How Much of My Income Should I Spend On Rent in Singapore?

A comprehensive guide for renters in Singapore, especially single millennials navigating rising housing costs.

Navigating Singapore's housing market can be a challenge, especially for single millennials facing rising rental costs. One common piece of advice to help manage this expense is the 30% rent rule. This guideline suggests allocating approximately 30% of your take-home pay to rent. 

For example, if your monthly income after your Central Provident Fund (CPF) contribution is S$4,400, you might aim to spend around S$1,320 on your monthly rent.

While the 30% rule provides a helpful starting point, it's important to recognise that it's not a universal solution. What works for one person might not work for another. In Singapore, where rental prices can vary significantly depending on location and property type, flexibility is key. For instance, if you stumble upon a great rental deal that only takes up 20% of your income, there's no need to dismiss it simply because it's below the 30% threshold.

Conversely, rigidly adhering to the 30% rule might be unrealistic in prime areas of Singapore, such as the city centre, where rental costs can be considerably higher. In these locations, finding accommodation within the 30% guideline might require compromises on size, location, or amenities.

Another helpful framework for budgeting, and therefore determining how much you can afford for rent, is the 50/30/20 rule.

The 50/30/20 rule offers a simple guideline for breaking down your spending. It suggests allocating 50% of your earnings to “Needs,” which are essential expenses like rent, transportation, groceries, utilities, and insurance. 

The next 30% goes towards “Wants,” encompassing discretionary spending such as shopping, dining out, entertainment, and hobbies. 

Finally, the remaining 20% should be dedicated to “Savings and Debt Repayments,” covering savings goals, building an emergency fund, and paying off any outstanding loans or credit card balances.

While the 50/30/20 rule provides a good starting point, it's important to adapt it to the specifics of Singapore.

• Consider CPF deductions: In Singapore, your take-home pay is lower than your gross salary due to mandatory CPF contributions. Therefore, it's generally more practical to apply the 50/30/20 rule to your net income (after CPF deductions and taxes) to get a more accurate picture of your disposable income.

• Shift in proportions: In Singapore's relatively high-cost environment, rent may exceed the typical allocation within the "needs" category. If your rent pushes you beyond the 50% threshold, you may need to compensate by reducing your spending in the "wants" or "savings" categories.

To illustrate how rent fits into the rule, let's consider a hypothetical individual in Singapore with a gross monthly salary of S$5,500. After mandatory 20% CPF contributions and taxes, let's assume their monthly net income is approximately S$4,400. Here's a possible breakdown:

• S$2,200 for needs such as rent, transportation, groceries, utilities, and insurance.

• S$1,320 for wants such as shopping, dining out, entertainment, and hobbies.

• S$880 for savings.

» Received your monthly income? To get a personalised view of how the 50/30/20 rule can work for you, you can use a budget calculator.

Determining your affordable rent in Singapore requires a careful assessment of your income and expenses. Here's a step-by-step approach:

• Start with your gross salary.

• Deduct your mandatory CPF contributions to arrive at your net income.

• Account for other essential expenses, such as existing loan repayments like student loans and personal loans and recurring bills.

• The remaining amount represents your true disposable income, from which you can identify a realistic monthly rental budget.

• To assist in this process, consider using online affordability calculators. (e.g., platforms like 99.co offer rent calculators that can provide a starting point for your calculations.)

It's important to acknowledge that the 50/30/20 rule, while useful, might not always be perfectly applicable in Singapore's context. Let's explore some scenarios where adjustments might be necessary:

Let's stick with the 50/30/20 breakdown and a hypothetical Singaporean with a net monthly income of S$5,000. This suggests a maximum of S$2,500 for 'needs' (50%). However, this could strain the budget, especially considering other essential expenses:

• S$100 monthly student loan repayment.

• S$130 monthly public transport costs.

• S$85 monthly phone and internet bill.

• S$150 monthly utility bills.

• S$800 monthly grocery expenses.

• S$550 monthly insurance policy bill.

These expenses total S$1,815 per month, leaving only S$685 for rent. In Singapore's competitive rental market, this amount might be insufficient for desired accommodations in certain areas.

>> MORE: In a landlord’s market, how to save on rent with these lesser-known tips?

However, it's important to remember that budget rules are flexible guides, not rigid constraints. In reality, your rent and other essential expenses may sometimes exceed the 50% allocation. Here are a couple of scenarios where it might be justifiable to spend more on rent than initially budgeted:

• Unstable living situation: If your current housing situation is unsafe or otherwise precarious, prioritising stability, even if it means higher rent, becomes a necessity. In Singapore, this could apply to situations like needing to move out of temporary accommodation or seeking a more secure long-term lease.

