Your salary increased, now what?


When I was 28, I received a big pay bump from $4,000 to $7,500.

Back then, I was spending about $1,000 a month.

I decided to make one radical decision for the average Singaporean (at least back in 2017):

I would continue spending $1,000 a month without any change to my lifestyle whatsoever.

The only guilty pleasure I allowed myself? Renting a common room for $700, so I could have some headspace (I covered it with additional freelance income as a copywriter).

If you’re a young adult who’s just beginning to see a surge in your earning power, here are six things that will help you become financially free in your 30s and 40s.

#1 Inflate your life responsibly

I think it is inevitable that when you grow older, costs will increase.

You take on additional responsibilities, roles, and even liabilities. Other times you just want to treat yourself. That’s fine, too. More than fine, actually.

That said, when it comes to inflating your lifestyle, this is something you should do so carefully.

The principle here is this: When your salary increases, you inflate your lifestyle reasonably.

That said, ‘reasonably’ is a subjective term. Here’s a small table detailing specific instances of lifestyle inflation.

The upgrades you’ll make Lifestyle inflation rate
Public transport to car 1,348%
HDB to condo ~ 397%
Home-cooked meals/hawker centre to restaurants 484%
Entry-level camera to pro-level 363%
Economy to business 314%
Kopi to craft coffee* 360%

For a lot of the smaller items, the occasional splurge doesn’t hurt. Especially when you are able to use apps and cards to tap into deals out there.

So yes, a fancy restaurant meal for a special occasion isn’t a big big deal. Neither is that holiday after a particularly busy season.

But you should also be wary of how often you ‘treat yourself’.

#2 Avoid spending traps

Taking time to understand why others have five-digit credit card bills can help you avoid the same fate.

As the saying goes: Fools learn from experience, the wise learn from history.

Here are three big spending traps people often fall into when inflating their lifestyle:

The Diderot effect

The Diderot Effect is a phenomenon that occurs when acquiring a new possession leads to a spiral of consumption that results in the acquisition of even more possessions.

In other words, buying something new and fancy can cause a chain reaction of buying even newer and fancier things.

Why? Because the new item makes you feel like you need other things to go with it or to keep up with it.

For example: You buy a nice shirt. Then you start thinking that a nice belt could go with it. Once you have that belt, you think that a luxury bag would complete the look. After the bag? Designer shoes, pants, socks.

Might as well go all the way, right?

Relative deprivation

High earners, though objectively earning well, can still feel discontent. Especially if they compare their lifestyles to even higher earners and spenders.

This inability to be content can drive one to work harder, but it can also lead to entering debt to fit in, or keep up appearances.

With their higher income allowing them a wider credit limit, it’s easy for them to rack up credit bills in 5 digits by putting their extravagant purchases on credit.

Gear Acquisition Syndrome

Gear Acquisition Syndrome was originally understood as the musicians’ compulsive urge to buy and own instruments and equipment as an anticipated catalyst of creative energy and bringer of happiness.

BUT this can also apply to anyone with a hobby. Photographers, cyclists, scuba divers, hikers, baking etc.

#3 Optimise your spending

IF you’re going to spend money, be smart about it.

For the overwhelming majority of our audience, we recommend cashback credit cards to do so. Why?

It’s based on two observations:

1) The best way to accumulate wealth, is not to spend money.

2) People who fly often, also tend to spend more money (just not on flights, lol). Refer to observation 1.

So, yes, the maximum cashback will never compare to a business-class ticket. BUT, you don’t need to spend a lot of money to get it. In turn, this leaves more cash for you to invest.

That said, if your lifestyle does cross a certain threshold, and you travel often, then a miles card would make sense.

Miles Cards gives you bonus miles whenever you sign up,  and has perks designed specially for travellers.

Things like signup bonuses, hotel stays and dining perks all do add up to significant savings – IF you were going to spend that money anyway.

Miles or cashback? It really depends on your lifestyle.

PS: Some cards also allow you to switch between both, like the DBS Vantage Card.

PPS: Read an IG story we did about this here.

#4 See if you need more insurance

The more you spend -> the more liabilities you have -> the more insurance you will need. It’s a simple concept.

For example, for life insurance: A HDB owner might need $700,000 to pay off their housing loan in the event of their death. A condo owner will need upwards of $1,200,000.

