With a gift from her father, Mildred Furiya paid $16,000 cash in 1966 for a townhouse on state Street in Brooklyn NY between Smith and Hoyt Streets. Today it is on the market for $1.895 million. That represents an annual return of a little more than 11%. It illustrates the power of compounding.
The magical number 72 can be used for making estimates of compounding.
Dividing 72 by the expected rate of return will give the number of years it takes for something to double. In Mrs Furiya's case that was 6.28 years. She has lived there for 45 years.
Dividing 72 by a planned doubling time gives the annual rate of increase needed. To double in 10 years requires an annual rate of 7.2%.
Simple concept. So what?
Too often planning is done on the basis of cash flow, profit percent or income taxes.Compounding should be considered and even built into the plan. An understanding of compounding can be a way of seeing alternatives. For an individual it can be a way of allocating that limited stuff called time. For families it can be a way of understanding if there both spouses need to work and for how long.
The Cowboy Safety approach builds a model that considers the personal lifetime goals of the people involved.Then using a post-consumer approach, an approach that includes the magical number 72, a value plan is created over expected time available. It is a model that quantifies the unquantifiable. What will be the real value of education? Should you take a job or be self-employed? What type of house should you buy? Should equipment be bought or leased? What should be outsourced? What if one devoted less time to work and more time to vacation? How can intangibles be made to gain value?
There are a number of complex financial tools. Cowboy Safety uses a simplified version that is based on realistic easy to understand variables.Risks are more easily understood so that choices can be made.
Mrs Furiya subconsciously did the analysis and made the right decisions. She did not need an MBA and she did not need to go to Starbucks every day to network with the MBAs.
The magical number 72 can be used for making estimates of compounding.
Dividing 72 by the expected rate of return will give the number of years it takes for something to double. In Mrs Furiya's case that was 6.28 years. She has lived there for 45 years.
Dividing 72 by a planned doubling time gives the annual rate of increase needed. To double in 10 years requires an annual rate of 7.2%.
Simple concept. So what?
Too often planning is done on the basis of cash flow, profit percent or income taxes.Compounding should be considered and even built into the plan. An understanding of compounding can be a way of seeing alternatives. For an individual it can be a way of allocating that limited stuff called time. For families it can be a way of understanding if there both spouses need to work and for how long.
The Cowboy Safety approach builds a model that considers the personal lifetime goals of the people involved.Then using a post-consumer approach, an approach that includes the magical number 72, a value plan is created over expected time available. It is a model that quantifies the unquantifiable. What will be the real value of education? Should you take a job or be self-employed? What type of house should you buy? Should equipment be bought or leased? What should be outsourced? What if one devoted less time to work and more time to vacation? How can intangibles be made to gain value?
There are a number of complex financial tools. Cowboy Safety uses a simplified version that is based on realistic easy to understand variables.Risks are more easily understood so that choices can be made.
Mrs Furiya subconsciously did the analysis and made the right decisions. She did not need an MBA and she did not need to go to Starbucks every day to network with the MBAs.
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