If you’ve lived in Singapore for any amount of time, it wouldn’t take long for you to realize Singapore isn’t exactly the cheapest place to live in. With the increase of GST coming soon, inflation in Singapore is definitely one of the main contributing cause.
Don’t take our word for it:
“A study by the Economist Intelligence Unit reports that Singapore retains its position as the globe’s priciest place to live.”
– Forbes.com 30 Nov 2017
From food, to utilities, to accommodation, the survey compared the prices of 160 goods and services, and Singapore has consistently come out tops.
Of course, not every item is relevant to every single person living in Singapore. Among the more common “cost of living” discussions in Singapore, those more often brought up include:
From 2009 through 2013, housing prices in Singapore surged a whopping 60%, so much so that the government had to step in to introduce cooling measures to prevent a bubble from forming.
While that did reign in surging prices somewhat, sub-$1000 psf prices for condos seemed like a thing of the distant past.
On the public housing side, while the authorities are doing their best to keep prices of new flats in check, the resale market has seen its fair share of record-breaking transactions, with some flats selling for over $1 million each (Three HDB resale flats breach $1 million mark – The Straits Times, 11 Nov 2017).
On a personal note, I just bought a flat (with only 57 years lease left) for $218,000. Doesn’t seem like much. But consider this: HDB listed it at $13,500 in 1976. That’s a 7% inflation rate over 41 years … on a property with just over half its life left.
2. Car prices
It’s no secret; Singapore is the
most expensive place to own a car (Forbes.com 24 Mar 2017).
A Toyota Corolla used to cost about $48,000 back in 2008. In 2017, that would run you about $96,000. That’s about an 8% inflation rate year on year.
Even Hollywood celebrities, who make millions per movie, were stunned by car prices in Singapore. The Youtube video “Hollywood stars shocked by Singapore car prices” showing stars of the hit “Fast & Furious” movie franchise in disbelief when told how much cars actually cost in Singapore has garnered over 4 million views.
3. CPF Retirement Sum
While not directly a “cost of living” per se, the government has mandated a minimum amount of retirement savings to be set aside in one’s Retirement Account from age 55 till the payout eligibility age (currently 65).
This is an initiative by the government to provide CPF members a monthly income to support a basic standard of living during retirement.
In 2003, the full retirement sum was $80,000. Today, it’s $171,000. That’s an increase of over 5% per year.
Even if we dial that down to 3%, 20 years from now, the Retirement Sum required is over $300,000. Do you have plans in place to make sure you have $300,000 accumulated by then?
Putting it in another way, do you have $171,000 now
to compound at just 3% yearly?
According to the income summary table compiled by the Ministry of Manpower, the Real % Change of the “Median Gross Monthly Income From Work of Full-Time Employed Residents” for the last 10 years is 2.9%. (http://stats.mom.gov.sg/Pages/Income-Summary-Table.aspx
Barring unforeseen circumstances such as retrenchment, or illness, even if you hold on to a steady job all your able working years, how are you fairing in the “Most expensive city in the world.”?
Is the increase in your income able to play catch up with the rise in prices of other things that matter in your life?
Keeping it simple, going back to basics
* This following material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors when in doubt.
1. Save on taxes
There are a couple of things you can do, that aren’t immediately obvious to many people, that can help you save on taxes … and
earn a decent interest every year as well.
For the tax savings, simply put, it’s a matter of topping up either your own Special Account (S.A.) or someone else’s S.A. (or Retirement Account if you/they are over 55).
“You can enjoy tax relief of up to $7,000 per calendar year, for cash top-up made by yourself and/or your employer on your behalf.
You can enjoy an additional tax relief of up to $7,000 per calendar year if you make cash top-ups for your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.”
If you’re already giving cash allowances to your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings anyway, it might be a good idea to do this, since you save on taxes upfront … and earns better interest … which brings us to …
Did you know you can earn up to 6% interest on your retirement balances inside of your CPF account?
“Central Provident Fund (CPF) members currently earn interest rates of up to 3.5% per annum on their Ordinary Account (OA) monies, and up to 5% per annum on their Special and Medisave Account (SMA) monies. Retirement Account (RA) monies currently earn up to 5% per annum.
These interest rates include an extra 1% interest paid on the first $60,000 of a member’s combined balances (with up to $20,000 from the OA).
CPF members aged 55 and above will also earn an additional 1% extra interest on the first $30,000 of their combined balances (with up to $20,000 from the OA). As a result, CPF members aged 55 and above will earn up to 6% interest per year on their retirement balances.”
This applies to your own CPF account, and whoever you’re topping up for.
All things being equal, this beats putting your money in the bank anytime, easily.
Of course, there are a lot of other considerations; do you have use for funds in your OA? Otherwise, should you accumulate it in your SA?
The topping up of retirement sum is irreversible; are you ok with that?
How much are you making? What tax bracket are you in? Would the tax savings in this case make a difference for you?
Also, do you know how to make more than 6% returns per annum outside of CPF, safely and consistently? If so, perhaps your money is put to better use elsewhere. Otherwise, growing your money inside of CPF is risk free, and for many, it’s the safest route.
Because each person’s circumstance is different, only you will know your own situation and what makes the most sense for you.
2. Save even more on taxes
Hey, a penny saved is a penny earned.
Do you know that you can set aside as much as $15,300 (Singaporeans/PR) or $35,700 (Foreigners) each year, tax-free in the Supplementary Retirement Scheme (SRS)?
“The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings.
Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.”
Not only do you defer your taxes when you contribute to SRS; when you do finally make your withdrawal at the statutory retirement age (currently at 62), it’s only taxed at 50%.
The funds you set aside inside of SRS can then be used to make investments in a wide range of financial products.
Again, as in point 1 above, there are considerations that are only unique to you, and you’d have to decide whether this is a good route for you.
3. Make your money work harder for you
As cliché as it sounds, there’s a reason why this saying has stuck around for so long.
You already know our income, on average, grows at 2.9% per year, all else being equal.
You’ve seen how the inflation rate of some of the bigger items in Singapore, how quickly prices can rise and how the cost of living in a place such as Singapore can affect our daily lives.
If you just leave your money in the bank, you’re literally letting inflation eat away at your hard-earned money.
So how do
you make your money work harder? Well, invest.
Beyond the scope of this article, we’re not talking about risking your money in things, instruments or schemes you don’t understand.
Always educate yourself, be mindful of the risks, fees (oh you’d be surprised), your risk appetite etc.
And if something sounds too good to be true (don’t they all?), stay far, far away from it. Gold buy back schemes, (some) foreign property investments, trees (no kidding!), you name it … there are people losing their life fortunes over the most ridiculous things.
Educate yourself (did I already mention that?), learn from someone who has been there, done that, and is still
doing it. You don’t need to already have millions in the bank (isn’t that the point?).
So start small and learn how to invest in Singapore
. Build it up slowly and steady, and eventually you’ll win the race.
The end goal? At minimum, beat inflation of course. Then have your investment returns replace some of your expenses. Then all of your expenses. One step at a time.
Financial freedom isn’t so far-fetched after all.
So join us for our complimentary investing masterclass and learn how you can start your journey in achieving financial freedom!