Illustrate the significant potential financial impact that waiting to save and/or depleting the capital reserve can have on one's future wealth. This screen should communicate one concept: Delaying/Depleting the capital reserve may have a large financial impact in the future. Clicking [Initial Balance] will toggle between "initial lump sum" and "annual contribution" contribution modes. NOTE: This screen DOES NOT attempt to calculate the difference between a "saver" and a "wealth creator" making purchase(s) - so please don't read that into it, nor present it that way. |
Let's look at the true cost of paying cash. When you empty the tank, it resets the compounding cycle and that's going to have an impact on the growth curve. So we're looking at someone who makes deposits of $5,000 annually in their tank. We're also assuming a 5% return and looking over a 30 year period. We're going to show what happens when they drain the tank every 5 years and then refill it every 4 years. So let's take a look at the results had they not drained the tank at all and let the balance continue to grow it would be worth $353,804. The true cost includes the time value of money or opportunity cost on what the money would have earned had you not spent it. The true cost in this example was $353,804 to make the purchases over 30 years. Knowing the true cost of one’s purchase helps to better regulate ones lifestyle and maximize their savings and investment potential. |
This screen compares the results of two accumulation schedules. The first (Full) schedule starts at time zero and is allowed to grow throughout the entire time span. The second (Delayed) schedule assumes that all contributions and growth are consumed at the end of each refill delay cycle - which essentially postpones the start of accumulation until all refill cycles are complete. The result is an identical growth curve shifted to the right. The schedule balances are then compared at the end of the timeframe. Both schedules are constructed as follows: Balance at beginning of year (BOY) = Previous EOY balance + Annual Contributions. Balance at end of year (EOY) = BOY balance * assumed rate of return. |