That Starbucks Kerfuffle...

This article is a response based on the series of spirited debates over this article on the Dr Wealth website :

https://www.drwealth.com/how-to-save-money-in-singapore/

I thought I should share a few insights on this issue because at least one guy on the BIGS FB group has threatened to stop reading Dr Wealth for good, and I am working to contribute an article myself sometime next week and don't want to lose fans when I start.

For a start, Starbucks has become some kind of whipping boy by personal finance experts thanks to David Bach who came out with the concept known as The Latte Factor. After a while, as an occasional customer of Starbucks, I think that personal finance experts misrepresent Starbucks selling proposition. Starbucks is selling a new kind of space that is neither home nor the office. By paying the price of a latte, you get to park yourself there and use their wifi. Part B Law students typically hang out at Starbucks to go through their tutorial notes before an evening lesson in a law firm. So the $7 you spend is more than merely a cup of coffee, you are buying a place to work. If company employees want a more informal meeting area to discuss matters, sometimes Starbucks is the only choice.

Putting that aside, I think some Singapore statistics would be helpful to resolve the technical issues of the debate.

A median salary of an individual in Singapore is not too high.  The median income per individual is $2,699 in 2017. This is merely $2,306 after adjusting for employer's contribution to CPF. Take home pay after CPF is only $1,844.

If we divide a household expenses of $4,699 by the number of members of the household, we get a rough estimate of the expenses of an individual which is about $1,400. These numbers are date so we adjust by inflation to get about $1,430.

This means that the average Joe in Singapore can save about $400 a month or 21% of take home pay - not bad given that books from the US typically encourage a person to save only 10% of income.

I think the major sticking point of the article is this : Marcus incorrectly plays down the effects of saving $2,190 in a year. This is actually quite large from standpoint of the average Singaporean, this is almost a 50% increase in savings.

The argument that the extra $87.60 saved every month from the STI ETF is also poorly argued because forgoing Starbucks earns a cumulative $87.60 every year. After two years of denying Starbucks, it becomes an extra $175.20 and you have $4,380 extra money in your portfolio or war-chest. Furthermore, an investor also does not have to limit himself to the STI ETF. For example, a portfolio consisting of equal weights of all REITs can return 10%.

The second half of the article is a contradictory mess.

Marcus goes on to advocate saving 10% and investing 10% of your income, but the median Singaporean seems to be already doing that. If the median income Singaporean can indeed, save $2,190 from forgoing Starbucks, he would be saving close to 30% of his take home pay which puts him in a much better fiscal position than this proven method that Marcus proposes. Of course, I think it would be hard to find someone who spends his 10% of his take home pay on Starbucks coffee.

Instead, I would position a disciplined Singaporean saver as someone who can set aside 30% of his take home pay as a rookie. iI you are, in fact, a Starbuck addict who spends 10% of your take home pay on Frappucinos, it's time to get back to kopitiam kopi or buy an espresso machine.

Right now, I cannot go on to unravel more logical inconsistencies in the article which I'm sure many readers would be able to do so if they read the article a few more times. But I think we should be nice and congratulate Marcus because he succeeded beyond expectations to get folks into a passionate discussion about the need to maintain fiscal discipline. This is only his second writing stint with Dr Wealth.

Please give him a chance.