Monday, April 4, 2011

Recurring Expenses Will Bleed You Dry

A colleague forwarded me this article in the WSJ entitled "ROI: Is the iPad 2 Really Worth $2,000."  In it the author realizes that when he uses his capital to buy the iPod, the capital is no longer available for investing.  Consequently, the cost to him is not only the $500 up front cost, but all of the return that he would have made on the invested $500.

However, far more important is the insidious impact of recurring expenses in in drastically reducing the amount of money that you will have available for retirement.  For example, consider a $100/month cable bill - if the money was instead invested (even at a fairly conservative rate of 8%) then after 35 years you would have $100,000.

A $400/month car lease?  $400K after 35 years.  A $50/month telephone bill? $50K after 35 years. So what do we do about these recurring expenses?