Saving money can be a challenge for many people. With the cost-of-living increasing year on year, building a savings habit is crucial for achieving long-term financial goals and achieving financial stability. In Singapore, there are several types of mandatory and optional savings plans. In this article, we will look at some of them, with a focus on regular savings plans. If you are eager to make your money work for you, read on.
Types of savings plans for Singaporeans
Before we begin, there are several types of savings plans for Singaporeans. Before opening an account, you should make sure you are legible and meet their minimum requirements. Some savings plans are also only available for Singaporean citizens, so Singaporean permanent residents may not be able to sign up. This information may also change depending on government and financial institution regulations and policies, so you should always double check with an updated source.
Central Provident Fund (CPF)
The Central Provident Fund (CPF) is a familiar name for many Singaporeans. This is a mandatory savings scheme for Singaporean citizens and permanent residents. A portion of the individual’s income is contributed to their CPF account, and the money inside is invested, and available for retirement, healthcare, and housing needs.
Supplementary Retirement Scheme (SRS)
The Supplementary Retirement Scheme (SRS) is a voluntary savings scheme for Singaporeans, and individuals can save for their retirement while legally enjoying tax benefits. Contributions to the SRS are tax-deductible, which allows Singaporeans to build their wealth and savings more efficiently over time. Withdrawal of money is subject to a lower tax rate as well, but there are conditions on withdrawal.
Endowment plans
There is also the option of signing up for an endowment plan. An endowment plan is an insurance policy that provides both savings and protection for individuals. They pay a premium for a specified period, and at the end of the policy term, they receive a lump sum payout. This is a great type of savings plan for someone who has capital that they do not urgently need to use. In other words, if you are someone who has savings that you do not have immediate use for, this can be a great way to make that money work for you.
Regular Savings Plans (RSPs)
Finally, there is the option of a Regular Savings Plan (RSP) to build wealth. RSPs are essentially investment plans that allow individuals to invest a fixed amount of money on a regular basis. This money is invested into the financial markets depending on the individual’s preferences, such as in stocks, bonds, and other securities. It is designed to help people build wealth.
How do RSPs work?
Regular Savings Plans work by allowing individuals to get a fixed amount of money on a regular basis into their investment portfolio. The money is used to purchase units in a fund, which can be made up of a variety of securities including stocks and bonds and more. When an individual opens an RSP, they can accumulate more units in the fund, and they can build their wealth in the long term.
Benefits of using an RSP
There are many benefits of opening an RSP, and this is why many Singaporean traders have been building their wealth willingly and steadily with them. Some of them include:
Disciplined and consistent savings
RSPs are a great way for traders to build up their savings consistently with monthly contributions. This is a great way for traders to develop a disciplined savings habit, and they can achieve their financial goals more effectively when they make saving a priority.
Cost averaging
RSPs use cost averaging as a strategy, and traders can take advantage of this. By investing a fixed amount of money each month, individuals can buy more units when prices are low and fewer units when prices are high. This smooths out the volatility of the market, and it can potentially improve an individual’s long-term returns.
Long-term growth
RSPs are typically vehicles of long-term investment, and individuals can build their wealth over time. This is a good way for them to benefit from compounding effects and potentially generate high returns.
A diverse portfolio
RSPs are investment vehicles that allow traders to build a diversified portfolio, as many providers offer access to several financial markets, including bonds, stocks, commodities, and more. This allows individuals to reduce the impact of market fluctuations and spread out their risk when they are investing in the markets long-term.
Convenience
Finally, RSPs are often automated. This means that they are extremely convenient, and individuals can often set up direct debit systems for them to transfer funds monthly. They can then invest these funds according to their preferences and parameters, and they can save and invest without having to actively manage their accounts.
What to consider when choosing an RSP provider
There are many things to consider when choosing an RSP provider. Since your objective is to build your wealth over the long term, you must decide very carefully, as you will be working with a provider for years if things go to plan.
Reputation and track record
One of the most important things you should find out is the reputation of the RSP provider. You should ensure they have a good name and that they are licensed by the Monetary Authority of Singapore (MAS), which is the country’s central bank and financial regulator. This allows you to ensure that your funds are kept safe, and that your investments are secure.
When you work with a provider that has been in the industry for a long time, you can also invest with peace of mind knowing that they have the experience to handle your portfolio. A good example is Saxo Singapore, which is MSA-licensed and has a good track record of providing wealth management services to Singaporeans.
Fees and charges
Next, you should consider the fees and charges of your provider. You should ensure that you are getting a good deal, and that they are reasonable. This is because a provider that charges too high fees will eat into your investments over the long run, which is undesirable.
Investment options and product offering
When you work with an RSP provider, you are investing your funds into financial markets of your choice. You should ensure that the provider is able to offer the asset classes and instruments that you want to invest in, and that they align with your values and beliefs. For example, many providers have an offering that includes bonds, stocks, commodities, and more. You should do your research to make sure your preferred instruments are covered.
Flexibility
Finally, you should make sure that your investment provider will offer you sufficient flexibility when it comes to how you want to invest and the kind of payment options that you will receive. This can help you customise your portfolio with as much ease as possible, and you may also be able to meet your financial goals much quicker when you have the freedom to divide your funds up the way that you want.
Final words
Regular savings plans can be a great way for Singaporeans to build their wealth over the long term and develop a habit of managing their money well. Individuals should be prepared to hold their money in the RSP for a long time, and therefore they should not be putting money that they may need as an emergency fund in their savings plans. Additionally, individuals should consider the fees and charges associated with their plan of choice, as these factors can impact returns over the long term. That said, RSPs can be a good way for individuals to potentially benefit from the power of cost averaging and compounding with their invested funds.
