Complete guide on how to automate your finances (Singapore)
With life already tough as it is, automating your finances is one way to help ease up your burden. We don’t want to have to worry about paying our bills or purchasing an investment when we are already flooded with so much things to do from work.
Studies have also shown that people who automate their finances tend to save much more as compared to those who don’t as your money is automatically saved every month into an account that you’ll never touch. Automated passive investments have also been shown to do better than active investments over the long run.
Here is a complete guide on how to automate your finances!
Before we begin with the individual components, we first have to understand the composition of how to allocate our finances. Let’s first assume a salary of an average working adult in Singapore. It works out to be $4653 after employer’s CPF contribution. After CPF contributions, the take home pay would be $3102.
A good general rule to follow is the 50-30-20 rule. However if you’ve been reading around the internet, the way different people represent the different buckets vary greatly across countries.
In the US, people generally recommend using 50% needs, 30% wants and 20% savings.
In Singapore, the recommended composition dedicated to savings are much more aggressive. It is recommended for 50% savings, 20% wealth, 30% spending. Savings will be held in liquid cash in a high interest savings account. Wealth is generally stocks / assets that will generate income over the long period of time. Spending consists of all types of spending, discretionary or not.
Caveats: I personally believe that this is highly dependent on financial circumstances. It is not realistic for a person with a family and kids to only spend $900 including mortgage payments. Also, if you already have ample amount of liquid cash for emergency (recommended for 6-12 months of expenses) and near term large expenses (wedding / housing), it does not make sense to continue putting 50% of your income in cash as you’re just losing value of your cash to inflation. Therefore you should adjust your composition accordingly and only use this ratio as a guide.
Automating Savings, Spending accounts
Finally we’re starting with the fun stuff! Now that we know what’s the composition we should be striving for, let’s automate the process of creating the composition.
For this portion, I will recommend everyone to have least 2 different bank accounts for their separate purposes. I personally have 3 active accounts which I will describe in more detail below.
Step 1: Income input
We will first start with where your income will go. I’d recommend setting up your systems such that your income goes into your high yield savings account directly. This is to give ourselves the mindset that savings has the highest priority.
There are many high yield savings account available out there, though the exact yield may change due to market conditions and the conditions that these banks set. We should always strive to at least get 2% of yield from here. I personally use the DBS Multiplier account as I don’t see a problem consistently getting 2.2% of interest every month.
Some high yield savings account to check out are:
|Account||Realistic Yield (Interest)|
|Standard Chartered Jumpstart||2%|
|DBS Multiplier||1.4% – 2.2%|
|UOB One||1.2 – 1.3%|
Step 2: Transfer them out!
Wait what? Yup, you’ve heard it right! Once the money is in your savings account, it’s time to transfer them out to respective accounts.
Here is where the 2 other accounts that I have comes in. I have a DBS eSavings account that I transfer money into for my everyday spending and a Standard Chartered Jumpstart account that I use for my travel fund (I highly value travelling). I have set the automated transfer to take place every end of the month.
Below is an example of setting automated transfers using the DBS systems. Other banks should be very similar.
- First log in to your iBanking account on DBS’s website.
- Head over to Transfer -> More Services
- Set up a Standing Instruction
Fill up the details of the form and that’s it! This will automatically send your money to all the different bank accounts that you have, including those that are of different banks. I use this method to transfer money to my parents every month also.
Automated bill payment
Now that we’ve settled Savings and a small portion of Spending, let’s now try to automate the entire spending portion. GIRO which is also known as the General Interbank Recurring Order is our best friend here.
I have always advocated for everyone to use credit cards for their spending as much as possible so long as they are responsible with it. With this method, you will be able to automatically make payments for your credit cards without worrying that you’ll miss the datelines!
In this example, we are similarly using the example of DBS bank.
- First log into your iBanking Account.
- Go to Pay -> Add GIRO Arrangement.
- Choose the bank of my credit card issuer or the organisation which I have to pay to bill to.
What if I don’t see the institution that I want to pay to? That means that the there isn’t an existing agreement between DBS and the institution I’m trying to pay to. Fret not, there’s still a way to make automated payments to them.
The main idea is you’ll have to fill up a GIRO application form which is available from the institution you’re paying to. For example, if I want to make payments to Citibank Credit Cards, I can find the respective GIRO application form on their website. The same can be done for other organisations such as your insurance or electricity bills.
We have finally reached the last part which is wealth! Investment itself is a very long and complicated topic to explore and therefore I will be doing a deeper dive into the basics of investing and the available investment options. For this post however, I’ll be presenting some options for automated investments that are currently available in the market.
When it comes to automated investments, we have to talk about Dollar Cost Averaging (DCA) and that is the practice of regularly buying stocks at intervals to even out the market’s fluctuations. This also works out very well for the average investors who have an income every month.
There are 2 main kinds of automated investment categories that I consider.
Regular Savings Plan (RSP)
RSPs allow you to purchase a small quantity of stocks/ETFs at regular intervals. Their cost is usually very minimal (~$1) and therefore will not eat into your returns as much. This is commonly offered by most major banks such as DBS and OCBC. In this case, the money will be debited from your linked bank account automatically every month.
Some brokerages have started offering RSPs as well such as FSMOne and Saxo Brokerage. These brokerages may offer more products for RSP so it might be a better option to use them. To automatically transfer funds to these brokerages, we will have to fill up GIRO forms similar to the ones above which are available from the brokerages themselves.
If you’re looking for a more hassle free approach to DCA, Roboinvestors might be a very good option to look out for. Robo-Investors as their name suggests, uses computers to analyse and purchase stocks for you. They will adjust your portfolio according to the risk level you’ve set and the fees are generally quite affordable!
Roboinvestors allow investors to automatically fund their account every month either through recurring deposits (Standing Instructions) or GIRO arrangements. This makes it super simple for you to do your investments at a more manageable and fuss free level.
It’s really simple to fully automate your finances in Singapore, all thanks to the infrastructure available. I hope that after reading this, I can help make your financial life a little more convenient and less frustrating.
You can read more of my other blog posts here.