Most of us in Singapore hope to eventually reach our own version of financial independence, where we no longer have to work for an income. Until then, having a stable job and a good salary can give us a strong sense of financial security.
And for good reason. A high salary gives us more room to save, invest and build a comfortable lifestyle. As long as the income keeps coming in, everything may seem fine.
But a high salary is not, by itself, financial security. What matters is what happens to that income: how much we spend, how much we save, how much is tied up in fixed commitments, and how prepared we are if that income suddenly stops.
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#1 Our Monthly Salary Can Hide High Fixed Expenses
Take two people who both earn $10,000 a month. From the outside, their financial situations may look similar. But one spends $4,000 a month, while the other has committed $9,000 to a mortgage, car loan, insurance premiums and family expenses.
Both may feel comfortable while employed. The difference becomes clear when their income stops.
The first person has a $6,000 monthly surplus, giving them more flexibility to cut discretionary spending, pause investments or draw on savings.
The second has very little room between income and expenses. Most of their salary is already committed before the month begins, so losing their job does not just mean losing their income. Their financial obligations continue.
This is why a high income should not be confused with strong financial health. What matters is the gap between what we earn and what we are committed to spending each month.
#2 Relying on CPF Contributions To Make Housing Payments
For many Singaporeans, monthly mortgage repayments can be serviced using CPF Ordinary Account (CPF OA) savings. Because this happens automatically, it is easy to overlook how the mortgage is actually being funded.
Consider two homeowners with similar mortgages. One has built up a CPF OA buffer over the years. The other keeps a much smaller balance because most of their monthly OA contributions go towards servicing the mortgage.
If employment stops, regular CPF contributions stop too. The homeowner with a larger OA buffer has more time to continue servicing the loan from existing savings. The one with a smaller buffer may need to work out how future repayments will be funded if they do not find another job soon.
#3 Investments Are Not The Same As Emergency Cash
Having $100,000 in financial assets sounds like a strong position to be in. But in an emergency, how those assets are held matters.
Consider two people with $100,000 each. One keeps $30,000 in cash and invests the remaining $70,000. The other keeps almost everything invested to avoid holding too much cash, earning lower returns.
If both lose their jobs when markets are down 20%, the second person may have to sell investments at a loss to cover everyday expenses. This is sometimes referred to as “forced selling”. On the other hand, the person with $30,000 in cash has more runway before needing to touch their portfolio.
That is why an emergency fund serves a different purpose from investments. Its job is not to maximise returns, but to give us access to money when we need it without having to sell long-term investments at a bad time.
#4 A Higher Salary Does Not Always Mean A Stronger Savings Position
Someone earning $6,000 a month and spending $3,500 is saving more than 40% of their income. Someone earning $12,000 and spending $10,000 is saving about 17%.
The higher earner may enjoy a more comfortable lifestyle, but they have also built their finances around a much higher level of spending. That means they need a larger emergency fund too: six months of expenses would require $21,000 for the first person, compared with $60,000 for the second.
Higher spending may also come with commitments that are harder to cut quickly, such as a car loan, larger mortgage, school fees or helper expenses.
This does not mean the higher earner is necessarily worse off. They may also have more savings and investments. But a higher salary alone does not make us more financially resilient. What matters is how much of that income we keep and use to strengthen our financial position.
#5 One $20,000 Salary Is Not As Secure As Two $10,000 Salaries
Households with the same total income can still face very different levels of risk.
Take two households earning $20,000 a month. In one, a single breadwinner earns the full amount. In the other, two working adults each earn $10,000. If one person loses their job, the impact is very different. The single-income household could go from $20,000 to zero, while the dual-income household would still retain half its income.
A 50% drop would still require adjustments, but the remaining income could continue covering some essential expenses and give the unemployed partner more time to find another job. A household with no employment income would have to rely on savings or other sources of income immediately.
This does not mean sole-breadwinner households are doing anything wrong. They simply face greater income concentration risk and may therefore need a larger financial buffer.
A High Salary Is A Starting Point, Not The Security Itself
None of this is an argument against earning well or spending on things that matter to us and our families. A stable, high-paying job gives us more room to save, invest and build financial resilience. But the salary itself is not the security.
A high salary gives us more to work with, but lasting financial security ultimately depends on what we build with it.
Read Also: Why Financial Independence Isn’t The Same As Retiring
Photo Credit: iStock/Doucefleur
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