I took some time off the blog for about a week. Was posting consecutively for a few days and ran out of topics I was interested to write about. We took last Friday off work to take a break and had a busy schedule of meeting up with friends for lunches and dinners over the long weekend. By the time Sunday came around, we were tired from all the meetups. We became even more exhausted after forcing ourselves to hit the gym for our weekly exercise session and cooking dinner afterwards.
We don’t often have such a packed weekend social calendar and it’s easy to see why we prefer to spread out the events. Oh well, can’t be helped that everyone else is only free to meet up over the weekend as well since nobody is in the mood to gather after work on weekdays. This has taken its toll and my wife has turned in early. Sound asleep. I just checked.
Which gives me time to write a blogpost. This is when I sometimes do research on personal finance, investments stuff and update our Google Sheet & blog numbers. It’s also my alone time, where I get to think and plan about our financial independence/freedom strategy. Tonight, I read about Kyith’s post at InvestmentMoats: No Matter How Much You Earn, If You Spend Too Much, You Cannot Retire.
Very useful and relevant content to us. I found myself agreeing with every point he made. It’s true that there are a large number of Singaporeans earning upwards of S$80,000 per year. This is possible in several industries depending on the years of experience, although you will probably find the largest number in the finance (banking, asset/fund management, private equity and trust group), accounting and legal sectors.
The low personal income tax rates in Singapore have allowed for high levels of discretionary spending by this group of people. Having worked in Australia (a country with high personal income tax rates) and knowing friends/colleagues that have come over to work in Singapore, all of our spending power has gone up significantly. It’s not just the difference in taxes. The fact that basic living expenses such as food, utilities, internet, cable TV and public transport are less expensive here have also helped.
I’m not sure whether Singaporeans know how fortunate they are in this aspect. By the way, I’m not arguing that paying more taxes to fund social spending is a bad thing. But when you find yourself paying a lot more taxes and most of the benefit goes to other people. It’s not going to go down well with you even if they are the less fortunate and deserve our help. No need to criticise me on this point. I have never seen a middle, upper middle or upper income employee be happy to pay the high taxes in Australia. Or even a similar person being happy to pay the low taxes in Singapore.
Anyway, we fit right into that high income, high spending family profile outlined in Kyith’s article. The challenges we face according to him are:
- Unable to drastically reduce our retirement expenses due to inability to change our spending patterns significantly.
- Potential cash flow hits after 35 years old due to the increasing volatility of our job nature.
I always get worried when I read stuff like that. Because I do actually think we are going to get screwed by the above 2 points. By my calculations, if my wife loses her job now, we will be cash flow negative every month. If I lose my job now, we will still be slightly cash flow positive every month. And you wonder why I support and encourage my wife to work?
Besides, we already have friends that are several years older and facing those challenges. Their pay has stagnated, jobs are at risk but cannot reduce the expenses sufficiently to manage the cash flow issues. Makes me wonder how many times we have to get reminded before taking tangible steps to address this eventuality.
I want to say it’s not for lack of effort. But I would be lying somewhat. Yes, we have taken steps to lower our expenses. At first, I attributed the lack of results to it taking time for the effects to flow through. Then I realise we have just been using that extra cash flow on our travel spending (supposedly for richer life experience) i.e. reallocation instead of long-term reduction.
So yes. This is harder than you think in case you are wondering why we are just squandering the opportunity to be financially independent earlier than others. Because it’s true that not many can grasp it. We worked hard, smart and got lucky to get to this position. As grateful as we are to have the privilege, we always want to rewards ourselves for still being here. Navigating that conflict between gratification from keeping ourselves in this position and understanding it’s not going to last forever is a tough ask.
It would require both my wife and I to be on board for this to work. We may not be the worst offenders of being high income, high spending but enough to be a problem. The sad thing is I don’t see us changing until a major event happens. Forced changes can be a bitter pill to swallow but that might give us the push we need. I can only hope we are ready for it.
My wife and I spent six figures a year on our lifestyle. It wasn’t extravagant but it wasn’t spartan either. However we still saved 25 to 50% of our income every year and were able to early retire with more than enough. You have the problem scoped out, if you choose not to fix it then you are simply choosing the present over the future, and who is to say that is a bad choice. The best choice is to increase your and wife’s income significantly and then you’ll have plenty to do both. You may say that isn’t possible, but I’d say that is always possible.
