yanew ody fee 35 - Wednesday, August 31, 1988 - North Shore News BuSINESS INVESTMENT CHOICES is financial opportunity knocking? OPPORTUNITY knocks every time we decide to do something with our money. But we seldom hear. With interest rates on the rise again, perhaps we should listen a little more closely to that knock- ing. Whenever you decide to spend money, you forgo other oppor- tunities: to pay off debt, or to save and invest, or to spend the money on something else. dollars and sense . Michael Grenby The same applies when you decide to make a certain invest- ment. Your money is then commit- ted to that investment and cannot be used for any other purpose. The forgone alternative is your opportunity cost. When you decide to spend in- stead of invest or repay debt, you can measure that cost in real terms. For example, quit smoking and put $35 a week into a registered retirement saving plan. In 25 years, with your money compounding at 10 per cent, you will have close to $200,000! So if you continue to smoke for the next 25 years, your opportunity cost will be that $200,000 — or probably far more as cigarette prices continue to increase. But let’s not pick on smokers. Perhaps with that extra $35 a week you buy your lunch at work every day when you could brown bag it now and again. Or you don’t shop as effectively as you could. Or you drive a more expensive car than your transportation needs warrant. IT am not saying you shouldn’t buy your lunch-or drive a nice car. But you need to be aware of the opportunity cost to make sure you are getting the best value for your money — to make sure those spending decisions are appropriate for you at this time. Many people pay, for example, about $600 a year to have the comfort of a $10,000 Canada Sav- ings Bond cushion which earns perhaps six per cent after tax while a $10,000 car loan costs 12 per | cent. Again, there’s nothing wrong with that approach — as long as you are aware of and are prepared to pay that price. Both mortgage and other len- ding rates, including those of some credit cards, are going up. See this as an opportunity to save even more by repaying those debts faster —- because the opportunity cost of not doing so has also gone up. I don’t expect you to pause every time you take out your purse or wallet to run through all the alternative ways you might use your money, calculating the various opportunity costs. But if you want — or need — to improve your financial position, reviewing major expenditures and habitual (yet perhaps not totally . necessary) spending patterns could certainly pay off. You don’t always calculate op- portunity costs in terms of a fi- nancial return. Brown bag it for most of the next year and buy yourself a large-screen TV, for example. Switch to a more economical car and take a winter sun break. Everything we do in life means we forgo an opportunity to do something else at that moment, and perhaps forever. Making fi- nancial decisions is no different. Yet if we are more aware of op- portunity costs at least some of the time, we will get more satisfaction — personal or financial — from our money. Another approach you might consider when you make financial decisions is the time cost of those funds. For example, if you earn $45,000 a year, you might take home around $600 for working a 40-hour-week. That means you work one hour to have $15 to spend. (Whether you work or have retired, simply divide your annual] disposable income by 12 or 52, and so on.) In the previous example, an $1,809 stereo system will cost you three weeks’ work, a $100 night on the town will cost almost a day’s work and a $15,000 car will take you half a year to earn if you pay cash (if you finance the deal, add a couple more months’ pay). Of course you have to work to earn the money you spend. Or if you have retired, you must use your pension and investment in- come, Being aware of what it takes to produce that money simply helps you make more rewarding spending. and investing decisions. “We're all you'll ever need” For word processing, secretarial and accounting staff with the Office Assistance Advantage. CALL 984-0251 oe © Do you have a financial or con- sumer question for Mike? Or a story you think should be in his column? Please write to Mike Grenby, North Shore News, 1139 Lonsdale, North Vancouver V7M 2H4. Mike cannot reply in- dividually but will answer as many IF BUYING A HOME IS THE MOST IMPORTANT DECISION YOU'LL EVER MAKE, THEN WHAT DOES THAT MAKE SELLING ONE? Most people think purchasing their first home is the most impoitant trans- action their family will make. That is, until it comes time to sell that first home. That's why the Sales Associates at Crest Realty pay special attention to the information, support and time you need to make your first home sale a success. So when you make that big decision to sell your home, trust Crest Realty. You'll be in great company. John McLennan, Sales Manager, invites your enquiries at 985-1321. giving your family We're on your side Crest REALTY of your letters as possible through The North Shore News, Remember to include your Phone number in case Mike needs to contact you.