A Dollar Is Not A Dollar

People have a habit of spending money in small amounts and justifying the cost by using the “it’s only a dollar” rationale.  Well I have news for you.  A dollar is NOT a dollar.

I know what you are thinking.  Is this one of those 1+1=3 things?  Nope, a dollar is not a dollar because attached to the value of a dollar is an opportunity for that dollar to be invested into more dollars.

Here is how it works:

Say you are at the grocery store and you see a huge chocolate chip cookie on sale for $1.  You decide to buy it even though you don’t need it.  Because, hey it’s only a dollar and look at that cookie, it’s huge!

However, if you took that dollar and invested it in the stock market, it would earn an average return of 10%.  If you took all the profits from that dollar and reinvested it, that dollar would be:

$1.61   in 5 years
$2.59   in 10 years
$4.18   in 15 years
$6.73   in 20 years
$10.83 in 25 years
$17.44 in 30 years

As you can see the cookie did not cost you $1 as it was priced.  It costs a heck of a lot more than that if you look at what that dollar could do in the long run when properly invested.

Next time you are tempted to buy something frivolous, think about how much it is really costing you.  Is it still worth it?

Written by admin on June 29th, 2006 with 4 comments.
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