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Budgeting 101

Here’s how you can stretch your meagre pay raise

If you are hell-bent on getting that new Chanel bag or Omega watch with your raise, this article is not for you.


Getting a pay raise is one of the most gratifying experiences as a working adult, especially for those who slogged like a dog.

Now hold your horses, unless your raise was of epic proportions,  you really shouldn’t blow it on the latest Prada bag or Omega watch. Not yet at least.

Not planning what to do with your money is brash. So here are some tips to make sure you can stretch that raise you got to the fullest.


1. Allot Sufficient Money for Additional Expenses

Taxes are proportionate to your income and a higher salary equates into higher income taxes. So whatever you do with your raise, remember to first set aside the required amount for tax expenditure.

While you are at it, remember your CPF contributions as well, or any additional amount that you might be setting aside for an increased allowance for your parents or your kids’ education. These are good causes even if the gratifications may not be immediate.

You may be tempted to raise your standard of living with your increased salary. We advise against that. Flagrant overspending such as splurging on a new TV set with state-of-the-art audio system, changing your lifestyle to include Starbucks Coffee for your everyday caffeine fixed, or worse, buying a new car, are all terrible ways to be allocating your increased salary to unless you geninuely can afford them.

Raising standards of living and “lifestyle inflation” are two different things that Singaporeans frequently mix up. Recognize the differences, and choose the former over the latter.


2. Clear Off Existing Debt, Not Incur More

So you’re earning a few hundred dollars more and can now comfortably afford that new installment plan for your home renovation loan. Don’t do that.

With an increased salary, you should not be raising your personal debt levels by taking on more installment plans. Instead, focus on paying off existing debt. Always start with high interest rate items such as credit card debt.


3. Start An Emergency Fund

Most young adults understand that having an emergency fund, typically about 6 – 9 months of expenses, is essential. However most of us struggle to achieve that. The end-of-year holiday trip to escape from our bosses also does not help the cause.

Unforeseen circumstances can happen anytime. Needing to visit the doctor, having to replace your spoilt washing machine, needing to fix your 2-year old Windows laptop, getting let off from a job, quitting your horrible job or even paying for a family emergency are areas that would be better managed if there is an existing emergency fund.

Empower yourself and take charge of your finances. Let your increased salary be the impetus to start your own emergency fund today.


4. Invest (For A Better Tomorrow)

We like to break it down into two parts – a) invest in yourself and b) invest in financial instruments.

a) Invest in yourself:

You’ve just gotten your pay raise because you were an awesome employee, or at least that’s what your boss thinks. Your boss did not give you the raise out of compassion or because the cost of living in Singapore was increasing. He or she wants you to stay.

So the argument is, why not “invest” this “dividend” to further improve yourself? Go for your Masters or enroll in a work related programme that could enhance your skillset and bring greater value to both your current and future employers.

b) Invest in financial instruments:

You have some spare cash now (provided you haven’t already spent it on a new car), so it’s as good a time as any to delve into the stock market.

The reason why we prefer the stock market to other investments is because it can possibly give higher returns in the long run although it is riskier. And since you were already living comfortably before the pay raise, why not take the slight risk and invest the extra money for a higher return.

This higher return is not for naught – it is for your retirement! Yes, you actually need to plan for retirement as well. And not blow all your money today, because with people living longer nowadays and the cost of living increasing, you want to be financially secure in your old age.


Live Your Life…Prudently

The point of this article is not for us to find ways to limit your enjoyment in life and be the party pooper; it’s to prepare you for the future. Nobody knows when the next financial crisis will hit, or when wages in Singapore will remain sticky and jobs become harder to find.

We hate seeing anyone’s pay raise get frittered away. These little things count a great deal toward achieving financial freedom – something all of us should strive towards.


This article was written for and first appeared on

Top image from Sandbox Advisors.