Previously, we zoomed in and looked at how individuals earning $30k, $45k and $60k annually, spend their income. Surprisingly their expenditure is very similar. What about those earning higher incomes? Is the assumption that they lead extravagant lifestyle true, or will it be otherwise?
When you see a luxury car drive by on the roads, or see someone in designer brand clothes, do you automatically assume these people must be earning a six-figure annual income?
And speaking of a six-figure annual income, are you aware that so long as your monthly take-home income is ~$7,500 as shown in below (less if you are paid bonuses), then congratulations you earn at least $100,000 a year!
Coming back to the question of how those in the top 20% of Singapore spend their money compared to the median, many of us may be surprised to know that although their incomes are two-fold and four-fold that of the median- income earners, their expenses increase by a much lower proportion as shown in the figure below.
Figure 1: Income vs expenditure per household member of median, 81st – 90th and 91st –100th income percentile (income includes employer’s CPF contribution)
Expenses vs Experiences
Upon closer inspection, there are other interesting findings:
The more Singaporeans earn, the bigger the portion of their income that they spend on insurance and other financial services. This implies that they are likely to own more insurance so as to protect their wealth. (You are encouraged to read our Feb 2021’s article on The Beginnings of Insurance)
The median-income earners actually spend more absolute dollars than the top 20 percentile earners, in discretionary expenses such as recreation (e.g. electronic gadgets, sports), communication (e.g. phone bills, mobile phone purchase), and clothing and footwear. So perhaps people who are decked out in designer wear in the streets, do not earn six-figures a year?
The higher-income earners spend more on experience such as food, travel and education. This suggests that they value the intangible benefits these activities offer such as social, cultural, and even culinary exposure.
Figure 2: Monthly expenditure by category according to income percentile
Show me the money
If the high-income earners are only spending slightly more than the rest of us, then what do they do with the rest of their money?
Figure 3: How the higher- and average-income earners differ in their spending
Average income earners are more likely to have a one-way relationship with their money: They work for their money, and then they spend it away.
Higher income earners are more likely to have a two-way relationship with their money: They work for their money, and invest it so that their money is allowed to generate more money (returns). They then spend the returns that come from the money they earned.
So are you ready to be part of the above $100K Club? If you need pointers on how to do so, feel free to reach out to me!
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