Tuesday, September 28, 2010

Benefits of Delay Gratification (on things that depreciate in value)

Lets revisit the basic / fundamental.

Most people have money problem, usually is money not enough rather than too much money.

Why some people having high income yet still lack of money? Most probably is due to spending.

We spend for Needs as well as Wants. Some "want" really drain our money faster and bigger (hole) than we think.

For a gadget cost RM2,500 (a Want rather than a Need), if you buy it now you will have RM2,500 less in investment fund.

Lets be prudent, 3 years down the road the RM2,500 turns to RM2,894 (at CAGR of 5% only). How much is the value of the gadget at that point of time? Probably RM894 only.

3 years later, a better version of the same gadget probably selling at RM1,800 only (possible, right?) - You cash out from your investment fund, left RM1,094 inside there for 5% per year for next 20 years for your retirement fund. How much you will have as additional retirement fund just because you choose to have "delay gratification"?

The answer is RM2,902 - Additional money at no effort. Just "delay" being gratified.