of money you need each month to sustain yourself.
Within this minimum viable expense, we can categorize our spending:
Fixed expenses (like insurance)
Variable non-negotiables (such as food and fitness)
Variable expenses (shopping, outings)
Filial piety tax (money given to parents)
From these categories, we see that some expenses are unavoidable. However, we do have control over the variable components. This requires realistically assessing how much you can reduce your variable expenses, thus determining your monthly minimum viable expense.
To start tracking your expenses, you can check out this post here: http://hweeshin.com/2023/12/19/free-notion-budgeting-template-to-track-your-expenses/
From there, work backward to figure out your monthly savings. Money not spent can be allocated to saving or investing. A general benchmark is to save money needed within 5 years in a high-interest deposit account or other safe options. Money you won’t need for the next 5 years can be invested. Check out my previous post on investing here.
So, how do you determine how much to save or invest? Work backward! For example, if you want to buy a $500k house in 5 years and need about 20% in cash (which is more than necessary as you can utilize your CPF, etc.), this means you need $100k in 5 years, or about $1.6k a month in savings to reach your goal!