• Work-related relocation: Job requirements might necessitate moving closer to your workplace, potentially to reduce commute times and associated costs. Or you might be seeking a change of environment that improves your overall well-being. In such cases, higher rent may be a worthwhile investment in your career and quality of life.

When the 50% allocation for needs proves insufficient, especially in Singapore's context of potentially high housing costs, the 60/30/10 budget can be a more practical alternative. This approach allocates 60% of your net income to essential expenses, providing a bit more breathing room for housing.

Where you choose to rent in Singapore can have a significant impact on various aspects of your life, from your daily commute to your leisure activities. Therefore, it's crucial to factor in the additional costs or potential savings associated with your rental choice.

When moving into a new rental, be prepared for several upfront costs. These may include a good faith deposit often required to show genuine intention and commitment upon signing the lease and/or a security deposit typically equivalent to one month's rent for a 1-year lease or two months' rent for a 2-year lease. Additionally, you'll need to account for stamp duty1, a tax payable to the Inland Revenue Authority of Singapore (IRAS), which is calculated based on the rent and lease term.

Beyond these initial expenses, consider the recurring monthly costs. Utilities such as electricity, water, and gas can range from S$100 to S$200 per month, depending on your usage. Your broadband and mobile phone bills might combine to cost between S$30 and S$90 per month. If you're renting a condominium, the maintenance fees are usually covered by the landlord, but it's important to confirm this in the lease agreement.

Finally, don't overlook potential hidden costs. Depending on the lease terms, you might be responsible for appliance repairs or maintenance. If you're renting a partially furnished unit, you'll need to budget for initial furnishing or renovation costs. And if you choose a location far from your workplace or the MRT network, your daily commuting and transport expenses can add up significantly.

>> MORE: Step-by-step guide to rent a home in Singapore

Finding affordable rent in Singapore can be a challenge, but there are several smart strategies to help you save money and make your budget work. Your future self will appreciate the effort you put into your emergency fund and retirement savings, but in times of crisis, using your emergency fund or seeking rental assistance may become a necessary strategy to cover rent.

• Share a flat or room: This is one of the most effective ways to significantly reduce your rental expenses. Sharing with flatmates is common in Singapore and can free up a substantial portion of your net income.

• Look outside the city centre: Consider exploring housing options in areas located further from the city centre, such as Jurong West, Sembawang, or Woodlands. These neighbourhoods often offer more affordable rental options compared to prime districts.

• Explore co-living options: Co-living spaces are gaining popularity in Singapore and can provide a balance of affordability and convenience. These spaces often include utilities, cleaning services, and sometimes even social activities, and they may have move-in deals.

• Rent reductions for longer lease terms: Some landlords may offer reduced rental rates for tenants who commit to longer lease terms, such as going for two years instead of one.

• Look out for flexibility: When searching for a rental, try to find flexibility in move-in dates or arrangements where you share some maintenance responsibilities. If rental prices in your desired area exceed your budget, consider reducing expenses in other areas to compensate and maintain financial balance.

• Use coupon and cashback apps: Take advantage of coupon and cashback apps popular in Singapore, such as ShopBack, Fave, and RebateMango, to save money on dining, groceries, and online shopping. Also, keep an eye out for promo codes and member discounts offered through platforms like GrabPay and the FairPrice app.

• Buy groceries strategically: Shop at budget-friendly grocery stores and supermarkets in Singapore, such as FairPrice, Sheng Siong, and Giant. Don't forget to also consider wet markets for potentially cheaper and fresher produce. Where possible, buy groceries in bulk and split the cost with your flatmates to save money. Then, prioritise cooking at home more often to reduce your reliance on eating out, which can be a significant expense.

• Use energy-efficient appliances and switch off unused devices: Consider adopting energy-saving habits at home by using appliances with labels from the National Environment Agency (NEA)2 and Public Utilities Board (PUB) Water Efficiency Labelling Scheme (WELS)3. These appliances consume less electricity and water, leading to lower utility bills. Additionally, make a conscious effort to turn off lights, fans, air conditioning, and electronic devices when they are not in use. Even putting devices on standby mode consumes energy, so unplugging them can contribute to significant savings over time.

• Look for car insurance: If you're a car owner, look for ways to lower your insurance premiums, including choosing a vehicle that's cheap to insure. If you have a demerit-point-free driving record for the past three years, you might be eligible for a Certificate of Merit (COM)4. This lets you get a discount from a vehicle insurance premium and is based on the participating insurance company’s terms and conditions.

» Ready to find the right car insurance? Compare car insurance rates to discover the most suitable option.

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