# Different Ways of Looking At Money

I’ve had gigs that pay \$500 per month. Let’s have a look at what that’s worth.

What is \$500 per month worth over a decade?

• 10 years, 12 months a year, \$500 per month => \$60,000
• That’s straight math, no implied additional costs/benefits.

What if I swept the cash from my side gig into a Target Date Fund?

I estimate a 60/40 portfolio returned ~9.7% per annum across the last decade.

• 10 years, 9.7% a year, \$6,000 per annum => \$94,250
• So if I’d invested that money, each month, for a decade, I’d be getting close to \$100K

10-15 clients at \$500 per month, less a bit of overhead => close to \$1M in a decade.

Flipping this example: my condo association charges me an extra \$500 per month.

What kind of headwind does that put on my real estate investment?

• We have an example from above, \$94,250 per decade. \$94,250 is an estimate of the cost to my balance sheet of sending money to the condo association, rather than a 60/40 portfolio.
• However, there’s one more step because we pay expenses from after tax income.
• Do you know your average tax rate? I use 25%.
• \$94,250 / (1 – 0.25) => \$125,000 // this is called grossing-up your answer – to pay \$500 per month, I need to earn \$667
• So a charge of \$500 per month could drag your return down by \$125,000 a decade.

Recap of the three ways:

Nominal => \$500 per month is \$6,000 a year is \$60,000 a decade

Opportunity Cost => \$6,000 a year not invested implies \$94,250 in a decade if the assets earn 9.7%

Grossed Up Opportunity Cost => \$6,000 not spent, and invested pretax (retirement account), has an opportunity cost of \$125,000 in a decade

The exact numbers are not important. What matters is understanding the concept… repeating amounts become big money over time.

\$500 per month is going to cost the family between \$60,000 and \$125,000 a decade.

Expenses avoided, small gigs (earned then invested), and holding costs… these can have surprisingly large impacts on your financial life.

Seemingly small gigs are worth more than they appear…

• if they come with health insurance (my unsolved family budget line item)
• if they come with discounted prices on goods you are already buying (part time work at a business you’re already spending with)
• if you make a habit of sweeping the income into a Target Date Fund (side gig cash invested to benefit my future self)

Something I like to do in my financial life is look at the line items in my family budget and ask… “What’s it going to take to eliminate that cost?”

If I can’t eliminate then, “What work might I enjoy to mitigate the cost?”

The game being to get my net cash burn to zero, while sustaining a life with meaning.

Enjoy 2021 – there remains a lot we can do, while remaining smart to mitigate COVID.