Another day of rain. Sounds like lots of folks in the Midwest have been hit with 100 year water.
We bit the bullet here at the office and are in the midst of a two-day project to replace the carpet in the common areas of the second floor. After nearly eighteen years of innumerable coffee spills, mud-traffic-ing, and commercial wear and tear, the original carpeting was an embarrassment. The installers are pretty efficient, but it is a bit chaotic and a little hard to ignore. The new design will be a real breath of fresh air.
As a practical matter, spending this money will have a zero positive impact on our revenue. It will be a cash outflow with no related income effect. I guess it can be best described as a quality of business life issue. I know that I spend money on mass-marketing things that have little direct effect on the development of my securities business. And I rationalize that I need to do those things to achieve broad acceptance in the local business environment. But you need to be careful on how much of that that you do, when direct marketing to specific prospective customers may yield better results.
There was an Internet piece today on the little things that individuals can do to save hundreds of dollars annually. Think SB's coffee. Think premium cable/dish channels. Think bottled water. How about the daily paper? This list could be a long one. There was another story to the other extreme, that I did not read, about a girl who didn't buy anything for a month.
How you choose in these smaller decision points can certainly impact the financial health of your business and/or personal life. Maybe not so much if you have significant assets or a substantial income. But if you have to watch your checking account to stay on the positive side of things, a few hundred dollars here and a few hundred dollars, and pretty soon you're talking about real money.
On the business side, I think that it is valid that you have to spend money to make money. But I think that I too often forget that my best clients came to me not by way of an ad in the business section, but rather by an introduction from a friend or client.
We should have 3 do a future value calculation of saving rather than spending for a daily SB's libation. My only consolation is that being so old, my long term loss will be nothing compared to the projected foregone retirement accumulation of the younger set.
I'm rambling. Suffice it to say, I again lost out on Powerball.
BCOT
Philosophy, History and Commentary from Lt. PC
3 comments:
make sure to check wed. comments! one didn't post right away....
the $1.81 i spend on my grande coffee is well worth it. i don't care what figures 3 comes up with...i'm still going to buy it. besides, if you don't get it at SB's, you're going to get it somewhere else, so you wouldn't be able to say you'd save ALL of the $$. even if you make it at home, you still have to buy the grounds and the coffee pot. i suppose in the long run if you bought folgers or something, you could save a significant ammount. luckily none of us are in the position where our financial security depends on us NOT drinking our daily dose of SB.
A quick calculation shows that spending your $1.81 on a grande coffee translates into a value of around $700 per year, assuming an interest rate of 11.5%. That's about what the S&P 500 returned last year, so it's a reasonable assumption if you have a good broker. The $700 calculation is valued as if each day you put $1.81 in the S&P, which would theoretically be the most accurate way to account for the time-value of money. There are a lot of problems with this calculation though: for one thing, the market isn't open every day, so your weekend and holiday coffees would have to be accounted for either early or late- altering the valuation by a few dollars. Also, this type of investment strategy would kill you on the broker fees, and you would also have to take into consideration the capital gains tax, etc. etc. An easier strategy would be to do the simple calculation of $1.81*365=660.65. You'd spend a total of $660.65 on coffee during the year, so if you invested that on the first open market day of the year, you'd have over $730 in your fund by year end. Even with taxes and fees, you'd net over $700. This is a very back-of-the-envelope calculation, as I am very busy and important and cannot spend several hours calculating scenarios with different broker fees, return rates, compounding cyles, etc. etc. Although I totally know how, and will probably spend my free time for the rest of the day screwing around with the numbers... Suffice to say, over 50 years, with sound investment, you could save a LOT of money. How much over that long of a time period varies significantly with your investment strategy, but $150,000 would be a conservative estimate.
However, I wear two hats, you know. And while the finance major can calculate the relative monetary value of your investment in coffee or securities, the economics major can tell you what it's actually worth to you. Because I am kind, and because all economists do this - I will assume that you are all rational consumers. And that means that your spending and savings decisions are based on your inherent preferences. 1 is exactly right when she says she will continue to buy the coffee regardless of the numbers I listed above. The daily enjoyment she gets from her morning coffee is worth more than the enjoyment she could get from an alternative purchase. Likewise, the sum total of each day's enjoyment is greater than the enjoyment she could get from making a larger purchase with the money 50 years down the road. And so do the rest of the people in the Starbucks line. Those who get their morning jolt at home aren't necessarily more savvy investors, they just have a different set of preferences. They'd rather save a few dimes a day on the brew and pad the bank for a rainy day - or retirement. This is likely a combination of their spending/savings prefences, and their preferences with regards to quality of coffee.
That's enough rambling for me... this entry has me craving a latte!
Have a great weekend, all!
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