Disposable Income VS Discretionary Income: How Much Money Do You Really Have If You Earn The Median Salary In Singapore?
One guiding principle many people might live by is to spend less than you earn. Doing this, you’ll always have enough. Turns out, if you may still be overspending if you don’t really understand what your disposable income and discretionary income is.
Disposable income is how much money we have left over after taking into account our taxes. Discretionary income is how much money we have after deducting our necessary expenses.
In this article, we look at how much money a person in Singapore would have if they earned the median salary of $4,534 each month.
What Is The Median Take-Home Salary In Singapore?
According to MOM, the $4,534 median income figure is inclusive of our employer CPF contributions – which can be as high as 17%. Excluding our employer CPF contributions, the median income in Singapore is $4,000.
We Have To Deduct For CPF Contributions
Next, we have to deduct the employee CPF contributions. Depending on our age, the employee CPF contributions can be between 5% (for those 65 and above) and 20% (for 55 and below). This means our take-home salary can be as little as $3,200.
If we simply spent $3,200 each month, we would come up short at the end of the year. This is because we have to account for taxes. As CPF contributions are not taxable, anyone who earns the median income in Singapore will have an assessable income of $38,400 each year.
How Much Tax Do We Have To Pay On The Median Take-Home Salary?
For the sake of this article, we will only assume that we receive two basic income tax relief: 1) the earned income relief and 2) the NSman Relief. Do note that there are many other tax relief that we can tap on and/or qualify for.
The amount of earned income relief we receive is based on our age. For the sake of this article, we will take $1,000 as the earned income relief as majority of taxpayers would be in this category.
|Your age as of 31 Dec of the previous year||Maximum amount claimable under earned income relief|
|55 to 59||$6,000|
|60 and above||$8,000|
Under the NSman Relief, males get a minimum of $1,500 in tax relief, while females who are married to an NSman or ex-NSman get $750. For simplicity, we will take the lower of $750 as the relief we can claim.
Deducting for both the earned income tax relief and NSman relief, our chargeable income would be $38,400 – $1,000 – $750 = $36,650. Singapore has a progressive tax system. This means the more we earn, the higher our tax rate. With a chargeable income of $36,650, we fall within the 3.5% tax bracket.
This means we have to pay an income tax of about $433 each year.
We Also Have To Pay Property Taxes
About 9 in 10 households were owner occupied in the most recent Singapore Census of Population done in 2020. In Singapore, we have to pay property tax based on the annual value of the property we own.
The most common type of households in Singapore is a 4-room HDB flat – accounting for nearly 32% of households. According to the Department of Statistics Singapore, the median Annual Value of 4-room HDB flats is $9,600.
This translates to a property tax of only $64 a year.
What Is Our Disposable Income In Singapore?
|Disposable Income Calculation||Amount|
|Median income||$54,408 (or $4,534 a month)|
|Median income – Employer CPF Contributions||$48,000 (or $4,000 a month)|
|– Employee CPF Contributions||– $9,592|
|– Income tax||– $433|
|– Property tax||– $64|
|Disposable income||$37,911 ($3,160 a month)|
So, What Is Our Discretionary Income In Singapore?
You would have noticed that someone who earns the median income of $4,534 a month is only able to bring home around $3,160 a month.
This does not yet account for our basic living expenses.
According to the Household Expenditure Survey 2017/18, the bottom 20% of households in Singapore spent $2,570 a month. We looked at the categories, and made a judgment call on what were absolutely essential categories of expenditure.
|Essential monthly expenses||Amount (spent by the bottom 20% of households in Singapore)|
|Clothing & Footwear||$45|
|Housing & Utilities||$253|
|Furnishings, Household Equipment and Routine Household Maintenance:||$164|
Based on an average household size of 3.2 persons, this translates to an essential expense of nearly $587 per person, per month. This equates to $7,046 per year.
Deducting this from our disposable income, our discretionary income will be $30,865 (or $2,572 per month).
This Does Not Mean That We Have $2,572 Of Discretionary Income To Splurge Every Month
This figure is simply a broad range. Firstly, our disposable income may be more or less depending on the CPF contributions and our taxes.
Next, we have to understand that the figures used for expense level is what the bottom 20% of people in Singapore are spending. If we are earning the median income, we would most likely see our expenditure on essentials closer to the middle 20% of Singaporeans. On average, this is roughly 87% higher. This could easily mean that median income households are spending $1,098, or more, on essentials per month rather than what we listed above ($587).
We also used the average household size of 3.2 to estimate the spending per person in the household. Typically, not all of the three household members will be working – which means the amount each employed household member spends is more.
Finally, this does not include expenses on other very important areas such as recreation. It also does not take into consideration the fact that we need to set aside additional investments for our retirement.