The Method behind the Madness:
In these scenarios we are taking the money that would have been spent on our habit (smoking, shopping spree, gambling,etc) and instead investing the same amount of money into a company(Altria, TJ Maxx, MGM, etc) that is responsible for our habit.
We must calculate how much money was spent per year. We must calculate how that amount changed for each year we go back in history-this can be done using inflation rates or with actual prices of products gleaned through the internet. We must obtain the historical share price of the company(s) we are investing in. We must take into account stock splits and stock dividends, and when they occurred.
The result, or The Number, is the present dollar amount we would have otherwise had if we had not spent our money on the habit or extravagance for ‘X’ amount of time.
Assumptions & Disclaimers:
-We rounded down to the nearest whole number of shares when calculating how many we can purchase with our saved money or our dividend reinvestment.
-We are not considering brokerage fees, this could be calculated/considered later. (for example: 0.5%-1% accounts for a X%-Y% decrease of our calculated number)
-We are not considering federal/state taxes on capital gains, ideally these investments would be tax sheltered in retirement accounts.
-The company chosen for our investment is arbitrary; typically selected because it has been publicly traded longer than it’s peers.
-We pride ourselves on being as accurate as possible, we believe our calculations are correct, they have been double and triple checked, if you identify any accounting errors please bring them to our attention.
-While there is no guarantee similar future returns will be achieved, it is an exercise to stimulate your mind to reconsider the items/activities you are spending your current money on. Equally important is to consider the impact your current choices and spending habits will have on your future financial and physical health.
Are you tired of filling the pockets of the CEOs, board members, and shareholders with your bad habit money? Are you ready to replace the lint in your own pocket with wads of bad habit compounded cash? Let’s get started.
1st pick the habit or extravagance in which you want to exchange for surplus cash
-this surplus can be an emergency fund, a college fund, a retirement account.
2nd set aside the money you would otherwise use towards the habit.
-this can be calculated for the upcoming year, or it can be done on a daily/weekly basis
3rd get an investment account to transfer your money into.
-tax sheltered accounts would be preferred (Roth IRA, HSA, employer sponsored 401k or 403b)
-or a convenient no fee investment broker could also be used
4th purchase shares of stock that correspond to your habit when you have avoided directly spending money on said habit or extravagance.
-or purchase a more conservative diversified mutual/index fund such as VTSMX, FSTMX
5th watch your money grow, don’t lose sleep over the prior habit you left behind, and feel healthier in the process.
Goodbye spiky rainbow shoes!
This is your last facebook latte selfie post!
Netflix and Chill about to become Novel and Cuddle!