Thinking Black Friday shopping? Do this instead and save heaps more
A good deal is a good deal, but compound interest and a long time horizon are the best deal of all.
Black Friday sales seem to come earlier every year. At this point, most of November has a sale, from Click Frenzy through to Cyber Monday.
Which takes you through to the Christmas shopping season…
Finder research shows the average Australian spends $531 just on Black Friday. And that's not taking other sales into account. It's a lot of money.
Sales events like Black Friday are a double-edged sword. For careful shoppers who are biding their time, it's a chance to save $50 or $100 off a big ticket item.
But these sales are also "how they get you" with retailers finding new and exciting ways to get more of your money than you planned to part with.
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What could you do with $531 instead?
If you need an incentive to keep more of your money out of retailers' hands, here are some simple ways you could put that shopping money to work instead.
It's always surprising how much a little adds up to a lot.
- Put the money in your savings account. By itself, $531 isn't going to generate huge amounts of interest. But even if you saved that much each year over 5 years, assuming a savings rate of 4% you'd earn $336 in interest. Now if you put away that much into a savings account every month for 5 years it's a different story: you'd earn $3,462 in interest.
- Pay it off your mortgage. For the average borrower, $531 isn't even a week's mortgage repayment. But every little bit of extra money you throw at your loan balance helps. Especially if you're early on in your loan. A $531 extra repayment at the start of a 30-year loan means you reduce your interest charges for 3 decades, albeit by a tiny bit.
- Invest it in an ETF. Exchange traded funds (ETFs) are a simple way to invest in the stock market. The ASX 200 returned 49% in the last 5 months. So even if you just left that little bit of money there you'd end up with $3,900.
- Make a voluntary super contribution. Another smart move is adding to your super. Not only is money invested early in your life worth a lot more over as it grows over decades, it can also reduce your taxable income.
Now these examples show that $531 by itself doesn't go very far. Buy the shoes, save $100 off that smartphone. A deal today often does matter more than a hypothetical future calculation.
But your financial future is ultimately a game of time and numbers. A little bit of extra money put aside each month in savings, super, an ETF or your home loan will transform your financial future.
Here's one more example:
$531 a year is $44.25 a month. Let's forget about inflation and assume you just keep putting that much into your financial future each month.
Let's say you're 20 years old today. Let's assume a rate of return of 5%. This is lower than a high growth investment but a bit more than a savings account will get you. It's conservative.
$44.25 every month at 5% compounded monthly. By the time you're 60, 40 years from now, you'd have an extra $67,470. And most of that is interest.
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