Bird Baths and Big Money

In our thirty years of marriage, we have made some foolish money decisions. I remember what was probably our first really, really dumb purchase – satellite television.

It was in the early 80s - probably 1982. At the time, we had one of those really attractive metal antennas attached to the house that allowed us to pick up three local channels – 6, 12 and 13 - on a good day. So when the new technology of satellite TV was made “affordable” to consumers, we just had to jump on board. Let me further explain. At that time, an “affordable” dish meant about $3500. That was quite a deal, right? Wrong!

At the time we were young, had been married only months, and our income probably landed us smack dab in the middle of the poverty level. We didn’t have $35 in our checking account - much less $3500. But we deserved to be able to watch decent TV - right? So we did what we thought any sensible young couple would do - we borrowed the money!

Let me remind you again when we made this purchase – 1982 or maybe early 1983. Do you recall anything special about 1982? Let me refresh your memory. In the early 80s, the US was experiencing a severe economic recession. The recession peaked somewhere around November of 1982 with a nationwide unemployment rate of 10.1% - the highest since the Great Depression. Some southern states were experiencing unemployment rates upwards of 16%. Banks were failing left and right, Savings & Loans were disappearing at a unheard of rate, and by 1982, the prime interest rate reached 21.5%.  Doesn’t this sound like an opportune time to shell out $3500 on a monstrosity that would allow us to watch 20 more TV stations?

Anyway, the folks at the TV place came out to our house and soon we were proud owners of a giant 12’ diameter fiberglass bowl – sitting right out in our front yard only feet from the front porch. We had arrived!!

Now – to get to my point. I have been thinking about the impact of borrowing money in comparison to saving money. I think that our satellite TV purchase is an excellent example to show what a big difference a little smart thinking can make in our pocketbooks over the long-range.

Ok, I don’t recall the exact price, but think the total cost of the dish was around $3500. I don’t remember how long we financed the dish or what the actual interest rate was. For the purpose of this example, I’m going to use 16% (which I think is actually a bit low) and assume that we paid for the dish over a 4 year period (because I know we couldn’t have afforded the monthly payment on any shorter term.)

This is how the whole ”borrowing for the dish” played out:

Purchase Date:  1982
Purchase Price:   $3500
Interest Rate:  16%
Loan Term:  48 months
Monthly Payment:  $99.19
Total Paid Over Life of Loan:  $4,761.12
2012 Status:      12’ fiberglass birdbath resting comfortably in a landfill somewhere

NOW, let’s say that instead of shelling out our hard-earned money for satellite TV, we had chosen rather to SAVE money! What a novel idea!! Let’s see how differently things would have turned out had we invested our money into a taxable money market savings account that earned an average of 5% interest. Notice that I have only included making a monthly savings investment for the same 48 months it took to pay off the birdbath. (There are great calculators at sites such as www.bankrate.com)

(Calculations do not take into account tax implications.)

Began Saving:  1982
Monthly Savings Contribution:  $99.12
Contribution Period:  48 months
Interest Rate:  5%
2012 Status:  $20,336.15 resting comfortably in my savings account.

Because I am a glutton for punishment, I thought I would see where we would be if we had chosen to continue to invest the $99.19 every month for the past 30 years. We would now have over $84,000 saved.  Add another 15 years to that (to take us closer to retirement) and at that time we would have over $209,000!!

I don’t even LIKE TV that much.