What is the value of $1?

One day my brother and I were discussing a referral rewards plan with my mobile provider, Public Mobile. I was explaining how good the rewards were for loyalty, autopay and referrals. When I told him each person I referred to the network, I would get $1/month off my bill.

My sister in law piped up asking, “Why do you guys bother talking about $1 a month? It’s just a dollar.”┬áThe truth is, it’s not about the money– I just like the feeling of finding the optimal solution because efficiency is the most noble virtue.

But what is the value of $1 per month is in terms of assets? Conservatively, if $1 is equivalent to a return of 4% of principal in perpetuity, then what amount of principal does that represent?

Here’s the math:

$1/mo * 12 mo/year = $12/year

Principal * 0.04 = $12

Principal = $12/0.04 = $300.00

So, every dollar you PERMANENTLY reduce your spending per month is equivalent to putting $300 into your retirement fund.

Having trouble coming up with $300 every month to put into your retirement fund? Then permanently reduce your spending every month by one dollar. Remember– this only holds true if it is a permanent reduction in spending.

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