Article by Nipapan Poonsatiensap, CFP^®, freelance financial planner

 

It is not exaggerating to say, ‘Saving is the beginning of financial success.’ If we have studied the life of millionaires or financially successful people, almost everyone got rich because of ‘saving.’

What does savings mean? 

Savings means the money that you collect and accumulate over time. It should be the first amount deducted right after you earn income and before you pay for any expenses (or saving before spending). The savings can be shown as below:

 

                        Income – Savings = Expense

 

Even though everyone knows how important saving is, the statistics revealed that only 77.4% of Thai people save money these days while 22.6% do not. According to the in-depth analysis on saving pattern, most Thai people save money in emergency fund account or short-term account rather than saving for retirement. Nida poll revealed the saving purpose of Thai people as below: 

Emergency                         41.35%

Child education                 26.08%

Retirement                         23.81%

House and car                   6.50%

One’s own education       2.26%

 

In terms of saving period, Thai people can save money for: 

More than 5 but less than 10 years  44.74%

Between 1 and 5 years                       32.23%

less than a 1 year                                11.85%

More than 10 years                            11.18%

It means we prefer saving for short-term and medium-term goal only. We have not realized and paid attention to the long-term goal, which is for retirement. This is really worrisome. People do not realize that they may lose their chance to retire unless they come up with the retirement plan as soon as possible. 

When comparing our retirement saving per GDP with other countries, we can see that we save really little for retirement.

 

Moreover, most Thai people do not know how to manage their savings. They save money in the account or financial products that do not really make their savings grow.

 

Of course, saving is the beginning of financial success. However, only savings is not enough these days. We must know how to manage money to make it grow.

 

Tips to increase your savings is to save a lot of money, at least 20 – 30% of your income. Set aside the emergency reserve at least three to six times of monthly expense. You should properly manage risk by buying insurance because unexpected incidents can take away your savings. In additional, put your money in various types of investment, ranging from stocks, bonds, to mutual funds. Most importantly, do not forget to invest in knowledge enhancement because the investment is risky. However, the riskier thing is that you do not start the investment and the riskiest thing is investing in something you do not know.

These examples will show you how to save money to live comfortably for the rest of your life. Let’s say you earn 25,000-baht salary. You should allocate your budget as below:

• Invest 1,250 baht/month in providence fund 
• Invest 2,500 baht/month in short-term deposit or money market fund 
• Spend 1,250 baht/month on life insurance 
• Invest 3,750 baht/month in mutual fund (If you pay tax, LTF and RMF are recommended.) 
• Spend 16,250 baht/month on other expenses 

 

If you can save money and make an investment like this, good financial health will not be out of reach.