I love iced black coffee! (No sugar pls)
Living a short walk from the local shopping mall and hawker centre, my mornings could involve a kopi o kosong peng or an iced americano. Sometimes I french press some beans at at home, so it’s a real trilemma. To seek variety is human.
How much would these cups cost me?
- Kopi O Kosong Peng: $1.40
- Kopi O Kosong Peng (Local Branch 😉): $3.00
- Iced Americano: $5.00
- Cold Brew: $5.80
- French Press at Home: $2.00 (depends on your beans; I use about 35g per cup so a 250g bag costing $14 = seven $1.96 cups)
Looking at the vast difference between café coffee and your local auntie’s finest, I could be saving $3.60 a day!
What would this mean in a year? Or 5 years?
Thanks to interest rates, inflation and options to invest, the answer is complex.
Luckily for you,
So before we get into the sheet [free download at the end of this post!] there are some basics to unpack.
Interest Rates
To someone saving their money, interest rates are the amount your saved money grows over time, or the amount that banks pay you to keep your money in their account, which they would then use to lend borrowers and charge them that interest.
Moneysmart’s already compiled a nice, updated list of Singapore interest rates to refer to, but for the sake of this post I’ll assume a value of 1%. This means my saved money today would grow by 1% per annum over the years.
Inflation Rates
Eroder of savings. Eater of worlds. Inflation is probably the number 1 reason to invest your money, and also why my iced kopi costs $1.40 instead of $0.90 like it used to.
Inflation rates measure the rate of increase of prices of stuff (goods and services la) over time. Inflation has many causes – higher costs stuff-production, higher wages of stuff-makers (shame on your payraise), higher demand for stuff (e.g. when people in developing citiers can afford higher standards of living) and government policies are the usual suspects.
To choose an inflation rate, there are a few options. In Singapore, most sources use the Consumer Price Index (CPI) to measure our inflation rate. The CPI tracks the change in price of commonly purchased goods and services, including housing and transportation. For this post, however, I’ll be using the MAS Core Inflation for a more generalised value excluding fluctuations in housing and transport. More info here!
I’ll be assuming a fixed inflation rate of 2% per annum.
Investment
Hello popular topic! Getting into the various options for investment and assumptions of investment growth rates can bloat up a post real quick. However, it’ll be good to illustrate just what can happen without investment, so I’m going to assume an investment growth rate of 0%. Ho ho. He he.
Daily Savings: Iced Americano ($5.00) to Kopi O Kosong peng ($1.40) = $3.60
So saving $3.60 a day on coffee earns me $1,310 a year! That may not look like much, and as you can see from the rightmost column, $1,310 saved in the bank (earning interest) in 2020 will only have the spending power of $1,221 after I reach 35 in 2027 (technically I’ll be 36 in September 2027, but you get the point).
and that’s inflation! With our assumed rate of 2%, that would mean that my $1.40 kopi o kosong peng today would cost me $1.60 in 2027.
Summing up the accumulated years of savings, 7 years of disciplined cheap coffee drinking would result in an extra $10,124 in my bank account.
How much would I have if I invested the savings I made in, say, those CPF top-ups with a guaranteed rate of 4%? (I mean there are a ton of other options but baby steps please)
$1,310 saved this year would no longer be worth less next year, but more. Specifically, the growth percentage would look like this:
Growth of Savings = Interest Rate – Inflation + Investment Growth
= 1% – 2% + 4%
= 2%
Measly. But much better than the -1% you would be “earning” if you sat back and didn’t do anything.
What do you think about this? I’d love to hear any feedback or suggestions you have for this post. You can download the calculator below!
Have fun!
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