A Household With $350K Annual Income Can Still Be Financially Struggling?

In case you are new to this blog, this is not a case study on the 15HWW household. Our total household income is definitely less than half of $350k. IRAS knows, of course.

As tutors working from home, we save on rental costs and pass these savings back to parents. Since fees are comparatively lower, our income is also rather modest. But hey, we are not complaining as we genuinely enjoy our work!

P.S. enrolment for Academic Year 2023 has started for our classes. If you are residing in the Northeastern region of Singapore and looking for a reliable tutor, do drop us an email (15hourworkweek@gmail.com) for an enquiry! 

The decision not to climb the corporate ladder means that our income is starting to massively trail many of our peers. Especially those that have done well in the public and financial sectors after more than a decade in the workforce. In fact, some of the power couples I know exceed $350k in annual household incomes, placing them firmly in the top 10% of households.

Mrs 15HWW always believes that if we manage to double our income, all our financial stresses will melt away just like FTX deposits. Therefore, she got quite a bit of a shock after reading this blog post from Finance Smiths that detailed their struggles in this current climate.

Since I am privy to some of the “complaints” of well-heeled friends and families, I tend to be more empathetic towards Mr Smith’s predicament. And I thought, well, perhaps a hypothetical case study would shed more light.

Case Study Of A High-Earning And Young Household

Scenario:

• Household of 4 members
• A couple in their late thirties or early forties with a toddler and an infant
• For simplicity sake, let’s assume each adult earns $175k a year

Next, let’s add up their annual expenses in the following categories.

1. Supplementary Retirement Scheme ($30k)

Since the couple’s marginal income tax rates are likely to exceed 15%, it is prudent for them to max out their SRS contributions for tax relief.

With maximum contributions for each individual set at $15k, this $30k that is being set aside can be considered illiquid and categorised as long-term savings. Any withdrawals before the retirement age will be slapped with a 5% penalty.

2. Taxes ($20k)

With some tax reliefs in place, I am estimating that both the husband and wife each contributes around $10k of taxes, which is a very reasonable effective tax rate of ~5% of income. Singapore is well-known for being tax friendly.

3. Mortgage ($72k)

With 2 kids in tow, a home near good primary schools will become a priority for the couple. Besides Bukit Timah (where prices of homes are even higher), Telok Kurau is another popular area for many parents.

From the map above, you can see that there are quite a few good Primary school choices like CHIJ Katong, St Patrick’s and of course, Tao Nan. And then, there is Victoria JC in the vicinity.

There are also many food and cafe options in the Siglap area, not to mention the proximity to East Coast Park for weekend activities, making Telok Kurau an ideal location for young parents.

With a growing family, this couple might likely have upgraded from their starter home (BTO or small condo) to a 4-bedroom unit in Telok Kurau. Maybe something like this unit but at a more manageable price of $2 million in 2020.

Four bedrooms also do not seem excessive since the couple plans to stay in the place for at least a decade. One bedroom for the couple, two rooms for the children and an additional room for work/recreation purpose.

As a financially prudent couple, they also did not overleverage, making a 40% downpayment and locking in a $1.2 million mortgage at rates of 1.5%. Based on this Moneysense mortgage calculator, over a 25 year loan period, the annual mortgage payments would have added up to $58k.  Very manageable since CPF OA contributions would take care of almost half the payment.

However, the lock-in is expiring soon, and if rates were to increase to 3.5%, the monthly mortgage payments would increase by 25% to $6k a month and $72k a year, adding to their financial burden.

4. Car ($30k)

This couple currently owns a modest sedan but they are looking for a bigger car, a 6-7 seater for their growing family. It is not as frivolous as you think because with 2 car seats, their sedan cannot even accommodate their helper, not to mention parents or in-laws.

However, with COE prices climbing, this is not a good time to be changing their vehicle.

For example, a brand new Mazda CX-8 would cost around $240,000 in the current market. Well, we are not even looking at continental models here!

