Taylor Swift’s Eras Concert Tour is taking the country by storm, with hundreds of thousands of concertgoers paying an average of $1,300 to see the renowned music superstar perform. While it’s natural that people are eager to indulge in experiences like concerts and travel after the pandemic, it’s important for consumers to remember that spending large amounts of money now can have significant consequences for their long-term retirement goals. To fully understand the implications, it’s essential to comprehend the financial concept of the “Time Value of Money.”
Time Value of Money (TVM):
The Time Value of Money (TVM) is a financial concept that suggests it’s better to receive money now than later. This is because the money you have now can earn more in the meantime, which is called opportunity cost. To give an example, let’s say I can either get $1,000 today or $1,000 in five years. I’d choose to get the $1,000 now because I could earn a compounding, risk-free rate of return of 5% for five years, which would turn my $1,000 into $1,276.28. This concept can help with making decisions about spending and saving. Keep reading to learn more.
The True Cost of Consumption Items:
By understanding TVM, we can analyze the actual cost of various common expenses over 40 years with an annual earning potential of 7.52%, which is the average annual return of the S&P 500 for the past 30 years. Here are some examples:
Taylor Swift Era’s Tour tickets = $1,300 present value (True Cost = $23,632)
Starbucks Coffee (Tall) = $2.65 present value (True Cost = $48)
Typical Subscription Service = $15/month ($180/year) (True Cost = $45,616)
The above calculations are not presented to discourage anyone from enjoying life’s wonderful experiences. Rather, it is meant to help individuals understand the actual long-term expenses associated with certain activities or items. While many “Swifties” may still decide to spend $1,300 to see Taylor Swift perform live, the true cost outlined above may give them a reason to pause and re-evaluate their options.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
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