What it all boils down to is one’s awareness of choices. If you “go with the flow” and spend your money with abandon on whatever fancies you (and usually it’s influenced by ads and example of people that surround you) then not knowing how your money go down the drain and you are left with no assets to pursue your own dreams. And the stuff you purchased turns into ash in your hands as it turns out that you don’t value it after all and it’s junk for you.

The perceived value of return for money is then not zero but negative because you can’t stop thinking what you could buy for it instead of that junk in your hands. Of course we are masters of illusion and so we pretend before others that that’s what we wanted all along. Sometimes we even believe in it ourselves.

We buy into lifestyles presented to us on ads on TV – a classy house, classy furniture, stylish clothes etc. Once you buy one thing you tend to buy another simply because it’s a missing jigsaw piece to the “lifestyle” you bought into.

What escapes many is that it’s not their lifestyle, or rather it’s not a kind of life they want. If you take note of the TV adverts you can see that they all connect happy people with an advertised product. That’s it! What we want is to be happy, but we associate the happiness with the wrong things because we are so conditioned by our commercialized culture.

What I wanted to say is, the biggest return for money is happiness. Use your money wisely, with awareness what gives you happiness and what not. If for example you’re most happy spending time with your children, use the money to be able to spend more time with your children, and avoid situation when earning money drags you away from that.

When you act with this awareness, you get the best return for money every time.

The typo comments added nothing, because they didn’t state where the typo was. Further, while I admin the forums, I have no control over the editing of posts, as is true of my guest authors on this blog. So, yeah.

@TF in Boston
The formula I used accounted for what you could get if you invested the money at a fixed rate (I assumed a real rate of 5%). Thus, the future value of money was accounted for, because I treated the 100 stream of payments as instead a stream of investments.

Further, I think you miss a point in that 100 dollars today and 100 dollars in 30 years are not the same worth. The 100 dollars in 30 years are substantially worth less due to the insidious hand of inflation

Because of the time value of money, that cable TV is likely to take a far bigger bite out of your retirement than the $130k suggests. It could easily force you to work an additional one or two years, or alternatively cut your retirement income by $5k-$10k/year. Try running the numbers on that one?

These monthly bills add up very rapidly.

I freely admit that I have nothing to contribute to this discussion, I found it a little difficult to follow, but if I have something to contribute to readability, then I will.

Again… not trying to say that anything’s bad, just trying to be helpful!

I don’t think it’s worth 50 bucks a month to watch king of queens, everybody loves ramond, and law and order (or filler TV as I like to call it).

http://www.hulu.com/watch/210891/portlandia-cacao

^^ now that’s funny (parental guidance required)

und heers summ mor tipoz

In Mexico I pay $27 a month for satellite service with about 100 channels.

Thank you for fixing them, btw.

Here what used to be 40 channels for $15/month is now 70 channels – for $60/month.

I would expect that trend to continue.

A year ago I chose to hang an outdoor antenna indoors, simply pointing out the window, and I now get all locals plus a couple of stations 60 miles away.

I buy other shows I want commercial-free via iTunes or from Amazon’s Unbox.

Thanks for your work, we all appreciate it, and the spelling nazis contribute nothing to the discussion.

I do think however dmm’s suggestion is simple and abstract enough to work into the formula while making it more accurate.

The $100 at 3% annual price increase over 25 years ends up as a $209.38 monthly fee. That’s more than double today’s price, so it’s not a trivial factor in the calculation.

I think the article you refute fails to account for that also (not sure). But if the price of cable goes up from $100 to $105 in a year, people simply pay the increase to keep their service. It’s normal behavior.

So in the PV formula, if I understand it correctly, the numerator should be a series of recursive 3% increases to reflect inflation, rather than a simple multiplication. This is important because, as dmm says, compound interest should be accounted for on both sides of the ledger; and with it being the most powerful force in the universe, I’d argue that it can’t be ignored without peril– unless I’m missing something in the calculations.

