While the rules for personal finance are largely universal, living as an expat in Singapore offers unique opportunities to optimise your financial situation. If you’re planning to return home someday, it’s important to ensure that your time in Singapore leaves you with more than just hazy memories and some teak furniture!
Rule #1. Save at Least 20% of Your Income
Living in Singapore, you’re likely paying less income tax than you’re accustomed to or compared to what you‘d pay in countries like Australia, New Zealand, the UK, or many others. Don’t let this opportunity slip by. It’s tempting to increase your lifestyle with the extra income, thinking of it as a ‘pay rise from the taxman’. However, those who are most successful with their finances will prioritise saving this additional money and using it to accelerate their wealth-building. If you can, aim to save more than 20% – although 20% is a great starting point.
Rule #2. Mind the Gap
Unless you’re a Singaporean Citizen or PR, you likely won’t have automatic retirement savings, such as a Superannuation or Pension. These are often the prime earning years of your life, so don’t allow a significant gap to form in your retirement savings. Act now to plug that gap by redirecting the funds you would typically invest back home into other investments.
Rule #3. Plan Ahead for Future Tax Implications
One of the standout advantages of living in Singapore is the ability to invest and enjoy capital gains without the burden of capital gains tax. However, once you leave Singapore, this benefit may no longer apply, and you’ll likely face a more taxing regime. Depending on where you’re moving to, there may be opportunities to preserve these tax-free gains for the long term, and even for succession planning. The earlier you start, the better – don’t wait until it’s too late to maximise tax efficiencies that will benefit you in the long term.
Rule #4. Manage the Risk of Company Shares
Many expats receive share awards as part of their compensation package, and over time, these can accumulate significantly, becoming a substantial portion of your overall net worth. It’s crucial to periodically divest to mitigate the risk of having too much reliance on a single company’s performance. After all, while the company provides your income and contributes to your net worth, what would happen if things were to take an unexpected turn?
Rule #5. Be Patient and Avoid High-Risk Investments
With the ease of setting up trading accounts these days, everyone is an armchair tipster, and it’s tempting to try to get rich quickly by taking excessive risks. However, it’s wise to avoid buying and selling individual shares, and very dangerous to use leverage (such as CFDs – Contracts for Difference) or to engage in Foreign Exchange trading. The potential for loss is high, and the odds are that you will lose more than you gain. Not only will it drain your time, energy, and mental peace, but it’s also far more effective to invest in diversified, long-term strategies like mutual funds or passive index funds, which can help you compound wealth gradually.
Rule #6. Delay Purchasing Your Future Family Home
It’s easy to get caught up in the excitement of property hunting, and once you start, it’s remarkable how quickly you can find the ‘perfect’ place. However, it’s unlikely to offer the best return on investment and could become a costly liability, adding unnecessary tax burdens. It’s wiser to wait until you’re preparing to return home or have already made the move. This will save you both money and stress in the long run.
Rule #7. Avoid Using Banks for Currency Exchange
Banks can often take advantage of your loyalty by offering less favourable exchange rates, even if you’re a ‘premium’ customer. Don’t be fooled by ‘zero commission’ offers, as no broker charges commissions — instead, they make their profit from the spread between the price at which they buy currency and the price at which they sell it to you. Take the time to compare rates from different brokers to ensure you get the best deal.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.