Makin' Cizash

A wise man once said “There are two types of people in this world, those who understand interest, and those who pay it.” Well said. I am just barely learning what this guy meant, so I thought I would enlighten you people. I’m not just talking about money either. It is a lifestyle philosophy of when you want to pay, now or later.

Example one: you get out of high school and contemplate college. I’m baffled how people think it is easier to kick back for a while, get a job, and veg-out rather than go to more school. Pretty soon, you’ve knocked up your girl friend, have a $400/month Pinto payment, and have traded your dream of being a Marine Biologist for the hope of making assistant manager at Arby’s.. if you work the late shift for another 6 months. Hardly the easy path if you look at the big picture. Four years of college up front probably would have jumped you two tax brackets for the next 40 years.

The problem lies in the fact that when you decide to pay really determines how much you have to pay. That leads us to the distinction between cost and price. Let’s run some numbers. Specifically, let’s talk retirement. When do you want to save, now or later? Suppose you order one Jumbo Grande Late’ per day at the low price of $5. You do that, and in 30 years you would have spent $54,750. That was the price. Though the cost to you at retirement is really $127,030, because that is what you would have stowed away if you had just put that coffee money into savings making 5% annually. I won't even add in the money saved on tooth whitening gel. Try building $127K when you have just 10yrs left to retire, you would have to save over $800/month!

Let’s do another example. You buy a house for $150K at %5 interest. Over 30 years you actually pay $289,883. That was your price. The cost to you at retirement is really $672,759 because that is what you would have if you had saved at the same rate as you paid your mortgage over the same 30 years. So please don’t tell me you made $50K on your house when you sold it for $200K, 10 years after you bought it. You only reduced your cost by $50K.

Ok, this is more than boring so I will spare you the credit card example because you will likely stab yourself in the eye with a fork before I finish. I am just continually surprised at how few people seem to understand the difference between cost and price, and how even fewer really understand the power of interest. That being said, nobody is going to change a thing, including myself, so (if you got this far) you have just lost 3 min. of your life that you ain’t never gettin’ back.