Seth's Blog : The $37,000 latte
The $37,000 latte
If you live in the city and grab a coffee or a snack every afternoon for about $4, it’s a vivid example of the cost of debt.
You’re either a little behind or a little ahead.
Over ten years, if you’re funding that daily purchase with ongoing credit card debt, at $1,000 a year, it’ll cost you $24,408.40, and you might never find the means to repay the debt.
On the other hand, if that same $1,000 went into a low-cost investment fund that paid about 7% a year, you’d end up with $13,816.45 in the bank.
That’s because interest compounds. It’s because banks like to charge more than they pay out. And it’s mostly because we’re very aware of the short-term and happily ignore the long term.
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