Getting Stuff For Free
Lately I’ve found myself thinking about money in a different way. While we are nowhere near actually being able to implement anything like this, I just find the thoughts interesting to ponder.
The basic idea is to calculate about how much money you’d have to have saved in a decent fund in order to get some item every so often that can be paid for entirely with the interest and dividends. Of course the numbers used depend a lot on what type of fund you invest in, and naturally the higher the average return is, the less likely you’ll get that return every year or month or whatever… But still… it’s a fun way to think.
For instance, using the 12% number that Dave Ramsey likes to toss out on his radio show all the time, my wife and I could get two decent computers for “free” every 1.5 years or so for the rest of our lives by having around $35,000 invested in such a fund. Obviously this sort of thinking is laced with countless assumptions… but we’re talking pie-in-the-sky averages here. 
I haven’t priced cars lately, but in a similar vein, I bet we could get two decent new (or very new) cars every 5 years or so with $50,000 invested in this hypothetical fund. Those would be free cars - not counting possible trade in or street value from a car that’s only 5 or so years old and (hopefully) in good condition. Free cars - every five years!
Naturally I’m not taking taxes and a lot of other things into account, here. That’d complicate the numbers and add some money or time (your choice) to the situations, but the exact numbers aren’t the point - the point is that once you have some wealth, and if you can keep it, you almost can’t help getting stuff for free.
The kicker is, these two hypothetical scenarios added together total only $85,000. That’s quite a lot less than what we bought our house for. If we didn’t have a house payment, we could probably build up that much in about 2 or 3 years. Imagine only 3 years of work earning you a lifetime supply of cars and computers!
Money is a tool - wield it.
March 3rd, 2008 at 10:28 pm
You’re not gaining any “free” money. Even with interest, you’re actually losing money.
IN-FLA-TION
March 3rd, 2008 at 10:59 pm
Heh.. not sure which planet you’re on, but inflation is nowhere near 12%. It’s more like 3.5% or so. Which leaves you 8.5% of earnings. And if I did the math right, after taxes you still get maybe 7% increase in the end. My math in the post is very over-the-top optimistic because, as I said, I didn’t take all that into account. However if you believe there’s no money to be made by investing in the market - you are very, very wrong.
March 7th, 2008 at 8:31 am
The big error in this thinking is the loss of compounded interest. To spend the interest every 1.5 (or 5) years is absurd. You would have new computers, and cars, but your principal would just sit there (and as stated) would be worth less and less over time due to inflation. If you had 85,000 invested and were getting 12% and left it alone through one of your car cycles you would nearly double it, two car cycles, and it’s quadrupled, etc. ad nauseam. The idea of skimming the earnings off the top and spending it is insane. I’d much rather drive a beater and have a half a million dollars in 15 years than drive a brand new car every five years.