Young&Savvy

Regrets of a compulsive saver

There's the danger of saving for the sake of saving, instead of putting the money to work

I've always been somewhat of a compulsive saver, putting every cent I received from my family in my piggy bank, even before formal schooling began.

A dollar from each aunt for a neck or back massage, with moves I picked up from watching hair salon employees? Into the piggy bank it went. I got quite good at it, so it became a steady stream of "income".

I Googled and found out the compulsive saver gets carried away with saving and ends up seeing it as an end in itself, instead of a means to better things like capital for investing or a business.

I identify because saving has become so ingrained in my life, I've been finding it so hard to break out of this habit recently.

That may sound strange, but what I mean is that I've become too risk-averse over the years, wanting to hoard whatever cash I have for fear I might lose it all one day.


ST ILLUSTRATION: CHNG CHOON HIONG

That probably led to my first bad decision about money, involving a financial product more complicated than what I could understand as a young working adult with little exposure to financial literacy.

I was already familiar with fixed deposits before university, lured by the higher interest and a disciplined way to hide money away for at least 18 months. When my fixed deposit with OCBC Bank ended in my first or second year of work, I decided to apply again. I just wanted a hassle-free way of saving, with no fees, no complicated structures and the like.

The bank executive started telling me about a plan that would "suit" me, seeing as to how I preferred to lock up my money in savings. After an hour or so, I said yes without fully comprehending what it was, and it took me many months before I learnt it was an endowment plan. I also suffered from buyer's remorse, upset that I had made the decision without any research,and I was convinced I had made a wrong choice.

Although the plan has been somewhat of a pain in my life, financial advisers have told me the returns I will eventually get are reasonable so, unwittingly, that's one portion of my money taken care of for the next 10 years at least.

But I've honed my saving and budgeting skills over the years as I become more financially literate.

As a student, the concept I had was simple: Put everything into the savings account first and then withdraw an amount I thought I needed for each month.

When I started working, it took a while to adjust to the idea of budgeting and saving for specific needs. I went astray in the beginning, overspending on holidays and things I didn't need, hoping the yearly bonus would cover for those when I should have been building my capital for investing.

I'd also constantly forget that insurance plans were a sizeable chunk of my salary. However, the compulsive saver in me still made an effort to spend only up to $500 a month, at the very least.

I recall a friend in university who had a spreadsheet for her expenses. Her parents lived overseas so she was in charge of running her household's finances, and she detailed her spending according to categories such as petrol and electricity bills.

I should have asked about her spending habits and for that spreadsheet then. It probably would have better prepared me as a grown-up with actual bills to pay.

I've now learnt to apportion my money into main categories, such as household and general expenses; insurance, which includes the endowment fund; travel; investing; and money for a rainy day.

I even have sub-categories, being the stickler for detail that I am, but you don't need to know that. Whatever remains is what I can afford to spend, but what's left over goes back into the savings account anyway.

Some people don't have cash stashed aside, but consider some of their liquid investments as savings instead and I think that works.

I used to divide my salary, through Giro, into accounts with different banks according to my savings categories immediately after payday, which some people I've spoken to also do.

These days, however, I'm more inclined to park funds in one account to get the most interest paid. I'm using the OCBC 360 account now because I get even more than the base interest rate if I meet certain conditions, such as depositing my salary or increasing the account balance each month.

As a saver, you're always seeking the best deal, so I'm shopping around for another account to make my rainy day savings work harder.

I'm still getting used to having my money sit in one place as I always worry that I'll fail to keep track of how much I've got in each category.

That said, if you've only a vague idea of how you save and spend, when a rainy day comes, you might find yourself in trouble, or miss an opportunity to invest.

This is why SingCapital chief executive Alfred Chia often touts this formula: Save at least 20 per cent of your income for financial goals such as retirement and education; save at least 10 per cent for insurance for protection; spend less than 40 per cent on loans; and less than 30 per cent of income should go into your expenses.

One of the reasons compulsive savers exist is that they associate money with security early in life, I've read. Sure, I'm soaking up the benefits of compound interest from the bank now, but I'm also going to suffer in future as inflation eats away the value of my money. There is more than one way to harness the power of compound interest, and this is where I turn to investment maxims for guidance.

As investment guru Warren Buffett said: "Risk comes from not knowing what you are doing."

Since I know what my fear stems from, the next adage goes like this - an investment in knowledge always pays the best interest. Now that I recognise and accept that the capital I've built up is the means to an end, guess what I'll do next?

A version of this article appeared in the print edition of The Sunday Times on June 05, 2016, with the headline ' Regrets of a compulsive saver'. Print Edition | Subscribe