The longer I track our income and expenses, the more I start to realise that the most effective way of building wealth at our age is to increase income. Reason being the limits to how much we can reduce expenses by are greater than how much we can increase income by.

Increase Income > Reduce Expenses

At this stage, our savings rate is 40% i.e. monthly cash savings of S$4,800. To achieve a 10% reduction in expenses to boost the savings rate to 50% i.e. monthly cash savings of S$6,000, we will have to restructure our spending and lifestyle. This is a painful process and I don’t see that happening unless there is a “trigger event” i.e. something drastic happens to force us to reduce our expenses.

By the way, a common suggestion is to cut morning coffees, work lunches, drinks and dinners. Based on our experience in the banking and accounting industries, this is not a good idea. My wife was the one who taught me this lesson on why that is the case.

She goes for coffees, lunches, drinks and dinners with her colleagues often. It’s actually at these gatherings that important information such as upcoming retrenchment exercises, salary benchmarking and job opportunities get passed around informally. The better connected you are with your professional network, the less likely you are to get blindsided in your career.

Which is why we are better off focusing our time and effort on increasing income. It also becomes obvious that as relatively young working adults, we have a much higher chance of increasing our salary income then looking for or building up other sources of income.

Without sufficient active income to drive our passive investments, we are not going to make much progress with increasing our passive income. Self-employment and freelancing usually involve cuts to our active income provided we find a way to scale the business upwards.

Realistically, our best option is to focus on increasing our salary income, which is something we have been working on for a number of years. However, I’m sensing a lot of inertia because we seem to have reached our magic happiness individual monthly income level for now of S$6,000.

Income vs Happiness

Have you heard of the income vs happiness graph? It basically shows how your happiness increases as income rises up to a certain point at which money won’t make you any happier. This is essentially the magic happiness income level.

Of course, you would expect the graph to vary by country, city and individual. In our case, the individual magic happiness monthly income level is S$6,000. It is where we are right now and hence the inertia in striving for additional salary income. Let’s walk through why this is the case.

1. Just enough responsibilities

We are essentially low level managers at this salary income level. There’s just enough responsibilities to pick up skills from managing a small team. But not enough to overwork us and cause our stress levels to elevate.

2. Decent working hours

Consequently, our working hours are decent, usually 9am to 6 – 7pm every day from Mon to Fri. We have time and energy in the evening to engage in various social activities, exercise or have dinner with our family. Plus we don’t work on the weekends because nothing is ever that important.

3. CPF contributions maximised

The monthly ordinary wage ceiling for CPF is S$6,000. Which means the employer or you will not be contributing any percentage of your monthly salary to CPF for amounts above S$6,000. Since CPF seems to think a person earning above S$6,000 don’t need the additional contributions, I’m going to agree with them and stick around this level for a while.

4. Allows for family planning

We don’t earn a high enough salary income to be immediate targets of retrenchment exercises. This lowers the impact of taking maternity and paternity leave if we decide to have kids. Yet the salary income is high enough to allow us to afford having kids financially.

We also get a certain level of flexibility in the planning of our workflows and schedules, which will help us adjust to having kids. Most importantly, we can both choose to continue with our careers even though the progression will be slower.

5. Low personal income tax rate

I know I keep harping on this topic but I really appreciate the low personal income tax rates here. After we factor in our CPF contributions and other tax reliefs & deductions, our individual monthly personal tax payment is S$150.

Let that sink in for a moment. Any idea how low that is compared to other global cities? This means that our time and effort spent in chasing for job positions, promotions and salary raises aren’t being taken away by personal income taxes.

However, I will admit that Singapore has other wealth and consumption taxes that can hit us harder comparatively. But this is very much up to us to decide whether we purchase the items and assets (car, property etc) that subject us to these taxes.

6. Sufficient cash for savings and investments

It’s true if you think we have become somewhat lazy from the considerations above. We have grown tired from all the planning and fending for ourselves that we had to do when moving to Melbourne, Sydney then back to Singapore. This is our time to recharge and rest.

Besides, S$4,800 is not a small cash amount to fund our savings and investments every month. This is not counting the S$4,500 that gets channelled into our CPF monthly for retirement purposes.

It’s not a bad individual monthly income level  to get stuck and be lazy at. But I will let you know if this changes. After all, our income vs happiness graph is not static. It will change as we get older and our needs & wants change as well.

Since August is a big dividend month, our average monthly passive income has been inching close to S$1,000. We might get there just for August before it falls back below S$1,000 in September. I’m not sure whether this counts as meeting my goal since it will only be for a brief period of time.

Anyway, it’s still something to be excited about and I’m patiently waiting for the last week of August to pass before doing the monthly financial update to see how we fared. After all, we should be receiving some distributions/dividends this week that might make all the difference.

