Working in a foreign city can leave you wondering where to put your hard-earned salary. The options are endless; from investing it here, transferring it back to your home country or perhaps buying a local property. But before you make up your mind, here are 10 questions you need to ask yourself.
1. What are my outgoings each month?
Your income is pretty easy to work out, but what you spend your cash on each month is much harder to pinpoint. Start with the basics like rent, school fees, utilities and salary for a domestic helper (plus the foreign worker levy), if you have one. Your bank statement should be a good place to monitor exactly where your expenses lie. What’s left over each month (hopefully you have something leftover) will be the amount you should be saving or investing somewhere suitable.
Singapore is getting very expensive. A survey published by the Economist Intelligence Unit in February found Singapore to be one of the world’s ten most expensive cities to live in.
2. How long will I be working in Singapore?
This is a crucial question that will dictate most of your personal finance decisions. If you are on a short-term contract or only plan on working in the Lion City for a couple of years it normally makes sense not to have assets here. There’s little point paying all the upfront costs such as stamp duty, agent’s and legal fees when buying property if you’re only staying for two years or less. Most short-term expats like to keep their spare cash in a current or savings account that can easily be transferred into their home currency once their assignment finishes.
If you plan on sticking around for longer, it makes sense to accumulate assets like property and investments. It also makes financial sense to become a Permanent Resident (PR) as you’ll avoid paying the additional 10 per cent property stamp duty and you’ll be eligible for Central Provident Fund (CPF) contributions from your employer.
Another way of looking at this question is to ask yourself what you want to achieve while you are here. This could include saving for a deposit on a home, funding your travels within Southeast Asia, building on your investment portfolio or enhancing your career.
3. What taxes am I liable for?
If you stay or work in Singapore for 183 days a year or more you will be liable to pay tax on income earned here. Thankfully Singapore has one of the world’s lowest personal tax rates, which only goes as high as 20 per cent for those earning above $320,000. You can set up a giro to pay an amount of tax each month or pay it in one go. The important thing is to work out how much tax you owe and put this aside for when it’s due. Go to www.iras.gov.sg to find out the different tiers. Remember, your tax position is also affected by your citizenship. For example, British expats normally don’t have any tax to pay HM Revenue & Customs if they no longer earn a UK salary or don’t have any UK-based assets, while Americans don’t enjoy this luxury as the IRS taxes them on all their worldwide income. It’s more complicated for Australians, but they can avoid paying tax on their Singapore salary if they are declared non-resident in Australia.
4. Is it a good idea to transfer some of my salary back to my home country?
If you still have a mortgage or other bills in your home country then you are probably already doing this. The Singapore dollar has appreciated against most other major currencies since the global financial crisis, so now could be a good time to make the most of its higher value. Watch out for the currency conversion fees charged by banks. It’s worth shopping around for the best rates and try to transfer in larger sums rather than regular, smaller amounts. Cheap providers include HiFX, XE and OFX.
5. Should I keep some money in a savings account?
Yes! You should keep cash in Singapore dollars to cover emergencies like your car breaking down or a big medical bill. You’ll also need easily accessible savings if you have children of school age as some international schools have annual fees of up to $35,000, along with some hefty upfront costs.
Sadly of all the things good about Singapore, savings rates are not one of them. Accounts advertising “high interest” normally pay less than one per cent which is very low considering inflation is running at five per cent, so your savings are actually losing you four per cent a year. Standard Chartered currently has one of the top-payers at 1.88 per cent, which is pretty decent by Singapore standards but comes with conditions attached.
6. What about investing?
Singapore has a wide variety of big companies to invest in along with access to hundreds of investment funds that spread your money across many different companies. Some individual stocks like StarHub pay dividends of about seven per cent a year. Real estate investment trusts (Reits) can also pay healthy dividends and many have big shopping complexes in Orchard Road within their portfolios. For funds, the most popular source is fundsupermart.com which gives you access to 25 different fund managers including Aberdeen, Schroders and Fidelity. Investing a regular monthly sum helps ride out the peaks and troughs of the stock market. This is easy to set up and manage and works for novices and experienced stock market investors alike. Monitor your portfolio’s performance every six months to a year.
7. Should I buy or rent a property here?
Rents are steep due to the number of high-earning expats living in Singapore and lack of space – this upward trend is likely to continue as the population grows. So buying an apartment may seem like the sensible thing to do but do your homework. Foreigners have to pay an additional buyer’s stamp duty (ABSD) of 10 per cent on top of the normal tiered system that ranges from one per cent to three per cent. There are plenty of restrictions on what type of property you can buy, although it is relatively straightforward to rent it out should you leave Singapore. It’s also worth noting that if you choose to sell the property within five years of buying, you’ll have to pay a seller’s stamp duty (SSD) that’s dependent on the length of time you’ve owned it. So if you sell within one year of buying you’ll have to pay 16 per cent of the price you paid or the current market value; whichever is higher.
8. What’s the best way to pay for my living expenses?
Credit cards are king. Many providers offer perks such as rewards points and cashback, including American Express and MayBank. Also, different credit cards offer deals at affiliated restaurants, cinemas and shops, so it pays to have a handful of different ones to enjoy multiple discounts. The annual fees quoted (which typically range from $50 up to $200) can easily be waived by calling providers and threatening to leave. APRs are broadly similar to European, Australian and American rates but these are avoided if you pay your monthly bill in full.
9. Should I take out cover for rising medical bills?
Most employers offer staff some form of health cover, which has now become more flexible allowing you to use it for dental and optician’s bills. More generous companies extend this to your family. Singapore has no free health service, which is one of the reasons taxes are so low, so you will have to pay for treatment. Check what cover you have under your company scheme and consider topping it up, especially if you have young children who are more likely to fall sick. Medical cost inflation rose 8.4 per cent last year according to government figures. You are also legally obliged to provide health insurance for your domestic helper.
10. How about planning for retirement?
Check if your company runs its own pension scheme that you can contribute to. If you become a PR you’ll be able pay into the government-run CPF. Depending on your age, you will have to pay about 20 per cent of your salary into three different funds while your company pays 16 per cent. But this money can be used for a wide variety of purposes such as putting a deposit on a home or for medical bills, not just to provide a retirement income. You can also withdraw your CPF funds if you leave Singapore but you have to be at least 50 years old. Retirement planning is very complicated when you are an expat but there is often huge potential to save tax so seek financial advice.