To take charge of our personal finances, one of the first things we need to figure is how much money we’re actually bringing home each month. Once we know this figure, or can accurately predict it, we can start planning a budget that will make sense as well as responsibly build savings towards our children’s education, our retirement and other large expenses.
In Singapore, we have to take into account three main areas that actually impact our disposable incomes and how much money we’re able to play around with each month. We’ll take an example of a person earning the median salary, which the Ministry of Manpower (MOM) states is $4,056, to highlight the three ways our incomes are diminished by these three factors.
First up, CPF carves out about 37% of your salary for contributions into your Ordinary Account (OA), Special Account (SA) and Medisave Account (MA).
The aforementioned median income figure of $4,056 includes your employer’s CPF contribution of 17% of your salary. This means that if you are earning the median salary, your actual stated salary will most likely be $3,467.
After you deduct your own CPF contribution of 20%, you will end up with $2,774 each month in cash. This isn’t to say all this money is yours to spend as you wish as there are other cost areas you need to set aside this money for.
Benjamin Franklin, the guy you see the US $100 bill, famously said that “nothing in this world can be said to be certain, except death and taxes”.
He’s right. From your salary, you have to ensure you set aside enough to pay your taxes. Taxes are calculated based on the previous year’s salary – and the median salary in 2015 is $3,949. These numbers are a year backdated as MOM’s numbers are only presented this way.
Assuming you had to pay taxes on a salary of $3,949, you first need to know your deductibles to find out your chargeable income.
The most common one is that any CPF contributions are tax deductible (37% of your income – 17% from employer and 20% from employee), you also get an NSman, NSman wife or NSman parent relief (between $750 and $5,000). Most people will qualify for a minimum of $750 to $1,500, so we’ll take $1,125 as a rough average for everyone and an earned income relief ($1,000).
This means your chargeable income should amount to $30,270 for 2016. There are no charges on the first $20,000, 2% for the next $10,000 and 3.5% for the next $10,000. This amounts to approximately $210 for the year or $18 a month.
#3 Work-Related Expenses
In today’s context, there are many things you need that cuts into both your work life and daily life. For the purpose of this, we’ll take into account basic expenses you will incur if you had a job but can probably live without if you don’t have a job.
There are many peripheral expenses that comes with holding down a job in Singapore. This could mean having presentable working clothes and shoes, commuting to work or owning a mobile phone and having a data plan to be able to communicate with your boss and clients.
Here’s an inexhaustive list and ballpark costs of some of the things we think are basic requirements to get and hold a job in Singapore.
There are also other types of costs that you have to account for in relation to holding down a job. Many of us spend more on one or more drinks every day, such as coffee and tea in the morning and after lunch, buy office snacks, grab more expensive lunches with acquaintances or colleagues as well as spend more on drinks to socialise and network with other people.
Each day, you’re already at work for close to 10 hours. Add the amount time you take to travel to and back from work and you’re spending half your day on work. For the sake of saving time, many of us also put our children in childcare, spend on laundry services, home cleaning services and even eat out more often.
Through the years, we also have to invest in ourselves, either through a Master’s degree, professional certification (such as CFA or CPA) or other skills upgrading courses. Even with SkillsFuture, many of these courses require additional expenses.
How Much We Actually Get In Hand Each Month
Taking the above costs into consideration, here’s how much of our median salaries will be left.
$4,056 – $589 (employer’s CPF contribution) = $3,467 (actual salary)
$3,467 (actual salary) – $693 (employee’s CPF contribution) = $2,774 (take-home pay)
$2,774 (take-home pay) – $18 (taxes) – $379 (direct work-related expenses) = $2,377
You should note that this is a conservative estimate, and you could actually have less in hand if you have other financial commitments you have to pay for each month. For instance, if mortgage is not taken care of by your CPF contributions, it would mean even less cash for you.
You Should Also Calculate Other Fixed Expenses
While $2,377 might seem like a fair bit of money, this does not even take into account indirect expenses you may incur as part of your job.
Other things you need note is that this sum of money also needs to be spent on other fixed expenses that you cannot afford to reduce. This includes expenses to upkeep your lifestyle and your daily necessities, such as your insurance expenses, utilities, service and conservancy charges, your children’s education expenses and pocket money, marketing, home broadband and many other cost areas.
You need to set aside money for these expenses before even thinking about making any decisions with your money.