Another great jlcollinsnh blog post really started to make me change the way I think about money. (By the way, if you haven’t read his ongoing series of blog posts about investing yet…you should start doing that asap and start here.)
Okay, so the idea is you calculate what the amount of money you want to spend on something right now would grow into if you didn’t buy the thing but bought index funds with the money instead. Interesting, right?
So, if you’re not familiar with the compound interest theory and the formula you’d have to use, click here.
I’m using 8% growth a year and check what that amount would grow into after ten years.
Okay, let’s go “shopping”!
I’d like to buy a couple of books on index investing, such as: The Boglehead’s Guide to Investing, The Intelligent Asset Allocator, A Random Walk Down Wall Street. Let’s say it’ll cost me about €100. Ten years from now that money could have grown to €215,89. Is the stuff I’ll read in these books worth 216 euros ten years from now? You bet your ass it will! By the way, these books have been on my wish list for over a year now. I intend to buy them with gift certificates…
Outdoor kitchens are all the rage now in The Netherlands. I want to do me some outdoor cooking! And by outdoor kitchens we mean a BBQ that runs on gas. Anyways, the coolest one is about €1500. That could hypothetically grow into €3238. Don’t think I love to BBQ that much. We could also go for a cheaper or second-hand version of around €300, which would equal to €647 in ten years. That’s one I might have to think about for a while.
I would also like customized skiing boots. I have wide feet and all those rentals hurt like hell. A pair of those boots would be around €350 which could grow into €755. I think those are definitely worth it. I know…I know…skiing is not very Mustachian. But hey, MMM himself enjoys a snowboarding vacation once a year.
There’s not much else worth mentioning on my wish list…a couple of games and other items in that category. They’re on my wish list so in case somebody wants to give me something and they ask for a wish list I am able to send them mine. Nothing extravagant on there, really.
Let’s say I hypothetically would want a motor bike (I used to own one) of about €5,000. In ten years that could grow into €10,794. The motor bike would definitely lose while playing this game. Renting is also the best option if you’d like to enjoy a ride every once in a while.
Do you like this approach in order to check whether the product is worth the amount you could have grown it into over the next ten years?