Sunday, August 24, 2008

Different perspective on yields and interest rates

While I was idly thinking about things at work one day, I came up with this simple idea. Why don't I stop thinking about interest in dollars and start thinking in terms of hours of work?
That lead me to 40hr x 3% = 1.2hr/year and eventually, I got to
100% of employment income = 1 year's pay/3% = 33 1/3 years
70% of employment income = .7/3% = 23 1/3 years
50% of employment income = .5/3% = 16 2/3 years
and in the last category, what I mean by 33 1/3, 23 1/3 and 16 2/3 years isn't that I'll need to work that long. I need to have the equivalent of that much money put away. Clearly this simplification does not include any investment growth or compounding of interest or that I won't be saving 100% of my income. So the point of all this math is that it looks interesting on screen. Whether you think in terms of dollars or how much hard work you put into getting them, the end calculation really doesn't tell you much. At least I sure hope I can get this all done and over with in less than 16 years.

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