You will be able to set each rung's maturity a safe margin ahead of the date the money is needed.
Wei Ling and Jun Hao like the idea of a ladder. Then they try to build one and get stuck on the first rung: should it be a six-month T-bill, a twelve-month fixed deposit or an SSB? They are starting from the wrong end. A ladder is built backwards, from the bills you have to pay, not forwards from the products on offer.
Write down every payment the goal involves, with its amount and its due date. Be as specific as you can. A wedding is not one bill. It is a deposit to the venue, a balance closer to the day, and smaller sums to photographers and others along the way. A flat is not one bill either.
Here is Wei Ling and Jun Hao's made-up list, totalling S$45,000.
The banquet deposit, S$3,000, due in about two months. The banquet balance and other wedding costs, S$12,000, due in about eleven months. The payment at key collection for their flat, S$15,000, expected in about two years. The renovation, S$15,000, due after they get the keys, roughly two and a half to three years from now.
Put the list in date order. Each line will become one rung, or part of one.
For each bill, choose an instrument that matures before the due date, with enough margin for the money to reach your account and for any delay.
The margin depends on the instrument. A fixed deposit pays out on its maturity date. A T-bill pays face value into your account on its maturity date, as lesson 4.4, Paying with cash, SRS or CPF, and what each really costs, described. An SSB is different: as lesson 3.3, Getting your money back early, and what it costs you, explained, you request redemption in one month and the money arrives early in the next. So an SSB rung needs about a month of notice before the bill, and a maturity-dated rung needs at least a few days, more if the payment has to clear on a fixed day.
A practical rule is to aim for each rung to be in your account two to four weeks before the bill is due. That covers settlement, a weekend or public holiday, and a bill that turns up a little early.
The time to each bill narrows the choice.
For dates under a year, T-bills and fixed deposits fit. Their terms run from a few months to a year, and their rates are fixed for the whole term. For something only weeks away, a savings account is usually the answer, because the application and issue process of a T-bill or an SSB takes longer than the time you have.
For dates beyond a year, the choice widens to SSBs, SGS bonds and longer fixed deposits. An SGS bond that matures before the date locks in a rate with no price risk if held to maturity. A longer fixed deposit does the same if the bank offers the term you need. An SSB pays less in its early years than its ten-year average, but it can be redeemed in any month, which makes it the natural fit when the date is uncertain.
Wei Ling and Jun Hao match theirs like this. The S$3,000 deposit stays in their savings account, because two months is too short for anything else. The S$12,000 goes into a fixed deposit with a term ending about a month before the wedding. The S$15,000 for key collection goes into an SSB, because the date could move. The S$15,000 for the renovation goes into a two-year fixed deposit, and when that matures they plan to place it in a six-month T-bill that ends before the renovation starts.
Some bills have firm dates. A banquet booked for a Saturday in November is not going to move. Others are estimates. The date for collecting the keys to a new flat can shift, and once you have the keys, the renovation start depends on contractors and approvals.
For those, build in a buffer. One way is to choose an instrument you can exit at no loss, which is why the key collection rung went into an SSB: if the date comes forward, they redeem early; if it slips, they leave it and keep earning. Another is to keep a slice of cash in a savings account for anything that arrives sooner than expected. A third is to aim the maturity earlier than the best estimate, accepting that the money may wait a few weeks in a savings account.
What you avoid is a rung that cannot be reached without loss when the date moves earlier. A long fixed deposit for a date that might come forward is the classic mistake, because breaking it can cost most or all of the interest, as lesson 5.3, Breaking a deposit early, showed.
Wei Ling and Jun Hao's list now has a date, an amount and an instrument on every line. Write out your own payments for one real goal, then pick a matching instrument and maturity for each.
List the payments for one real goal with their amounts and dates, and pick a matching instrument and maturity for each.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).