Thursday, January 8, 2009

Hide the Money Y'all

A few months ago, I moved offices right next to one of our shareholders. Since we’re in one of the quieter corners of our building, I end up hearing a lot of what’s going on in a shareholder’s world. The other night, I overheard him talking to a friend (or somebody, I don’t know, it seemed like a very friendly conversation) about a car he just purchased. He said something that I thought was very interesting. He said someone once told him that “if you drive your car for 10 years instead of 5, you’ll create over $400,000 of wealth in your lifetime

Wha Wha Wha?!?!? I’m sure most of us have auto loans (I do) and don’t think twice about it. I know I’ve caught myself thinking “when I pay off this car in 3 years, I can turn around and get something else and use the (probably 4 or 5K) equity as a nice down payment.” Would there be anything wrong with my car in 3 years?? No (it would only be like 8 years old), but the thought of a new or slightly used Subaru (R.I.P.) just gets my motor running (bad pun alert).

Since I am an accountant, I thought I’d crunch some numbers and see if that’s true. I bought my (used) car when I was 25 and pay roughly $300/month. Assuming I can make 8% on my investment and I save that $300/month in the 5 off years I’m not making a car payment, I will have saved roughly $407,000 by the time I’m 65!!
Just another example of why we need a MANDATORY Personal Finance class in Middle School, High School and College!


Zach said...

I should have cheated off of you in that Economics class we had. My policy usually is to have a couple friends that know what they're talking about to tell me this stuff.

Great info!

Gray said...

I hate analogies like this because they remind me of how bad of a saver I am. Please get another Subaru wagon quickly. I know jojo will come to love it.

Sarah Green said...

I just might start a blog titled, "That Much Further (At) 'More: or what I learned on Alex's blog today". You must spread these good tidings to the masses. PS- I frequented Taj India during our Southside Senior Year dwelling. I miss you 1508 21st Way South!

Donna said...

Okay, show me somewhere that I can get an 8% return on my money Mr. Madoff!!!???

Donna said...

To you all you guys out there with mortgages: did you also know that if you have a 30 year mortgage, you can turn it into a 15 year mortgage simply by paying one extra payment a year consisting of 100% principal? (Make sure your mortgage doesn't have prepayment penalties). Check it out!

LA girl said...

A, I have always thought that a mandatory personal finance class in middle school, high school and college was necessary. Just another reason that you are so cool.