Broker Check

Optical Illusion: The Real Cost of Purchases

| February 05, 2020

By Kristi De Rycke, Registered Assistant

Marriage can be a constant negotiation between 2 people with different views.  These often revolve around kids, schedules, household chores and finances.  There is a constant effort by advertising agencies and stores to get their hands in our wallets.  I’m typically pretty good at recognizing the ploys and avoiding them, but not always.  Of course, I want new things on a regular basis. 

My husband always says math wasn’t his strength in school.  Well, he has certainly picked it up since then.  Whenever I want to buy something he will quickly run the numbers in his head to tell me what that item would cost us in 10 years.  For example, if I wanted to increase our cable to add more services which cost $50 more per month.  He would say, hmmm that would be $600 per year and $6000 in 10 years.  That definitely seems like more money than the $50 that was pictured in my head.  It works the opposite way to if I want to buy something for the house that is $3000 dollars, he will say if we would invest that money what would be worth in 10 or 20 years?  If you use an online compounding money calculator on moneychimp.com you can see that the $3000 purchase at a hypothetical annualized return of 8% would be worth approximately $6500 in 10 years and closer to $14,000 in 20 years.  Again, makes a person think about if the item is worth that much and if I would still like it 20 years down the road for that price.  Sometimes, the answer is yes, but most often it makes me decide not to go for the extra expense. 

I find that this view has really helped me reign in spending and hit my financial goals.  So the truth…..he is right!….Shhhh, please don’t tell him I said that…

Hypothetical situation for illustrative purposes only and does not represent actual or future performance of any specific product or investment strategy. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results.

By Greg Johnson

I think the best part of this type of thinking is it allows us to use perspective.  Whether investing your money or spending your money perspective gives us the ability to realize impact on our wealth.  Life is all about choices and without realizing the impact our decisions have on our financial life we can often times make very poor decisions.  I have visited with many people who are making $1,500 per month car payments and struggle to save $100 per month for their retirement.  It gives me a pretty clear picture what their priorities are for their financial futures.  Whatever your decision may be I think Kristi’s idea is a wonderful way to give yourself another perspective on your financial decisions.

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