Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Let's do some math on the OP's situation. $5000 no interest spread over 24 months. Suppose an average minimum required payment for that amount of $125 paid for 23 months, and the remaining balance of $2,125 paid in month 24. If you calculate the NPV given a guaranteed rate of return of 1%, the OP would only pay the equivalent of $4,230.56 out of the original $5,000, effectively saving 15.39% of the money paid. How on earth is saving $769.44 not worth the hassle of taking out another credit card? Do you really consider $769 a 'petty sum of money'?
he's hard core against this. you're walking down a dangerous path if you try to convince him otherwise.
these offers are picking up quite a bit again. chase just sent me one where i'd get $200 for opening the account, and 12 months no interest on purchases. looks like the banks are OK again. lol
i got this fidelity american express and my wife has been complaining thats the card is too ugly. i think the blue cash card is a nice looking card and actually would end up with more rewards anyway. so ill probably get that.
Dude - it is basic math. Let me know if you need help computing the values in column 3. I can do it, but I don't want to take that much time typing out all of the answers for each period in this thread. Copy the third column (after the = sign) into excel and do the math yourself.
You're right, its basic math, but you're plugging the numbers in wrong. Usually when you come up with a magically $769 in savings that would never materialize...that would tip you off that you're doing something wrong.
Firstly, you're going to do a NPV on an annual basis, not monthly. Secondly the the "formula" is:
R/(1 + i)^t
R is the net cash flow. You are counting outflows as inflows, R is counted by inflows - outflows so that should be a -125 on top. If you did it correctly you'd end up with negative numbers...
Now, you can fix it a bit by considering the $5,000 as an inflow when t = 1 (which you are sorta implicitly doing), but interpreting the result as "savings" is fundamentally wrong. NPV is used to analyze cash-flow for businesses, the resulting numbers don't represent "savings".
Let's do some math on the OP's situation. $5000 no interest spread over 24 months. Suppose an average minimum required payment for that amount of $125 paid for 23 months, and the remaining balance of $2,125 paid in month 24. If you calculate the NPV given a guaranteed rate of return of 1%, the OP would only pay the equivalent of $4,230.56 out of the original $5,000, effectively saving 15.39% of the money paid. How on earth is saving $769.44 not worth the hassle of taking out another credit card? Do you really consider $769 a 'petty sum of money'?
1% of 5000 is 50. im not really going to bother to run through the numbers but it seems to me like you are way off. even worse, you are making yourself look bad compared to user_id and he isnt very bright.
You're right, its basic math, but you're plugging the numbers in wrong. Usually when you come up with a magically $769 in savings that would never materialize...that would tip you off that you're doing something wrong.
Firstly, you're going to do a NPV on an annual basis, not monthly. Secondly the the "formula" is:
R/(1 + i)^t
R is the net cash flow. You are counting outflows as inflows, R is counted by inflows - outflows so that should be a -125 on top. If you did it correctly you'd end up with negative numbers...
Now, you can fix it a bit by considering the $5,000 as an inflow when t = 1 (which you are sorta implicitly doing), but interpreting the result as "savings" is fundamentally wrong. NPV is used to analyze cash-flow for businesses, the resulting numbers don't represent "savings".
where on earth do you have your money so you only get 1% annually?
I still don't think you get it champ. Putting all numbers as negatives or positives nets the same point to this discussion. Claiming R as negative or positive makes no difference assuming you are consistant throughout all of your equations. You are obviously right that calculating your way would net negative numbers, but at that point it is a matter of semantics. Are you going for the smallest negative payout or the largest positive savings? The numbers don't change.
Tell you what - give me an interest rate at which your personal money grows and I will be more than happy do recalculate.
Quote:
Originally Posted by CaptainNJ
1% of 5000 is 50. im not really going to bother to run through the numbers but it seems to me like you are way off. even worse, you are making yourself look bad compared to user_id and he isnt very bright.
When did I say 1% of 5000 isn't 50? I assumed a 1% per month growth rate (a safe bet for an investment portfolio today). Give me your rate of return and I can recalculate.
The point is not the exact numbers, obviously those will change depending on where your money is going to be for that first 23 months. The point is to let your money gain interest and pay expenses as late as possible, given the choice. I threw some numbers together in about two minutes to give a tangible way to make that point. Are you really saying it is wiser to pay in full up front when you can have the money in the bank/portfolio/etc. to gain interest in the meantime?
Recalculating assuming you keep the money in a generic savings account, rather than an investment portfolio, you save $70.61 in my example by taking out the credit card. user_id - that money is the value in today's dollars less that you pay over time from the worth of the purchase. It is the effective value of the $5,000 assuming you pay over time and let the balance of the money (the portion of the $5,000 that you invest up front which is gaining return/interest over the two year time period). Isn't it obvious that paying over time and investing the difference nets a larger amount of money in the end than paying in full up front? The amount left in the bank/portfolio each money earns you more money, while whatever bought with the $5,000 does not.
i got this fidelity american express and my wife has been complaining thats the card is too ugly. i think the blue cash card is a nice looking card and actually would end up with more rewards anyway. so ill probably get that.
i love my blue cash card. i got almost $1,000 cash back last year.
its not important. its just a little something for my amusement.
and at the end of it all, you'll have a couple dollars in interest you otherwise would not have had.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
