Category: Finance

I wrote about calculating appreciation so now you can figure out how much your money is worth in n number of years, but what if you want to know how long your money will take to double?  Since I don’t know how to embed an online calculator here, you are going to need a spreadsheet (use this one) or calculator unless you can do log’s in your head.

n = ln(2) / ln(1+b)

where

n = number of years
b = interest (3% = .03)

and if you want to count for inflation

n = ln(2) / ln(1+b-f)

where

f = inflation (3% = .03)

Dad always said your money would double every 7 years.  Turns out he was figuring on 10% interest or appreciation.  At 7% your money will double every 10 years.  Add 3% inflation and it’ll double every 18 years.

Here’s a very simple Excel spreadsheet to run the calculations for you.

If you just want to know what your savings account will be worth in 10 years at 3% interest, you’re probably best off just using one of the online calculators for calculating appreciation. There are a lot of great calculators out there for planning for a big purchase or figuring out how to get out of debt or running Credit Card Comparisons.

However, if for some reason, you want to know how appreciation is calculated, here it is:

x(1+b)ⁿ

where:

x = original amount
b = interest (3% should be represented as .03)
n = number of years

I couldn’t find this anywhere on the web and since it’s the second time I’ve calculated it by hand, I thought I’d share.

I think you should take out a mortgage to buy a house.  It’s much better to be paying off a loan for a house you will eventually own than it is to be paying rent.  However, mortgages are not a "good deal."  Paying off your house is the smarter financial move!  Even if you can deduct the interest from your taxes, you still have to pay the interest first, and deducting it doesn’t mean you get it all back, it just means you don’t pay taxes on that amount of income. (And for people who says they like to borrow money that way and then invest it in something that returns more … well, that’s a risky strategy.  I prefer to invest money I have instead of money I don’t have and would have to pay back if I lost it.)  This guy agrees with me: How Much of Your Car Should You Finance? Zero percent. – iTulip.com Forums.

"But there are tax advantages to holding a mortgage," you say. The government raises a tax on your current income via an income tax, then offers to partially reduce it if you accept a tax on your future income via interest on a government sponsored loan to buy a house that bearly keeps up with the rate of inflation–except during a housing bubble, such as we just experienced. This is what passes for good household finance? How long have North Americans been falling for this nonsense?

When you get to deduct the interest on your mortgage, you are not getting the interest money back!  (Say the top part of your income falls into a 30% tax bracket. If you deduct $10,000 in interest, you would pay $3300 less in taxes.  But you still paid $10,000 in interest, so you still have $6700 less than you would have had without the mortgage!)

The United States is trying dollar coins again: Presidential $1 Coin.  Personally, I think it’s a good idea as one dollar bills get so worn out.  However, I’d rather just use my credit card everywhere.  I think it’s easier (one swipe, never worry about running out of cash) and everything I spend is tracked for me so I can easily analyze my spending.

I do recognize that credit cards are not the best solution for everyone.  I have several friends that have a very hard time controlling their spending with them.  I’ve also read studies that say we spend more when we use credit cards.  I don’t think I do.  I’ve tried spending only cash for a week or two and I think I eat, drink and shop just the same, but I could be wrong … When I spend cash I always have this feeling that I’ve lost some or given too much to someone.   After reading Suze Orman’s 9 Steps to Financial Freedom, I decided that my fear of losing cash might all have started with the time I was 11 and left $40 in a small purse on a table in McDonalds.  The whole ride back to McDonalds, I remember being terrified the money was gone.  It was still there, but I still don’t like having lots of cash that I could lose.  I know with a credit card I can just call and cancel it if it’s lost and I’ve lost nothing!

The latest version of Monopoly no longer comes with cash.  Instead it has a debit machine and a debit card for each player. 

So will it be teaching kids responsible credit card use?  Or will it no longer be teaching them how to count money, save and budget?  We’ve just started teaching our five year old about money (which brings up all sorts of issues and funny stories) and I hadn’t even imagined a world where kids skip the whole cash step!  Here I was trying to make sure I pay cash (not my normal mode of operation) for everything in front of him so that he can see I’m spending "real money."  Maybe real money isn’t cash anymore.

Gear Factor has a picture of the Monopoly debit machine.