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?

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.

Feel The Byrn