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How to be wealthy - Part 4 (Reduce Expenses)

To reduce expenses, especially if one is based in expensive Singapore is to live below your means. That means to find out means and methods to cut down all unnecessary items and still maintain the lifestyle we want. 

The biggest non-negotiable expense is well, taxes. Benjamin Franklin is attributed to saying that “in this world nothing can be said to be certain, except death and taxes.” Obviously, the lower the taxes we pay, the lower the total expenses. 

There are several methods to reduce taxes and increase savings at the same time. 

The first is CPF top-up which many of the FIRE followers do: to the max of $8K per year. Just put the $8K cash into CPF and you can deduce $8K from your deductible income up to the Full Retirement Sum in the CPF. Depending on where you put the cash, this can generate interest of 2.5% or 4%...risk free. You can also top-up another $8K to the account of a loved one(wife/husband) for a max total of $16K off your taxable income. 

The 2nd method is to use the Supplementary Retirement Scheme (SRS). The scheme which began in 2001 as part of the Singapore government’s multi-pronged strategy to address the financial needs of a greying population by helping Singaporeans to save more for their old age. Investments returns are tax-free, and only 50% of the withdrawals from SRS are taxable at retirement.

How it works: put in $15.3K (Singapore Citizens and PR) or $35.7K for foreigners into the SRS and this same amount is taken off the deductible income. The cash in SRS can be used to invest in stock, bonds and mutual funds. As mentioned above, the money in SRS should consist of low-cost index funds as a majority to be held for many years. 

The 3rd method to reduce taxes is via donations. In Singapore, the rate is 250% tax deductible for qualifying donations. That means that for every $10 donated to a qualified charity, the amount is $25 that gets deducted from the annual income. Donate $1K and that is $2.5K off the taxable income. 

This was not mentioned earlier but one very OBVIOUS method of reducing expenses: clearing credit card debt. Credit cards area good thing but do bear in mind that the interest is 24% (at least) so it is an absolute MUST to pay off all credit card expenses 

Housing is by far the largest expense a person will make in his or her lifetime. Depending on the type of housing a person chooses to live in, this will either make or break the person or family. Again, the lesson from Arkad is that we should own versus renting the principal residence and that we should not confuse the necessary expenses with our desires. 

The desire for all Singaporeans is to live in a private property versus well…government housing. Whether this is possible is highly dependent on the wage we are earning: a simple guideline says that in order to live in a $1M private condominium and not be found wanting in other things, the minimum take-home income is about $20,000 per month. Most condominiums in Singapore are in the range of $1.5M to $1.8M...so we are looking at around $30,000 of household income per month.This high salary puts one in the top 10% earners in Singapore. 

Statistics-wise, 80% of the folks in Singapore stays in HDB so something clearly does not add up. Sadly, this desire sometime is so strong that we made decisions with our heart rather than the head. This is one of the main contributors to the "asset rich but cash poor" situation where we stay in a multi-million home but finding it difficult to maintain the household expenses, especially when we are no longer in the workforce.

Do visit my post on HDB on why this should be the one of your considerations for housing. 

Proceed to Part 5
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