Saving money is a great habit you should start as young as possible. The longer you put your money away, the more time it has to grow. As you start your career and start drawing a salary, you're in a great position to seriously create a budget plan and save money for the goals you have in sight. Here are 5 steps to help you take your savings to the next level.
1. Make it automatic
One of the hardest things about saving money is remembering to do it. As part of your monthly budgeting, make it a part of your regular routine and you could reach your goals much quicker.
Set up a standing instruction or a monthly investment plan and have your target savings amount come out of your account every month on pay day. That way you can set it up and not worry about forgetting, knowing your saving habit will take care of itself even if it's not constantly at the top of your mind.
2. Establish an emergency fund
One of the cornerstones of being financially fit is having an emergency fund. This fund should amount to between 3-6 months' worth of your living costs to cover any unexpected expenses that might come your way. An emergency fund could also really come in handy if you suddenly lose your job or find yourself dealing with an unexpected salary cut; the fund can help cover your living expenses while you get back on your feet, without detracting from saving for a longer-term goal.
And although it might be tempting, avoid taking money out of your emergency fund for non-emergencies, no matter how much you like that handbag you saw at the store or how much you want to go on a hotel staycation.
3. Decide when you want access to your money
Once you've got your emergency fund up and running, take your savings habit up a notch by mapping out exactly what you're saving for in your budget plan.
For each goal, you need to be specific with how much you need and when you think you'll want to spend the money.
4. Consider turning to investments for your long-term goals
If you already have an adequate emergency fund in place, then you might consider channeling some of your monthly savings contributions towards investments.
Investing should always be seen as a longer-term strategy or a way to get to the goals you've got planned for further on in the horizon. This is because the longer you invest for, the longer you'll have to recover from any market downturns. Over the long term, investing usually yields better returns than saving, but there are no guarantees. This means your money can go down as well as up in value, so there is a risk you could get back less than you invested.
People often think you can only start investing when you've amassed a lot of capital to sink in, but that's really a myth. You could start investing with as little as HKD100 a month using our FlexInvest service. Alternatively, you can buy stocks for as little as HKD1,000 each month with the Stock Monthly Investment Plan.
Bonus tip: When you save money for longer-term goals, there's one thing you need to beware of when you're planning and budgeting: inflation. The average yearly inflation rate in Hong Kong between 1982 and 2019 sits at 4.3%.1 Essentially, a bowl of wanton noodles that might have cost you HKD10 in 1982 would have cost you roughly HKD45 in 2019. You're getting fewer wantons and noodles for your money because things are getting more expensive over time. While savings accounts are considered safe, the interest rates they generate are often lower than inflation levels.
5. Keep your short-term goals within reach
Are you saving money to start a family? To get married? Or are you saving for a vacation, budgeting for a post-graduate degree or to make the down payment on an apartment? It makes sense to keep money you'll want to spend within a shorter time frame - for instance, within the next 5 years - in a savings account or if you want to invest it, then pick a highly liquid investment. It's true that more high risk investments generally brings higher returns than keeping your money in a savings account, but there's always the possibility you could face potential losses in the shorter term and not have cash on hand when you need it.
If you don't immediately need your funds, you could consider a time deposit account where you'll earn a slightly higher interest rate in return for locking your money away for a fixed tenor.
Not sure where to begin?
This is where we come in. Whether you'd like to ramp up your savings or to begin investing with us, we've got a suite of wealth management tools and resources to get you started. A great place to kick-start your journey would be to log on and take our risk profiling questionnaire, so you can identify investment products with risk levels commensurate with your investment risk tolerance.