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How to save money: Dividing up your savings and investments

In the course of wealth building, many people like to make things easier by paying themselves first, setting aside x amount of money to invest and save. This amount will not be touched for daily necessities and other uses.

Paying themselves first is of course a great personal finance tip, and one I will advocate as well.

For the singles or those that saw the light of how early savings and investments can prove to be fruitful in the future (read the power of compounding early), they tend to save 50-60% of their disposable income.

This amount they will use it as their “bullets” to build wealth by investing at a higher rate, through stocks and bonds, properties.

To a certain extent I think we can improve upon this and be more goal focus when it comes to wealth accumulation.

Different Goals, Different Time Frames

The pool of savings and investments are meant to meet certain needs. Often times, it is not just for retirement.

It is likely at different time periods you will need the money.

Many of the goals happen to be congested to when you are in your late 20s and early 30s and you will need the money pretty fast.

Mixing it up as a lump sum, doesn’t provide you with the clarity whether you have saved up enough for the objective.

As a lump sum, drawing it down may result in you having a shortfall in another objective, which is maybe something you do not want.

Giving your money a job individually may have been more ideal.

Different Risks

To build wealth, you have different instruments and they have varied return rates.

As risk and reward are proportional, diverting a large part of your lump sum savings to stocks and commodities may result in high potential returns.

However, stocks and commodities have shown to suffer from large volatilities in the short term. In 2009 equities went down by 50-70%.

Think of what you would do if you suddenly have a smaller pool of money to work with to fund your housing down payment, saving for a car. You may need to forgo your masters program or delay it.

Splitting your savings up isolates portfolios based on the objectives and allows you to know the kind of volatility they can suffer least from.

Your retirement and children’s university saving can probably take more fluctuation. Having stocks and commodities might be ok.

If you need money within 5 years, a large level of predictability may be required.

How to divide up your savings

Here at Investment Moats, we have talked about budgeting using virtual envelopes.

To divide your savings based on different objectives, create individual virtual envelopes for it.

In the case of a person earning $4000, his take home pay after government forced savings will be $3200.

His intention for saving 50% of his take home pay can be broken up to

  • Building up a freedom fund: $700
  • Saving up for children’s university education: $300
  • Saving up to downplay a car ($30,000) :$500
  • Emergency fund:$100

This gives you a good visualization of high objective is more important.

So if this person gets unemployed tomorrow, he may have to scale down his savings.

He can have the choice to not save for his car down payment. This will seriously impact his goal near term. He could probably restart saving after getting another job.

Or he could scale down his retirement savings. This looks an unwise move but if he is not able to survive now, why save for the future?

If he goes down that route it is likely he will have to save doubly hard to ensure he does not miss his retirement target.

The end state is, objectives are clear, the person knows how much he can drawdown for each objective and if he has to use another account he will have to bear with the consequences.

So how do you guys save? Do you guys also lump everything together? Do you dump all your savings into the market? Do you only save your bonus? Love to hear from you!


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Thursday 19th of September 2013

Hi Drizzt,

This post probably came half a year later as I only just read up on this post and will like to share. Not a lump sum saver but silo my funds into separate bank accounts, each with a specific purpose:

POSB A: Liquidity fund for corporate expenses POSB B: Protection purposes (insurance payments, medical bills and parents fund) UOB: Purely for personal expenses (food, travel and entertainment) OCBC: Monthly saving account (for emergency/retirement use) SCB A: Trading account (lowest trading commission) SCB B: Esaver account (pump in money monthly, any excess to be transferred to trading account) POEMS: US trading account Petty cash: Acts more like a sugar daddy fund to give myself a little 'treat' once in a while

While it seems tiring to manage so many accounts, it only takes 15min every Sunday to visit each account to monitor and balance and update it into a spreadsheet.


Saturday 21st of September 2013

wow thanks for sharing. i see you got it pretty well segregated. but one question, what do you mean by pump in money monthly, any excess to be transferred to trading account?

Vincent Ng

Thursday 19th of September 2013

Hi Drizzt,

This post probably came half a year later as I only just read up on this post and will like to share

Invest Apprentice

Tuesday 19th of March 2013

Thanks for the post! I separate my child education saving portfolio from my retirement portfolio. For all other items it will be either cash savings or liquidate part of my retirement portfolio.

This might sound unwise but I'm managing my retirement portfolio by setting a target portfolio value each year to reach my retirement goals. The amount excess of the target value can then be channeled for other use without jeopardizing my retirement savings.

Example: Assume I wanted to hit $1,000,000 at the end of 30 years for retirement income. I pace out my target value amount for each year so as to reasonably reach that goal in 30 years. Year 2013 (Year 1), target $80,000. End 2013, value: $85,000 Amount that can be channeled for other use: $5,000.

This way I don't have to split up my overall portfolio into too many accounts / purposes, as there might be unnecessary duplications across the portfolios (e.g. buying the same stock or unit trust across 3 - 4 portfolios).

Just my thoughts, might be flawed, let me know if you think so! :)


Tuesday 19th of March 2013

i think i tend not to split them up but if you have a shorter objective it may be wise to segregate them.

i guess the long haul 20 years goals are the ones that lump with your investments.

but surely there are shorter term ones


Monday 18th of March 2013

Hi Drizzt,

I use different accounts for different savings. I divide them into 1) Personal Savings (Emergency Fund), 2) Parent's Retirement, 3) Investments, 4) Ad Hoc expenses and 5) Large Expenses i.e. big Ticket items. When money is tight, I will scale down from 5 (least important) to 1 (most important).



Monday 18th of March 2013

wow derek, i think that is what i am refering to. do you find it difficult to maintain this boundary? how do you do it?

Lee Wen Loong

Monday 18th of March 2013

Actually it really depends on individual. Assuming you are a single, that will be easy as commitment is scale down to just you and yourself thus setting aside X% per month as savings and investment is not very hard if one is disciplined enough. But if you have a family, many factors will start to kick in. For my case, after all the forced government savings(i love that phrase) my wife save 60% of her salary. As for me i pay all the expenses normally around 50% of my salary. Remaining 10% for savings, 10% for child university(via insurance study savings plan) remaining 30% for investments.


Monday 18th of March 2013

Hi Wen Loong, thanks for sharing. wow i like that the two of you save 50% of your disposable income! thats crazy!

My married friends was complaining to me that this is hard to do but i suppose you should be above average income earner

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