How Much Is A Dollar Worth? How About $53.70.
May 29, 2008
In the past year, we all experienced the dramatic fall of our Almighty Dollar. It’s been pounded by the British Pound (bad pun intended), smashed by the Euro, trounced by the Canadian Loonie.
Today, it’s the butt of jokes from New York to New Delhi.
But with all the trouble the dollar has been going through, it still must have some value. Right?
So, this got me thinking about the value of a dollar over time. Now, I’m not talking about the buying power of a dollar or the effect of inflation on the dollar. I’m just talking about a basic calculation of how much a dollar can grow over time.
To figure this out, I went to BankRate.com and used their Savings Calculator. I wanted to see how much a dollar can grow by earning 8% annually, compounded monthly, and 10% annually, compounded monthly. This range of 8% to 10% Annual Interest seems to be quite possible over the long haul when invested in solid mutual funds or blue chip stocks.
After running the numbers, I have to say that I was stunned by some of them. Check ‘em out.
The difference between 8% a year and 10% a year isn’t that much – until you get to 20, 30 and especially 40 years.
I mean, $53.70 after 40 years? That’s amazing.
So, the next time you’re putting down 4 bucks for that double mocha latte, take your time and really enjoy it. Because 40 years from now, you could’ve had an extra $200.
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Good post, though (and I’m no expert) assuming interest compounds monthly might throw off your numbers quite a bit. Of course stock returns, in appreciation and dividends, don’t tend to compound regularly like a bank account, and I’m guessing that assuming monthly compounding overestimates your earnings. Again, I could be wrong, or it may not matter that much.
Also, this is a personal thing, but seriously, what is it with the expensive coffee drinks? They seem to have become as widely used in personal finance these days as guns and butter have been with economics. I’ve starting reading “The Automatic Millionare” by David Bach and he talks incessantly about the Latte Factor, as I think he coined the phrase. Maybe a larger majority of Americans is out buying expensive coffee drinks that I think, I just can’t understand the universal, wide-spread finger-pointing to these expenses as key to solving our retirement woes.
Lo. Price,
Thanks for the feedback. In calculating the numbers, I just used BankRate.com’s basic savings calculated, with compounding monthly. You’re right, stock returns would be different (much more). As for the latte thing, that’s a good catch. Guess I’ve been talking about the Automatic Millionaire too much. Either that or I’m feeling guilty about paying $4 every morning for coffee. I guess I should find something else to point to. If you have any suggestions, send them along. Thanks again.
BTW, you have a very cool blog. I’m going to add you to my “Blogs We Like” list.
Bill- Thanks for the referral. I look forward to reading more from your blog. As for the Latte Factor, I guess the best, broad-ranging example I can think of is going out for lunch vs. bringing a lunch from home. Often (though not always), I think people have the choice of whether to save some money (we can say $5 to make it simple) by packing a decently healthy, filling lunch which came from home instead of eating out during the work day. Maybe it could be called the Lunch Factor, but I guess that doesn’t have the same ring as Latte Factor.
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[...] D presents How Much Is A Dollar Worth? How About $53.70. posted at The Wealth Hunter, saying, “How much can a single dollar actually grow over the [...]