How much is $100 per month worth?

I teach a Continuing Education class, to Realtors, about working with investors and how to become their own best client. One of the lessons has to do with the real value of a small regular income, such as $100 per month.

I show the students that $100 per month, at seven percent interest, for ten years compounds to $17,000. Furthermore, if a person was to invest $17,000 at that same 7%, the monthly interest income is, coincidentally, $100 per month.

Conclusion: One-hundred dollars per month is the equivalent of $17,000 and vice versa.

I am not hung up on the numbers of 7% or ten years. We could modify the interest rate or the term and end up with a modified conclusion, but that is not particularly relevant. My objective is to shine light on the fact that every $100 per month represents a great deal of buying power, and in my example that number happens to be $17,000.

Predictably, most people are more likely to be net borrowers than net lenders so the above dynamic works against them in ways they had not even imagined. That is to say that for every $100 per month we pay in interest, we are also losing the opportunity to use that money to generate passive income, which is the key to building wealth.

Passive income is money that jumps into your bank account, automatically, whether you work or not. Can you imagine how much easier life would be for seniors if they had an extra $1,000 or more in monthly passive income? If they could have saved $200,000 in their lifetimes, and if they could invest that money at a realistic rate of 6%, that is how much extra income they would have. This is a lot easier than most people realize. One important path is by stopping compound interest from working against us and instead make it work for us.

If you have a credit card balance of $5,000 that you do not pay off, and if the interest rate on that card is 14%, you will pay $700 per year, just in interest. If that was a one-time matter, it may not be that big of a deal, but this debt lives on and repeats itself year after year.

If we assume that you could have invested that money somewhere else at a mere 4% interest, it would compound and grow to nearly $80,000 in an adult’s lifetime of forty years.
So ask yourself if you would like to have an extra $80,000 when you retire? That is a big reward for simply paying off your credit cards in full and on time every month. You are going to pay them off anyway, sooner or later, so why not pocket 80 big ones for paying this debt the correct way? That is one reason why I say, if you cannot pay off your credit cards in full and on time every month, you are living beyond your means.

Avoiding unnecessary interest expenses is just like earning extra income, whether it is $100 per month, $700 per year, or any other amount. To stop flushing your money on lost interest expenses, I suggest you reel in your spending habits a bit and pay extra on your cards until you get them down to a zero balance. Then avoid debt that you cannot payoff when the bill comes in.

Then you can start socking away a $100 per month and when your retirement years arrive you will have a very pleasant life-style.

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