This also applies to everything else, especially plans that are supposed to replace your income – critical illness, accident plans, etc.

That being said, if you’ve managed to maintain and keep your expenses the same, more insurance might not be needed.

#5 Reduce your taxes

Most fresh grads start off at an annual income of $40,000 – $50,000. So income tax hovers at 3 digits.

If you’re in Singapore, our progressive tax structure means that your higher income will mean higher taxes. Significantly higher.

Consider lowering your chargeable income legally by doing these things:

You can top up to $8,000 in your own account, and another $8,000 to your loved ones’ account.

This is a government retirement account (that is not CPF).

You can top up a maximum of $15,300 annually for Singaporeans/PRs, and up to $37,500 for foreigners for tax relief purposes.

If you make a donation to Community Chest or an approved Institution of a Public Character, you’ll be able to enjoy tax deductions of 2.5x your donation amount.

i.e. Donate $1,000, and enjoy a tax relief of $2,500.

You can reduce your total chargeable income by: $16,000 (CPF top-up) + $15,300 (for Singaporeans/PRs) + however much you want to donate = > $31,300

#6 Invest to preserve and accumulate wealth

Income is the main driver of wealth.

But it means nothing if you lose it all in ultra-risky investments.

Many young high-earners scoff at the idea of putting money in safer, but slower-growth instruments such as bonds, fixed deposits and CPF.

This is very natural. If you’re a high earner at a young age, it’s likely you’re a risk taker who believes in your skill.

But risk must be managed.

If you’re earning good money at a young age, it’s wise to set aside some to create a safety net for yourself.

Yes, you will not earn the potential high returns people brag about. But the certainty of knowing you can hold out during bad times is worth its weight in gold.

Our suggestion: Diversify your wealth across asset classes. Always prepare for a rainy day.

Remember, high income won’t last forever

Most people’s salary peak in their 40s, and from there it starts a slow decline.

It’s tempting to think “You can earn it back later”, but you should be very aware that ‘later’ happens within a limited timeframe.

This plays out very commonly.

When people start earning $5,000 or so, they’ll start to look to get a car, or ride-hail everywhere. Brunch every weekend. A new phone every year.

When they reach $8,000, they start developing a taste for the finer things in life. Maybe a Celine bag or a Gucci wallet every year. Or snowboarding trips in Niseko. Leica cameras. S-works bicycles. Maybe an Audi R8. Flying only business-class.

You get the idea.

Are those good and valid decisions? Depending on your goals, they might absolutely be. Everyone has different goals in life.

But, if you’re not a nepo-baby and your goal is to:

  • Be financially free (or even stable) in your 30s and 40s
  • Have the financial means to leave a job you dislike
  • Have the capability of riding through financial storms
  • Possibly start a business with a safety net

… then those are objectively counterproductive decisions for most people.

Remember – Ultimately, you are free to choose how you want to lead your life.

But you’re not free from the consequences of your choice.

Stay woke, salaryman

A message from our sponsor:

If you’ve recently experienced a salary increase and your annual income is above $120,000, you can consider optimising your credit card spending with the DBS Vantage Card.

The Card gives you the freedom of flexibility of switching between miles or cashback as your reward type, and it can be easily configured on the DBS digibank app.

So if there’s a season in your life where you won’t be travelling as much, you can select cashback as a reward type, and switch back to miles whenever you want to.

Enjoy the following perks with your Card:

  • 1.5 miles per (local) dollar spent – the highest earn rate in this segment of Cards in the market
  • 2 miles per S$1 or 2.2% cashback on overseas spend
  • Accor Plus membership – comes with a complimentary 1-night hotel stay every year
  • 10 Priority Pass lounge access/year
  • Dining City Members only privilege
  • 25k bonus miles upon annual fee payment of $594.*

If you’re a frequent traveller and you take advantage of the perks above, you’ll be able to make your money’s worth when you make the annual fee payment for the Card.

For new DBS Credit Cardholders, get up to 80,000  miles with $5,000 minimum spend in 30 days when you use the promo code FLASHVTG. (An Economy Class Return Trip from Singapore to San Francisco is 84,000 miles on SIA btw.)

Find out more about DBS Vantage Card here.

*Annual fee is waivable if you spend $60,000 in the preceding year and maintain the income requirement of $120k/year.

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