College Connect: Think in terms of future value when spending

Posted By Crystal Beasley

By Kouichi Shirayanagi

Some things in life are essential for everyday living. But a lot of purchases we tend to make are not necessarily essential. If you took $100 in today’s money and held it in a mutual fund that gave you an average return of 7% interest per year you would have $1497.45. Think about that.

Buying a new polo shirt, two pairs of jeans, two tickets to a major sporting event, or a video game can cost $100. But those things are for the immediate moment. Clothes wear out and new ones need to be purchased. A sporting event has to end. New video game technology is constantly developed making the old video games obsolete. But if you saved that money and made modest returns on it, you would have had $1497.45 in retirement.

That 7% return for a mutual fund is modest. If you invest your money in a high growth stock like Apple, instead you could have a much higher return. Over the past 10 years, Apple has yielded an average annual return of 43.5% and over the past 5 years the average annual return for Apple has been 32%. That means if instead of spending $100 you put it in Apple stock ten years ago you would have $4,108.46. If you held $100 in Apple stock for 5 years instead of spending it 5 years ago it would be worth $400.74 today.

You should make the law of compound interest your friend as early as possible so that you can benefit the most from it. When I graduated from college in 2006, I could have put $1000 into Apple stock but instead I bought an Apple computer. Now that computer is long obsolete but if I had invested in the stock I would be doing much better financially today.

Every time you make a purchase, think of the future value of your money if you stored it away or invested it instead. Is the extra $100 you are spending for two pairs of jeans you are buying today really worth $1497.45 of your retirement money?

Kouichi Shirayanagi is a student at University of Missouri

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