​
đź’° What Every Dollar You Invest Is Worth
​
Have you ever wondered what every dollar you spend is worth if you invested it instead? That is exactly why we created the Wealth Builder Matrix. This is your guide to navigating spending decisions and the opportunity cost associated with them.
​
Evaluating every dollar spent versus invested is intriguing and can be a game changer for financial planning. The Wealth Builder Matrix is designed to help you make informed decisions by considering the long-term implications of your spending habits. Here’s how it works:
​
Understanding Opportunity Cost
​
Opportunity cost is the potential gain you miss out on when you choose one alternative over another. For instance, if you spend $100 on a night out, you're losing that money and the potential growth it could have achieved if invested.
​
The Wealth Builder Matrix in Action
​
- Categorize Expenses: Start by categorizing your expenses into essential and non-essential. Essential items include rent, groceries, and utilities. You can potentially cut back on non-essential items like dining out, entertainment, and luxury goods.
- Assign Values: Estimate the cost of each expense. For example, if you spend $5 daily on coffee, that amounts to $1,825 a year.
-
Calculate Opportunity Cost: Use an investment calculator to determine how much that money could grow over time if invested. Assume an average annual return rate, such as 7%, which is a common figure for long-term stock market investments.
- Example: Investing $1,825 annually at a 7% return rate over 10 years could grow to around $25,000.
- Make Informed Decisions: With this perspective, you can make more informed decisions. Is that $5 daily coffee worth the potential $25,000 it could become in a decade?
​
We love to spend money on our values. There is no better feeling. But every dollar when you are young is so valuable, and this shows you the way. As you will see below, for someone who is 22 years old and starts investing, each of those dollars is worth $27 (at an 8% interest rate). At age 23 it’s $25, and at age 24 it’s $23.
​
This is why it is so important to start early. At age 35 each dollar is worth $10. Starting early allows the magic of compound interest to work in your favor, multiplying your investments over time. Imagine the possibilities when you habitually invest consistently from a young age. No matter how small, each contribution can significantly impact your financial future.
​
Benefits of the Wealth Builder Matrix
- Financial Awareness: It helps you become more conscious of your spending and its long-term impact.
- Goal Setting: By visualizing the future value of your money, you can set clearer financial goals.
- Prioritization: It assists in prioritizing spending and saving, aligning your financial habits with your long-term objectives.
​
Real-Life Application
​
Let’s say you’re considering buying a $1,000 latest gadget. Using the Wealth Builder Matrix, you could evaluate:
​
- Immediate satisfaction versus long-term financial growth.
- Whether this purchase aligns with your financial goals.
- The potential investment growth if you choose to invest instead.
​
The Wealth Builder Matrix is more than just a financial tool; it's a mindset shift. By consistently applying this matrix to your spending decisions, you can significantly enhance your financial well-being and work towards building a more secure and prosperous future.
​
Chart Explanation
​
This chart shows you how much each dollar will be worth by age 65 depending on when you started investing. This shows the power of investing early and why it is so important.
​
​The Wealth Builder Matrix - Investment_Value_by_Age_and_Rate_of_Return.pdf​
​