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
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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
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