I have been reading the monthly income and expenses reports of personal finance bloggers around the world. It's always an interesting experience because you get to see the impact of different tax systems, employee vs self-employed income differences, retirement fund scheme contribution variations etc.
I will include commentary on each item to provide some context to these figures as applied to our specific situation in Singapore. I should note that the figures may vary widely for another working couple at our age (30 and 28) in Singapore employed in similar or other industries. This is due to differences in level of experience, field of work, family and personal circumstances etc.
The amount of S$12,000 represents our combined monthly gross salary from being employed full-time in the accounting and banking industries. It also includes our annual bonuses (about 1 month gross salary each) averaged across 12 months.
The annual bonus is a big deal in Singapore and I was quite surprised by it when I first returned from Australia. I never received an annual bonus while working in the same accounting firm in Melbourne and Sydney. Then again, the base salary tends to be higher in Australia compared to Singapore, which probably made up for it.
Given that we have been working for about 6 years in the same fields, S$12,000 is probably a reasonable combined amount to be pulling in considering we work the average number of hours each day in Singapore i.e. 9am to 7pm.
The amount of S$500 represents the distributions we receive from our ETF and share holdings. Dividends paid by a Singapore resident company are tax-exempt under the one-tier corporate tax system when received by an individual. Hence, most of our distributions are not included as taxable income in our annual personal income tax returns.
The amount of S$500 represents the interest we receive from our corporate bond and cash holdings. Interest paid by approved banks and debt securities in Singapore is tax-exempt when received by an individual. Hence, most of our interest earned is not included as taxable income in our annual personal income tax returns.
The amount of S$2,700 represents our monthly payment on our housing loan at the current interest rate of about 2.2%. This gets adjusted every 3 months based on the prevailing 3 month SOR + 1%.
The amount of S$2,400 represents the 20% of our combined monthly gross salary of S$12,000 that is a mandatory employee contribution into the national retirement fund scheme - Central Provident Fund (CPF). This ensure that each Singaporean is contributing to his/her retirement as long as he/she remains active in the workforce.
Credit Card Bills
The amount of S$2,300 represents the monthly bill payments we make on all our credit cards. We try to charge most of our expenses to credit cards to get cash rebates. In fact, this is how I contribute funds to my parents as well even though I no longer live with them - by letting them charge the family utilities, cable, broadband and groceries expenses to my supplementary card.
The amount of S$800 represents the cash payments we make on expenses that can't be charged to our credit cards. This also includes cash transfers to our parents as monthly contributions and cash withdrawals for exchanging to foreign currencies when we travel.
Income & Property Tax
The amount of S$500 represents the monthly income tax and property tax interest-free instalment that we pay to IRAS. Singapore's personal income tax rates are low compared to the rest of the world. I can use the calculation of our annual tax liabilities as an example.
Our individual annual gross salary is S$72,000 (i.e. monthly gross salary of S$6,000 x 12 months). Taking into account the mandatory employee CPF contribution is tax deductible, each of our annual taxable income is S$57,600. The individual annual tax payable is about S$1,782 (i.e. effective tax rate of 3.1%).
This is one of the main benefits of working in Singapore. If you think about it, the mandatory employee CPF contribution not only increases your retirement funds but also decreases your tax liability. In addition to already low personal income tax rates, you can see how it helps by adding to our asset portfolio and provide us with more cash on hand.
Property tax rates on our owner-occupied apartment are progressive and applied on the Annual Value of the property. For an average 2-bedroom apartment like ours, the annual property tax is S$800 (i.e. effective tax rate of 2.9%).
We can pay our annual income and property taxes via an interest-free monthly instalment plan for a year, which reduces the drawdown of our cash holdings since the monthly amount payable is deducted over the next 12 months.
The amount of S$300 represents the monthly maintenance fees we pay to our apartment complex property manager. This covers the cost of maintaining the general health of shared facilities, day to day costs of the facilities' upkeep and long-term structural costs.
Our average monthly savings rate is 30.8% and this leaves us with S$4,000 as savings at the end of each month. We allocate this amount according to our asset allocation strategy to try and generate proportionate growth across our entire asset base. That way, we are less likely to neglect one of these aspects of our asset portfolio - investment, retirement and cash.