True Cost of Holiday Shopping Calculator
Can you hear that sound? Sleigh bells a-jingling? Carol singers? No, it’s credit cards a-swiping as part of what is now officially BUY BUY BUY season.
Here’s a psychological trick that I use to temper my “self-gifting” urges. It’s based on the fact that every dollar that you save now will be worth much more in the future. However, it can be hard to forgo short-term pleasure for long-term gain. Use the calculator below to see how much of your own “future money” you’re actually spending your disposable income on.
That’s the power of compounding. A $450 sweater? $1,000 MP3 Player? $7,000 Flatscreen TV? Maybe you’d think twice about how badly you want it. This is not to say Starbucks or the occasional splurge is never worth it. (Just writing this gave me an urge for a Peppermint Latte.) Perhaps it is. But I hope that this calculator can provide a different perspective while you are barraged by retailers to buy stuff you really don’t need. Now just imagine if you invested that money instead…
By Jonathan Ping | Frugal Living, Tools & Calculators | 12/11/12, 12:17am
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December 11th, 2012 at 3:59 am
Would be cool to have another field for each item: your economic value of this item now (and possibly in the future). After all they key is still to show that you might be buying something you “don’t need”.
December 11th, 2012 at 5:38 am
I don’t think your calculator is working correctly. I clicked on the iPad mini at 6% for 10 years and came up with $242.71, less than the purchase price.
December 11th, 2012 at 6:08 am
The calculator is in fact not working for the iPad Mini. Instead of pricing the item at $329, it is actually pricing off of $149. Other than that, this is an intriguing tool. Using the manual option works consistently.
December 11th, 2012 at 6:10 am
Additionally, the Flatscreen TV is priced internally at $1500, not $1300.
December 11th, 2012 at 6:19 am
Absolutely love this tool… hopefully will put the cost of ‘luxuries’ in perspective for some people!
December 11th, 2012 at 6:38 am
Yeah, you can see in the javascript source that the iPad and TV are actually set to $149 and $1500. I think the “name your own” option working right, though.
December 11th, 2012 at 8:23 am
The ipad must be using the $Deflation subroutine
December 11th, 2012 at 8:55 am
$2,790 for a recent computer purchase in 20 years at 4%. Ouch.
I won’t even add up all the lattes over the years!
December 11th, 2012 at 8:56 am
I second what fern says. For 30 years I’m getting that the future value of an ipad mini should be coming in around $799 at 6% interest, adjusted 3% down for inflation, compounding annually. This calc is giving $644.
December 11th, 2012 at 9:01 am
$450 sweater? $1,000 MP3 Player? $7,000 Flatscreen TV?
is this a joke?
that $4 ‘coffee’ will cost $7 in 10 years anyway. rampant inflation will eat away our money so spend now.
and 4, 6, and 8%? can we have normal (for the last 5 years) rates, like 1 or 0.6% after tax.
December 11th, 2012 at 9:36 am
gt,
I hope you are not making 1 or 0.6% on your investments. This is meant illustrate an alternative to “investing” your money, not keeping it in a savings account.
That being said, I’d like to see 10% and 12% as options added to this simulation.
December 11th, 2012 at 10:40 am
You guys are sharp! I thought I was passing the values into the old javascript file, but they were actually hardcoded in (not smart on my part). The old values were for a $149 iPod Mini and a $1,500 flatscreen I think I’ve fixed it now, thanks.
December 15th, 2012 at 4:06 pm
I think there’s another problem with your calculator. It says that it takes into account 3% inflation, but my quick calculations make it look like you’re using a ~1% inflation rate*.
Also, these estimated annual returns are after tax, so slightly misleading under some circumstances.
*To geek out further I think your calculator isn’t exactly right, even for a 1% inflation rate. Your calculator appears to be doing:
TrueCost in n years = (today’s cost)*(1+annual return-inflation rate)^n
My thought is that it should actually be:
TrueCost in n years = (today’s cost)*(1+annual return)^n/(1+inflation rate)^n
The difference between these equations is slim enough that in real life other uncertainties would wash it out, but you’re reporting TrueCost to the nearest penny, so you might as well get it right.
On the other hand, the difference between 1% and 3% inflation is quite large over 10s of years.
March 19th, 2013 at 7:27 pm
@Adam – Thanks for your note. Sorry I missed your comment. You are right that I am using the estimation that for example, 1.06/1.03 ~= 1.03 when it actually = 1.0291… For example if I said $100 at 6% for 30 years with 3% inflation, your formula would be $236 while mine would return $243.
In any case, you are correct that if I’m going to do this down to the penny I should have it correct down to the penny, so I have updated the javascript code. Thanks!
March 20th, 2013 at 11:12 am
That’s more like it!