I used to make the mistake of looking at this price tag of an item and thinking that if the item was priced at Rs 10,000, It costs me Rs 10,000. Then I came across Warren Buffet’s Biography – The Snowball (a must read). Buffet basically calculates the future value of the money being spent today before purchasing anything. He is currently able to compound money at 25% per year. So if he were to spend $1000 on something today he thinks of it as equivalent to spending $28,000. That’s $1000 compounded at 25% for 15 years. He knows that his $1000 would become $28,000 after 15 years if he invests it instead.
I now try to follow the same approach before spending any significant money. The Indian stock market has given a return of 16% compounded over the past 30 years. Based on those returns we need to re-think the true cost of consumption. Let’s calculate how much it really costs us to buy some stuff instead of investing the same amount in the stock market for a period of 20 years.
| Item | Initial Cost Rs | True Cost (After 20 years at 16% returns) | |
|---|---|---|---|
| Bose Bluetooth Headset | 29,300 | 5,70,200 | 6 Lakhs |
| OnePlus 6T | 37,999 | 7,39,489 | 7.5 Lakhs |
| Samsung 49 inch Smart TV | 52,490 | 10,21,495 | 10 Lakhs |
| Apple IPhone XS Max | 1,09,000 | 21,21,222 | 21 Lakhs |
| Holiday with Family in Thailand | 2,00,000 | 38,92,151 | 39 Lakhs |
| Hyundai Verna | 11,00,000 | 2,14,06,835 | 2 Crores 14 Lakhs |
I’m not suggesting that you stop all purchasing and save every last rupee. After all our goal is not to be the richest person in the graveyard. All I’m suggesting is that you should understand and calculate the true cost of the money you’re spending and make a more informed decision before any purchases.
