FINANCIAL FITNESS - Episode 5: The Opportunity Cost of Capital and how a cup of coffee can actually cost you a year of your life
Welcome to our new series: Financial Fitness with Syren and Sasha where we help absolute beginner investors get started on their journey to financial freedom by making investing accessible through digestible, organized and action-oriented content. IN THIS EPISODE WE DISCUSS:- What is Opportunity Cost? - How we can apply this to Investing- How to apply Opportunity Cost to our Personal Finances - Why the real cost of *not* investing is your precious timeOPPORTUNITY COST EXAMPLES DISCUSSED IN THIS EPISODE:1) Putting a down payment on a $500,000 house:Scenario 1: 20% down Down payment = $100,000Total invested = $0Interest: 3.8%Monthly payment: $2,147 After 30 years:Total cost of loan + interest = $772,978Total stocks $0Scenario 2: 5% downDown payment = $25,000Total invested = $75,000Interest: 3.8%Monthly Payment: $2,700Additional interest needed for mortgage insurance: $18,000After 30 years:Total coast of loan + interest = $912,978Total stocks: $1,300,000So, if you have $100,000, and you put all of it towards your down payment, you will "save" $140,000 in mortgage payments and interest, but the Opportunity Cost is the $1,300,000 you could have earned in 30 years by putting 5% down and investing the remaining $75,000 instead.2) Buying a daily cup of coffeeDaily cost: $5Monthly cost: $100Money in your portfolio after 20 years: -$24,000 (that's a negative!)If you invested $100 a month for 20 years instead: +$68,730Could $68,730 allow you to retire a year early, and have one more YEAR of your life financially free?YOUR ACTION ITEM:1) Pick one item in your life that you regularly spend money on - this could be small (like a daily cup of coffee at a cafe) or large (like taking annual vacations).2) Calculate how much you spend on that item, on average, per month3) Use the compound interest calculator to figure out how much you would have if you invested that amount of money instead, after 30 years.4) Make a conscious decision about your spending. Does spending on this item help you reach your financial goals? Is there any way you can save or earn more money to reach your goals faster? Please subscribe to the channel and share the episode. Enjoy the show!******* FOR MORE CONTENT OR COACHING WITH SYREN:syrenthriving.comInstagram @syrenthrivingTikTok@syrenthrivingYoutube @syrenthringPintrest @syrenthrivingCONNECT WITH SASHA:Blog: ninjanomics.wordpress.comSeeking Alpha: cryptonomicsTwitter @ninjanomics1INTRO:Raghav BhandariMUSIC:Summer of 1984 by RKVC