My previous long post (i tend to ramble, i know) was directed at refuting Amanda’s argument that “cable prices may go down’, not at your article. I didn’t mean that you should include every possible factor in the equation.

However, I do support dmm’s amendment– I’m for keeping the formula simple, but the refinement of accounting for price increase would be good for science. Cmon, humor us nerds.

Where I run off course though is the $30000 today. If I stopped paying for cable I would not have $30000. If I did have 30,000, I could put it in a bond fund earning 3.3%, beat inflation by .3% and use the proceeds to pay for my cable again.

I think what you really did was calculate the value of the $100 (inflation adjusted) perpetuity. i.e. What I’m worth as a paying customer to the Cable company in present value.

What might be a more illustrative technique is going back to your example of the 63k though. I get a bit confused by this whole thing. Lets say I’m 30 years old today. Based on your calculation if I stopped paying for cable I would have 63k when I turned 55. I don’t know how long I’m going to live so I want that money to continue to survive inflation adjusted into eternity, which means I can access about 5% of it to continue to beat inflation and keep growing. so that 63k I have is worth 30k in todays dollars, and I can draw 5% of it or $1500/year. Divide that into a monthly allotment, and you get about $130. Which means I can either have my cable today, and work until I die, or forgo my cable today and have my cable (plus maybe a few lattes) from my 55th birthday until I die, and leave my kids an inheritance.

I’m not really sure what that means to me other than that you have to decide if you would rather live for yourself and assume you’re not going to live to be 80 years old, or shift your guilt free years from your youth to your old age and leave a little something behind for the kids (or whoever you want to leave it to)

Please note that there is only so much abstraction I can do in any discussion on the time value of money given a set word limit. Obviously, I made some assumptions.

dmm219 is correct. The article says

“Assuming an annual inflation rate of about 3%…”

–

Per your logic (“We don’t know that cable will go up”), we also don’t know that inflation is going to be 3%– we could have deflation, we could have hyperinflation, we could be invaded by China, but this is a simple calculation, not a crystal ball.

If we are assuming 3% inflation (even though “anything could happen” ) it’s also reasonable to assume a corresponding rise in cable prices. Otherwise formulas would make no sense since we don’t know what the future will bring.

“Cable” in this context is just shorthand for “tv feed”. And it’s reasonable to assume a price increase for your tv feed. Just because “cable” might be delivered via encrypted WiFi in the future, it doesn’t follow that the price of feeding your TV with shows will go down. Also it doesn’t follow that if the cost of tv feeds goes down the money won’t be spent on future forms of entertainment not available today.

Look at cellphone vs. old landline. While landlines might be cheap, people are likely spending more, not less, on phone bills.

Another case–people are spending less on recorded music today, but they are spending a lot more on music playing hardware/software they didn’t need before– including smartphones. And they are spending money on internet fees and data plans instead of records. The cost gets shifted but doesn’t go away.

Anyway, it’s just reasonable to assume inflation for “cable prices” because in the context of this article this just means, ultimately, superfluous monthly subscriptions, and there is no basis to reasonably assume that superfluous spending should not grow along with inflation. If anything, superfluous spending tends to grow when we get accustomed to it. “Only $25 extra a month to add the deluxe package! What a deal!”– etc.

–

ps- I’ll take $30K today! (or tomorrow, or whenever)

Just asked my cable company today ( Oceanic in Hawaii) how much a local stations only basic cable would cost a month. $13 Where we live we need cable to get TV snow free but I am thinking of ditching all the extra channels.

A household of more people who watches 40 hours a week of tv cable may be of far more value. Each hour of tv watched would be closer to $0.80.

You are forgetting to apply the TVM to future price increase. Cable tv will most likely rise in cost along with inflation…therefore, your 30,000 could be more like 60,000.

The mistake that many make with TVM is that they forget to apply it to both sides of the ledger.