A Gen Z’s Guide to Saving and Investing

For many Gen Zs, the world of personal finance may feel intimidating. With rising costs of living, the economic unpredictability caused by global events and the challenges of starting a career, it's understandable that saving and investing may not be top concerns. However, the earlier you start, the more time your money has to grow. If you are fresh out of school and just starting your first job, here’s a guide to help you get started with saving and investing.

Why Saving Early Matters

1. Compound Interest: Your Money Making Money

The power of compound interest is a crucial reason to start saving early. Compound interest means that your interest earns interest, and over time, this snowball effect can significantly grow your wealth. If you waited until age 30 to start saving, you will likely need to save twice as much to reach the same amount by age 40.

Time is one of the most valuable assets you have. The earlier you start saving and investing, the longer your money has to grow. This gives you a significant advantage over someone who waits until they are older to begin.

2. Financial Security

Emergencies happen, and having savings to fall back on provides peace of mind. Aim to build an emergency fund that can cover 3-6 months of living expenses. This can protect you from going into debt or having to dip into your investments when unexpected expenses arise, such as a medical bill or job loss.

How to Start Saving

1. Create a Budget

Understanding where your money goes each month is the first step to building savings. Start by creating a budget that outlines your income, fixed expenses (like rent and student loans), and variable expenses (like dining out or entertainment). By tracking your spending, you can identify areas to cut back and allocate more to your savings.

You could also look for ways to reduce cost like going through your company’s corporate benefits and see if there’s perks from discounted gym memberships, mobile plans, and good deals. Do compare sites for different prices and promos if you need to buy something too.

2. Automate Savings

Once you have established a budget, automate your savings by setting up a direct deposit from your paycheck into a separate savings account. You won’t miss the money because you’ll never see it in your checking account, and your savings will grow effortlessly. With less things to remember, you can use the time to learn new skills for your career instead. Do consider crediting your salary / income to a bank account with higher interest rates for a start too.

3. Prioritise Debt

Before aggressively saving, make sure to tackle current debt like student loans or credit cards. Once you have paid down those debts, you can focus more on saving up for an emergency fund and then move to investing.

How to Start Investing

1. Learn about Investing

Investing can seem complex, but you don’t need to be an expert to get started. Here are a few key points to understand:

• Fixed Deposits: Pays a fixed amount of interest on a lump sum of money over a specified period spending on the different banks rates.

• T-bills: Short-term securities issued by the Singapore Government at a discount to their face value with a fixed interest rate, yield at 3.13% p.a for Aug 2024 BS24117F.

• Bonds: Bonds are issued by the government (eg. Singapore Savings Bonds (SSB)) or companies in exchange for regular interest payments. They are generally less risky than stocks but offer lower returns.

• Stocks: When you buy a stock, you are purchasing a piece of a company. Stocks have high potential for growth but can be volatile in the short term.

• Robo-Advisors: Such platforms allow you to start investing with minimal time, as they use algorithms to manage your portfolio based on your risk tolerance and goals.

Don’t feel pressured to invest large sums right away. Many investing avenues allow you to start with just a few hundred dollars. Over time, as your income increases, you can increase your contributions.

2. Stay Consistent and Think Long Term

The stock market will have ups and downs, but staying consistent with your investments and thinking long term is key to building wealth. Avoid making emotional decisions based on short-term market fluctuations.

• Educational Resources: Websites like dollarsandsense.sg or seedly.sg are great resources to learn more about investing too.

For Gen Zs, the road to independence and retirement starts with saving and investing. By beginning early, prioritising your financial goals, and taking advantage of modern tools and resources, you can set yourself up for a better future. The sooner you take action, the better your chances of achieving long-term wealth and financial freedom.

Invest and Grow Your Money Wisely,

Value Vaulter