I like that mindset. Work towards increasing our income further to address this problem of high spending levels. Good to hear that it worked out for you!
If family cannot sustain with single household income; it is sign of over-spending. or under-earning.
Yup, it’s always risky when a family cannot sustain itself on a single household income. Haha, I would like to think it’s under-earning but I’m guessing it’s more over-spending for now. Guess I will have to work harder towards increasing my income if I can’t seem to control my expenses!
I guess lifestyle inflation is out there for many and like what you have mentioned, it is pretty similar to many other couples out there. But I guess ultimately, the easiest way to adapt and adopt a “lower mainteinance lifestyle” is not to feel that it is a “forced change”. Dave and I never quite felt that our current lifestyle is “forced”. But perhaps we are older and have a kid we prefer the more laidback so our current lifestyle is a reflection of what and where we are.
The idea of adapting and adopting a lower maintenance lifestyle appeals to me. And I wonder whether that transition will happen for us when we have kids as well. We have a current mindset of doing all the travel, overseas study and work experiences now before we have children. Which is contributing to most of the lifestyle inflation!
At least you have awareness and not in denial! 🙂
How about 1 party saving 100% and getting by on the other party’s income?
Else both commit 50% each to savings, and going on half take-home pay?
Please don’t be like me … I’m one of those anti-capitalist anti-spending extremist. I can easily get by on less than $500 a month — that’s including telco bills, HDB conservancy, basic public tpt, and my own survival makan. Ok, ok, usually it’s $1000 – $1500 coz I need to entertain the wife once a while. But still pretty low …. Singapore’s economy will 10000% collapse if everyone spends like me. That’s why our country still needs you (& your dollars)!!! 🙂 🙂
Our savings rate is about 30% on bad months and 40% on good months. It has never reached 50% in any month but definitely a goal worth striving for.
Well, it’s good to have low spending levels and I wouldn’t recommend what I’m doing. Haha, I guess Singaporeans in general have sufficient spending power to be able to drive the economy so far. Let’s hope this continues!
These days, I understand the idea of taking the letting things flow into place approach more than the optimize things to death.
I realize, I usually get into this mode because I don’t have a choice. When we don’t have a choice, we do a lot of these spendings that we just spend so that we don’t confront them.
Volatile job nature may be here to stay. For all.
Yeah, we try to go along with the flow of things but I reckon it would still be useful to have more self-discipline when it comes to our spending. Well, I’m hoping it doesn’t come to us being forced to cut our expenses from loss of income and retrenchment. See whether we can gradually adjust them downwards in a long term structural manner.
This high spending habit is not confined to you. In my observations, it is the majority of the millennials. I have burnt out myself nagging my adult-children till ‘mo ngan tai’. They prefer to spend all they earn, i.e living paycheque to paycheque.
I blame myself for not imparting my thrifty lifestyle by refraining to impose onto them when they were young.
That’s an interesting observation. I have noticed that my younger colleagues are even more carefree with their spending despite earning less than me. I don’t live paycheque to paycheque but I’m not surprised if some of them do. Then again, I also see millennials that are much more responsible than me with their spending. It’s not your fault that your adult children are not thrifty because this is a different world we live in. However, it can become your problem if they don’t save sufficiently for the future and have to depend on you financially somewhat.
I used to have a colleague who earns more than $5,000 a month having to borrow money from another colleague who earns just over $3,000. I was speechless. She leads a YOLO lifestyle or should I say YOLO beyond her means.
Haha, that’s not good at all. It’s possible to lead a YOLO lifestyle but still have some savings. Your ex-colleague is living way beyond her means!
Tonite I was at SUSS listening to guest speaker Samuel Tsien, CEO OCBC. He answered an audience question that he is wearing a watch that is his 4th in his life and that it overruns two minutes each day. He advised the young audience, after the basic and necessary expenditure to divide by a third each for saving, spending and investing.
That’s sound advice and he’s a wise man! The division percentages he suggested for saving, spending and investing should work for young people. Especially when their basic and necessary expenditure should not be high.