One of the challenges of personal finance math is the relevance of a particular scale. Sometimes you can get a massive benefit by switching to a different scale.
One famous example is the daily latte. $4 for a latte sounds about right in today's world. But if you do it every day, it adds up. To fully appreciate the impact of the seemingly small expenditure you can change the scale from daily to annual.
$4/day x 5 days per week x 52 weeks per year is $1,040/year spent on coffee. That's a lot of money!
If you're scared that I'm trying to take away your latte, don't be. I'm not! But I do want you to use and apply that tactic to the actual numbers from your financial life.
In today's show:
- Updates from my canceling the show last week so I could launch the new website! It still needs plenty of work (especially for me to go back through and properly categorize all of the past episodes) but it's functional!
- Why we need to convert to a different scale to appreciate the meaning of a number.
- Why we have problems understanding very large numbers.
- Why we have problems understanding compound interest.
- Converting from annual/monthly numbers into daily numbers.
- Converting from daily/weekly/monthly numbers into annual numbers.
- How to create factors to quickly convert numbers to a 10-year number for both one-time epenses and ongoing expenses.
- Stretching to a 40-year time period and a lifetime time period.
- Using the financial independence math based upon the 4% rule. (Multiply monthly numbers by 300 and annual numbers by 25 to know how much you need to have saved.)
- How I apply this concept to my income as well.
Enjoy the show!