Screenshot from SG Carmart

If they make a 50% downpayment (financed through the sale of their current wheels), they would have to take a $120k loan. Based on DBS’s car instalment calculator, for a loan period of 7 years at 3% rates, monthly payments would be about $1.7k. In a year, that would add up to $20k.

Considering other car-related expenses like fuel, parking and insurance costs, car expenses would easily total $30k.

5. Parents Allowance ($30k)

Going out on a limb here.

My guess is if you hold a fancy title in your office (VP or Director etc) and your parents have a good idea that your household’s income is ~$350k, $1.2k is probably a reasonable minimum. No?

Especially if the parents are retired and do need the financial contribution.

Based on two sets of parents, the annualised figure adds up to $30k.

6. Childcare/Enrichment ($30k)

Before this year, I had never heard of MapleBear.

However, after Baby 15HWW was born, the Mrs casually remarked that if money and time was not an issue, she would like to send our baby to MapleBear, especially the centre at Turf City. Apparently, as I was told, many notable influencers send their children there.

Prince Charming to be, eh?

I did some googling and consider the fees to be exorbitant. Even after subsidies, it is more than $1k a month for a kid.

I guess the FOMO is real. If you work very hard at your career and enjoys relative success, it is only fair to spend the money and reward your child with a nice learning environment, or what many consider to be a headstart.

For something I consider to be rather upmarket and niche, I am very very surprised that there are more than 30 MapleBear centres in Singapore.

So maybe I am already being conservative by estimating $30k of childcare/enrichment expenses for an infant and a toddler of this high-earning couple.

7. Holidays ($20k)

2 to 3 trips a year after the pandemic does not sound that excessive, right?

A long-haul trip for a family of four to somewhere like Japan or Europe plus some bigger item purchases (bags, watches) could exceed $15k.

Then there is a leftover budget of $5k for one or two short villa stays in the Southeast Asian region.

8. Helper, Utilities & Insurance ($35k)

I presume with both of them working hard climbing the corporate ladder, employing a helper is extremely economical from the cost-benefit point of view. You can outsource almost all the housework and cleaning up after the children. Including indirect costs, having a helper should set a household back by $10k a year.

Utilities like electricity, water, telco, broadband and other costs like property taxes, smartphones and laptops should easily add another $10k ever year. And with significant human capital to protect, spending $15k or $7.5k for each working adult annually on insurance premiums appears to be prudent.

9. Groceries & Dining ($25k)

Even at $800 per month, grocery costs will add up to $10k a year. It is not an incredulous amount for a household of 4 if you include costs like fresh threadfins from the wet market, diapers and milk powder for the children.

This meal for four pax is going to cost $100, no?

Both husband and wife also sets aside a $600 monthly budget each to dine out together or with their colleagues. It’s just $20 per meal/pax if they dine out 30 times in a month. Over the course of the year, dining costs would total about $15k.

10. Savings & Investments ($58k)

This is basically what is left over.

The absolute amount is still substantial but as a percentage of their income, it is just slightly over 15%.

In fact, if the wife decides to take a lighter role in the office or work part-time and they maintain the same lifestyle, this component is likely to be fully wiped out.

Conclusion

I am not going so far as to say that $350k annual income for a household is the new middle class. However, I do believe that if inflation is increasing rapidly for necessities like food and electricity, the effect is even more pronounced for “status” goods.

Yes, there is a part of me that regrets not buying the Mrs a chanel bag already.

And another case in point: 5 years ago, as a thought experiment, I wrote about how I would spend $15,000 a month. If I were to write a similar article today, the number is going to be closer to $25,000 instead.

So maybe with raging inflation, most segments of the population are “struggling” in their own ways.

The exception is those with ample wealth. For example, if this hypothetical couple inherited $3 million dollars each or even better, sell a business for $6 million, they would be able to replicate the same lifestyle illustrated above without having to earn an income.

All they need to do is to have been able to invest the $6 million in a 4.19% T-bill.

Income inequality is starting to matter less and less as compared to wealth inequality, as we live in a more and more capitalistic world.

But is capitalism on its last legs? Honestly, I have no idea and a big part of me hopes not.

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