Recently, I had a chat with my wife about how fast time has passed since we moved back to Singapore in Jan 2014. Between getting married, adjusting to working & living in Singapore and making new friends, I can’t believe it’s been 2.5 years.

What triggered the conversation was that my wife’s colleagues/friends from Australia are starting to plan for their move back there. They are usually families with young kids or couples looking to settle down. We have gotten close to some of them since we all get along well and have similar interests.

Talking to them about their job, money and lifestyle concerns from making the move back to Australia was reminiscent of the same discussions we had with our colleagues/friends in Sydney when planning our move back to Singapore.

Although it’s nice to have some stability in our life and not have to worry about these things, this also made us wonder whether this means we are not likely to make such a move anytime soon. I can’t deny that we have made more financial and career progress in the past 2.5 years in Singapore compared to the 4 years before that in Sydney/Melbourne.

I want to see for myself why this is the case and hence the motivation for this post. Is it really easier to build wealth in Singapore and will greater financial progress make our life better off here? I must stress that this is written from the perspective of a dual-income couple with no kids for now and this could change drastically in the future.

1. Low personal income tax rates in Singapore

If you don’t already know, Singapore has one of the lowest personal income tax rates for a tax resident here. For illustration purposes, a Singapore tax resident individual with S$80,000 of taxable income (assessable income – allowable tax reliefs/deductions) has a tax payable of S$3,350 i.e. a personal income tax rate of about 4.2%. The tax payable can even be paid in twelve interest-free monthly instalments to the Singapore Tax Authority after the year of assessment.

The personal income tax return can be easily filed electronically using the online portal with most of the data automatically pre-filled or rolled over from the prior year. The assessable income and allowable tax reliefs/deductions are also more easily understood and identified. Hence, it becomes a much less costly and painful annual process to go through than filing a personal income tax return in Australia.

Most importantly, low personal income tax rates provide us with the incentive and motivation to work hard at increasing our salary income. This facilitates the journey to financial independence for salaried employees like us and makes it a more viable wealth-building route to take.

2. Singapore-sourced dividend and interest income are not taxable

Dividends paid by a Singapore resident company and interest paid by approved banks/finance companies & debt securities are not taxable in the hands of a Singapore tax resident individual. Can you imagine how useful this is to wealth-building by investing in shares, funds, REITs, Business Trusts and bonds in Singapore?

By constructing a large enough investment portfolio of such equity & bond instruments in Singapore, it’s possible to live off the non-taxable passive income and capital withdrawals for the rest of your life. If you are worried about concentration risk, you can diversify into global financial assets but they will have more complex tax considerations.

3. Costs of living can be low or high

This is a lot less straightforward. It’s actually possible to keep your costs of living low in Singapore, especially for a couple, if you follow these steps:

Reasons are simple:

Sounds easy yeah? The problem is having to do the above consistently here in Singapore. Just using us as an example, we failed to complete most of the steps because of a higher propensity to spend here compared to Australia.

It could also be because we tried to replicate aspects of our lifestyle in Melbourne/Sydney but the fact is our costs of living are higher here. Essentially, necessities cost less but luxuries cost more and it’s how you differentiate the two that makes all the difference.

4. Lower childcare/helper/nanny costs

We hear this often from our colleagues with kids who have lived in Australia, UK and US. The childcare/helper/nanny costs are lower here and this allows for both parents to work full-time jobs. The secondary income can sometimes accelerate wealth-building more than investing can ever do so. However, this might not be as feasible in those countries due to the high childcare/helper/nanny costs and personal income taxes there.

5. Healthcare costs can be low or high

This is a tricky one. If you have medical insurance at your full-time job and only fall sick with minor but not major illnesses that don’t require hospitalisations, it’s possible to see a doctor at the clinic and get the medicine for free i.e. costs are borne by your employer. Without medical insurance, the medical costs are still reasonable for the quality of healthcare you receive.

The problem is when you require hospitalisations. Even with subsidised healthcare available (e.g. visit public instead of private hospitals), the costs can quickly escalate. This is made worse by the lack of a universal public health insurance scheme and you have to bear these costs yourself. However, it is possible to rely on your CPF – MA and external medical insurance to defray the costs.

For your information, this is a useful article from MoneySmart on how Singaporeans should make sure they don’t get crippled by healthcare costs. Which means it is possible to keep your healthcare costs affordable.

These are just some of the factors that have contributed to our greater financial progress on wealth-building in Singapore. And it does look like we have a higher chance of attaining financial independence here if we stay on our current path. That being said, living in Singapore is not without its compromises and trade-offs, which is something we deal with every day.

Things can always change and it might be that our financial goals become less important over time. The pursuit of financial freedom should never come at the expense of our happiness and personal well-being. We just have to keep working on balancing these objectives in our lives.