The cost of inaction

[ghgr]

Hello Moustachians!

I am a new participant (though not a new reader) in this forum. I am in my mid-twenties, just married and with a frugal lifestyle. I have been learning much in the MMM blog and in this forum. At the same time I am trying to apply the MMM advice to the European lifestyle (in some aspects similar to our American friends but sometimes I think we come from different planets :-) ). Especially when dealing with the tax system, which is complex and even more for me since I am not yet fluent in German (!!). Anyway, learning macht Spaß :-)

As an introduction present to this community I would like to share a big realization that changed my way of investing, as well as a tool I quickly put together.
This is a message to those who like me before, are very conservative/risk-averse individuals who would never dare invest their hard-earned money for fear of losing it. Well, I realized that it is not possible not-to take decisions, and to do "nothing" just means to invest in your currency, which is often a poor decision due to inflation.

I would like to offer the community a tool I just put together in order to calculate the cost of inaction. We all know that inflation takes stashed money's value away, but it's hard to internalize this fact unless we have a timer showing how much purchasing power you've lost since the beginning of the year.

You can check this tool here. It is a single javascript file with no artwork, css or external dependencies. Feel free to download and modify it.

[DaKini]

Thank you for visualizing this.
Inflation is an underestimated effect, especially long term.

Maybe you could add another long term calculation for 10 years like the line "If you do nothing, at the end of the year your wealth will be worth nnn. You would need to have nnn in order to keep your purchasing power."
That would tell a nice story about the exponential growth.

[Retired To Win]

Hello Moustachians!

As an introduction present to this community I would like to share a big realization that changed my way of investing... Well, I realized that it is not possible not-to take decisions, and to do "nothing" just means to invest in your currency, which is often a poor decision due to inflation...

How elegantly phrased!  This means there is no such thing as NOT investing.  Even your change in the cookie jar IS invested.  Your only choice is what you are going to be invested in.

[ghgr]

Thanks for your kind words :-)

As DaKini suggested, I added two lines with the extrapolation to 10 years (assuming constant inflation). I also corrected some ambiguity with units (since the currency loses value, I clarified whether I meant the value at January 1st or the current value).

[Primm]

That is awesome, well done!

[shotgunwilly]

Nice re-direct on the "Please make it stop" button. ;)

[arebelspy]

Very awesome ghgr, I love it!

[Beric01]

This is awesome!

I have $400 cash just sitting in my wallet for the past several months (I don't spend cash these days). Makes me want to invest it ASAP - I'm just losing money right now.

[The Hamster]

Great tool, but I have a few questions which I typed up in Red and added to the screen shot of the scenario I have just run (Sept 9th)

I think the most important question is what inflation time period is used.  I thought in most places the inflation rate is an annual percentage (3.25% in Australia for eg)
If this is, then I think your calculations are out. 

No way could $200,000 only be worth $94,625.13 after 9 months and $47,058.82 after 1 year unless we are using Zimbabwean dollars.  At the most it would be $193,500 after 1 year (using 3.25%).

I am assuming this field is calculating on a daily basis, which is not ideal.  It would be better to have this field calculate on an annual basis as the inflation rate is generally available as an annual %.

Other than that this is a great tool and one which would certainly terrify the bejesus out inspire me to invest spare cash.

[shuffler]

No way could $200,000 only be worth $94,625.13 after 9 months and $47,058.82 after 1 year unless we are using Zimbabwean dollars.  At the most it would be $193,500 after 1 year (using 3.25%).

Hey Hamster - I believe you specified 325%.  If you look at the initial values populated when you first load the page, the value for inflation is "0.02" i.e. 2%.  So when you put in "3.25" it was treated as 325%.

HTH.
- Shuffler

[The Hamster]

Ohh thanks for that shuffler!  That clears it up nicely. 

[ghgr]

I am happy that you like the concept!

I encourage you to save it to your hard disk (File-> Save Page As...) and add features. When I find the time I will make it more 'dramatic' (something like this) and ideally show it it in a LED display controlled by a Raspberry Pi ;-).