A guiding (and logical) principle of healthy personal finance is to spend less than we earn. Doing this, we’ll always have enough. Turns out, we may still be overspending if we don’t really understand what our disposable income and discretionary income is.
Disposable income is how much money we have left over after taking into account our taxes. Discretionary income is how much money we have after deducting our necessary expenses.
In this article, we look at how much money a person in Singapore would have if they earned the median salary of $4,534 each month.
What Is The Median Take-Home Salary In Singapore?
According to MOM, Singapore’s median income in 2021 is $4,680. While this may seem high, it is inclusive of our employer CPF contributions – which can be as high as 17%. Excluding our employer CPF contributions, the median income in Singapore remains at $4,000.
We Have To Deduct For CPF Contributions
To understand our disposable income, we then have to deduct our employee CPF contributions (on top of the median income excluding employer CPF contributions). Depending on our age, the employee CPF contributions can be between 5% (for those 70 and above) and 20% (for 55 and below). This means the take-home salary from our $4,680 median income can be as little as $3,200.
However, if we simply spent $3,200 each month, we would still come up short at the end of the year. This is because we have to account for income tax. As CPF contributions are not taxable, anyone who earns the median income in Singapore will have an assessable income of $38,400 each year.
How Much Tax Do We Have To Pay On The Median Take-Home Salary?
For the sake of this article, we will only assume that we receive two basic income tax relief: 1) the earned income relief and 2) the NSman Relief. Do note that there are many other tax relief that we can tap on and/or qualify for.
The amount of earned income relief we receive is based on our age. For the sake of this article, we will take $1,000 as the earned income relief as majority of taxpayers would be in this category.
|Your age as of 31 Dec of the previous year||Maximum amount claimable under earned income relief|
|55 to 59||$6,000|
|60 and above||$8,000|
Under the NSman Relief, males get a minimum of $1,500 in tax relief, while females who are married to an NSman or ex-NSman get $750. For simplicity, we will take the lower of $750 as the relief we can claim.
Deducting for both the earned income tax relief and NSman relief, our chargeable income would be $38,400 – $1,000 – $750 = $36,650. Singapore has a progressive tax system. This means the more we earn, the higher our tax rate. With a chargeable income of $36,650, we fall within the 3.5% tax bracket.
This means we have to pay an income tax of about $433 each year.
We Also Have To Pay Property Taxes
About 9 in 10 households were owner occupied in the most recent Singapore Census of Population done in 2020. In Singapore, we have to pay property tax based on the annual value of the property we own.
The most common type of households in Singapore is a 4-room HDB flat – accounting for nearly 32% of households. According to the Department of Statistics Singapore, the median Annual Value of 4-room HDB flats is $9,600 (as at 2020). This translates to a property tax of only $64 a year.
However, IRAS has already announced that it will revise HDB annual value in 2022 by 4% to 6% in light of increasing rents. In turn, this will increase the property taxes for 4-room flats by $21.60. This means the property tax for those living in 4-room HDB flats will be closer to $86 a year.
What Is Our Disposable Income In Singapore?
|Disposable Income Calculation||Amount|
|Median income||$56,160 (or $4,680 a month)|
|Median income – Employer CPF Contributions||$48,000 (or $4,000 a month)|
|– Employee CPF Contributions||– $9,600|
|– Income tax||– $433|
|– Property tax||– $86|
|Disposable income||$37,881 ($3,157 a month)|
So, What Is Our Discretionary Income In Singapore?
By this, we would realise that someone who earns the median income of $4,680 a month is only able to spend a maximum of around $3,157 a month.
This figure may also be quite inflated, as we have to pay a 7% GST (and possibly higher in future) on anything that we purchase. This diminishes our spending power by a further 7%, or around $2,652 a year if we spent every single cent. This really means our actual spending power may be closer to $35,311 a year.
This does not yet account for our basic living expenses – things that we absolutely have to buy in order to sustain ourselves in Singapore. As a proxy for this, we looked at what the bottom 20% of households in Singapore were spending. According to the Household Expenditure Survey 2017/18, the bottom 20% of households in Singapore spent $2,570 a month:
|Essential monthly expenses||Amount (spent by the bottom 20% of households in Singapore)|
|Alcoholic Beverages & Tobacco||$37|
|Clothing & Footwear||$45|
|Housing & Utilities||$253|
|Furnishings, Household Equipment & Routine Household Maintenance||$164|
|Recreation & Culture||$134|
|Food Serving Services||$412|
|Miscellaneous Goods & Services||$301|
|Non-Assignable Expenditure (such as pocket money for children)||$22|
Based on an average household size of 3.2 persons, this translates to an essential expense of nearly $803 per person, per month. This equates to $9,638 per year. We should also note that this figure is outdated and likely higher today, given that the survey was done in 2017/18.
Deducting this from our disposable income, our discretionary income will be $25,674 (or $2,140 per month). Of course, a portion of our discretionary spending will already be included in the expenses that the bottom 20% of Singapore households are spending. Hence, this is a rough approximate by any measure.
This May Not Mean That We Have $2,140 Of Discretionary Income To Splurge Every Month
This figure is simply a broad range. Firstly, our disposable income may be more or less depending on our age – and hence our personal CPF contributions and our taxes.
Next, we have to understand that the figures used for expense level is what the bottom 20% of people in Singapore are spending. If we are earning the median income, we would most likely see our expenditure on essentials closer to the middle 20% of Singaporeans.
We also used the average household size of 3.2 to estimate the spending per person in the household. Typically, not all of the three household members will be working – which means the amount each employed household member spends is more. Even if we have just two persons in our household, we would likely have to incur a similar level of expenses. So, this is dependant on our personal circumstances.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.