News on Youtube Nov 27 2018

How much is $1 worth to you?

Is it the old Axiom, is a dollar is a dollar is a dollar?

Or does a dollar have more inherent worth then what is readily apparent?

Let's talk about it.

Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about

Investing, debt, retirement, and many other general financial education videos because

the school's aren't going to do it for us.

So if any of those topics sound interesting to you or if you want to learn how to better

handle your money and have more financial freedom be sure to hit that subscribe button

and the bell next to my name to be notified every time I upload a video.

And if you want to further support the growth of this channel you can check out some of

the links I've left down in the description below which includes a 30-day free trial of

Audible and 2 free audiobooks of your choice as well as a list of some books on money I'd

recommend checking out, or you can share this video with a friend, and leave a comment below

letting me know what topics you'd like me to cover in future videos.

So how much is a dollar worth?

Well, that's a silly question you might say, it's worth a dollar.

Well yes, that is the face value but I would argue that a dollar could actually be worth

more than a dollar because in my opinion, and you may disagree, but I think there's

more to money than just the face value.

And today I'm going to explain my reasoning behind that statement.

So how can a dollar be worth more than a dollar?

Well there is the mathematical way and then there is the lifestyle way to look at this

and I'm going to quickly touch on both.

I'm sure you're all familiar with the concept of compounding interest right?

You put $100 into the stock market or the bank or somewhere where it earns some sort

of Interest, say 10% a year just to make the numbers easy, that means that after a year

you would have made $10 in interest on that $100 investment and would, therefore, have

$110 total.

And if we assume that whatever investment you put the money into performed roughly the

same the following year you would make another 10% except that the 10% return would be based

off that $110 that you had in the investment at the start of the year instead of the original

$100, so you would actually make $11 in interest in year 2 and so on and so forth.

What this means for us is that as long as we still have time between now and when we

wish to retire or whenever we wish to pull the money out of the investment there is a

good possibility that every dollar we put towards our retirement nest egg is actually

worth more than a dollar.

Now, of course, some investments are more volatile than others and sometimes they do

lose value, but even something perceived to be as volatile as the stock market tends to

go up more often than it goes down, so that's why I say there is a good possibility of the

value increasing beyond the original dollar.

Say, for example, if you put $1 into an investment making 10% per year today it would be worth

$1.10 in one year, $1.21 in 2 years $2.59 in 10 years, $6.73 in 20 years, and if you're

lucky enough to be investing pretty young, say in your twenties, it would be worth $45.26

in 40 years.

And in that 40th year that $1 would have actually, because of compound interest, earned you roughly

$4.11 in interest.

This is of course why it's important to start investing early because every year you wait

to invest what you're really losing is that last year's worth of compound interest.

For example, if you're 25 and you want to retire at 65 but you wait to invest until

you're 26 then your Investments are only compounding for 39 years at that point which means you

would lose that last $4.11 per dollar invested which on its own is almost 9.3% of your total

growth!

And also it's a lot easier to grow your net worth to a large sum if you have more time

for it to compound.

For example, given the assumption of a 10% average rate of return over the course of

40 years, you would need to invest about $22,095, 40 years before you retire in order to retire

with a million dollars.

Now obviously it wouldn't be worth a million dollars today because you have to account

for inflation and what not but you get the idea.

It's what makes the whole concept of Coasting Financial Independence possible.

For the record it works the same way with paying off debt, right?

Because the interest on our debts compound the same way that interest from our investments

compound each dollar we put toward paying off our debts lowers the principal on which

the interest is compounding.

And depending on the debt you are working on paying off your rate of return might be

3% or 5% for something like student loans or car loans or somewhere in the 12%-18% range

or higher for something like credit card debt.

Regardless of what the interest rate is, by lowering the principal by $1 you are no longer

paying interest on that dollar.

So, say you had a $1,000 loan that you had to pay off in 1 year.

If you put $1 extra toward that debt in the first month it would save you $0.05 in interest

over the course of that 1-year loan, which is really miniscule I understand I mean we're

talking about a nickel here, but do you see the point I'm trying to make.

That dollar lowers the principal by the full $1 and saved you $0.05 in interest payments

which means that $1 was effectively worth $1.05.

But like I said I'm pretty sure most of you know what compound interest is and therefore

know how a dollar can be mathematically worth more than the dollar assuming you invest it

over time or use it to pay down your debts.

What I want to briefly touch on in this video is the other side of it.

As many of my fellow members of the financial Independence retire early community will know

there is so much in this world that is worth so much more than having money.

As I've said before money is only as good as what you can do with it and unfortunately

most of what we actually tend to spend money on isn't really worth the money in the first

place as I've covered in my video on what a budget is really trying to teach you.

Once you understand the message behind that video Money takes on a whole new level of

value for you because a dollar becomes worth so much more than a dollar when you spend

so much fewer dollars to Live Your Dream Life.

For example shortly after I graduated from college I took a trip around the United States

for not too much more than $1,000.

I got to see so many things and meet so many great people for that thousand dollars that

by the end it ended up being worth a heck of a lot more than $1,000 for me.

And not only because of the experiences mind you, although yes those on their own would

have been worth the money, but also because of what it taught me about the value of money

and budgeting which was basically the idea of priorities.

I will give up 1000 Frappuccinos in order to get one more cross country trip or in my

case I'll probably be going overseas next time.

And because of that realization, I almost never waste money on stupid things anymore.

Because I know what is worth spending money on for me but I never would have been able

to realize that without those first $1,000 dollars.

To be perfectly honest I couldn't even begin to tell you how much money that has saved

me over the course of my life but I can tell you this much it's a heck of a lot more than

$1,000, therefore, by definition, every single one of those thousand dollars had to be worth

at least a little bit more than the $1 face value the government has assigned to them.

But that'll do it for me today once again if you enjoyed this video be sure to subscribe

and hit that Bell next to my name so that you'll be notified of all my future uploads.

I generally upload every single Friday, and if you have a friend that would be interested

in this kind of content be sure to share it with them and let's really get this information

out there and start our own Financial revolution.