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Virtual Waiting Room Personal Finance

Friday, February 25, 2005

Greetings from the virtual waiting room. Unlike most waiting rooms, this one doesn't have three month old copies of Sports Illustrated and Good Housekeeping.

Pop open another browser and you have today's edition of any webpage that interests you, including mine.

So, without a cute receptionist to distract you, lets discuss the purchases you wish you were making right now. If you are like most Americans, you'll be purchasing your tickets with a credit card, and then not paying off the total bill before you have to start paying interest. So, as an exercise in curiousity, lets find out how much these Cubs tickets are really going to cost us?

Months 2% 7.99% 9.99% 12.99% 15.99% 17.99% 19.99% 21.99%
1 1.0017 1.0067 1.0083 1.0108 1.0133 1.0150 1.0167 1.0183
2 1.0033 1.0134 1.0167 1.0218 1.0268 1.0302 1.0336 1.0370
3 1.0050 1.0201 1.0252 1.0328 1.0405 1.0457 1.0508 1.0560
4 1.0067 1.0269 1.0337 1.0440 1.0544 1.0613 1.0683 1.0753
5 1.0084 1.0337 1.0423 1.0553 1.0684 1.0772 1.0861 1.0950
6 1.0100 1.0406 1.0510 1.0667 1.0827 1.0934 1.1042 1.1151
7 1.0117 1.0475 1.0598 1.0783 1.0971 1.1098 1.1226 1.1355

Along the top of the table, you have the interest rate. Pick the column your credit card company currently charges. If you are responsible and wealthy enough to pay for your tickets right away, pick the 2% column. This is the interest rate you are foregoing because the Cubs have your money and not you.

The rows are the number of months for which you'll have to pay interest. This should be calculated as the number of months between your first interest payment and the day of the game. Even if you don't pay until after the game. If thats the case, then that is the credit charge that you are absorbing to use the money in advance. Today's exercise is to see how much you are paying the Cubs so you can get those tickets now, and not on the day of the game.

Example: Batman buys tickets to the July 16th game against the Pirates. His current credit card rate is 12.99% and his current billing cycle ends March 20. Therefore, Batman has to pay interest for four months. Mar 20 -> Apr. 20 -> May 20. -> June 20. Since he gets to go to the game before July 20, he won't calculate interest for the last month.

So, Batman looks at this page finds the 12.99% column, the '4 months' row, and finds that he is paying $1.044 for every dollar he spends on tickets to that game.

Having become extremely lucky in the last three minutes, Batman lands 6 bleacher tickets to the game. So, he puts 6 X $38 = $228 on his Chicago Cubs Mastercard. However, Alfred doesn't pay the bill (at this point I realize that Batman, while my favorite comic book hero, wasn't a good choice for this example because he's super-rich and wouldn't be paying the money right away... anyhow) until Master Bruce attends the game on July 16, you know BatPolicy.

So, to find Batman's real cost of taking Superman, Robin, Catwoman, Spiderman, and Byron to the game is: $228 * 1.044 = $238.03

Thats not too bad, but if Alfred had ignored the BatPolicy and just paid the Mastercard bill when he got it, or used a debit card, the BatBudget would have taken less of a hit. Here, we get to use five months because the bank pays you interest as soon as you deposit money and doesn't wait a month. So, Alfred pays the $228 right away, but then they don't have the money and have lost its use until July 16. So $228 * 1.0084 = $229.91. In otherwords if Batman could have bought the tickets at the gate with cash on the day of the game, he could have left the $228 in his bank account and had an extra $1.91. Scoff now, but thats nearly half a beer!

Whats more important is that by paying with cash now, Batman doesn't have to pay with his credit card. He ends up $238.03 - $229.91 = $8.12 better off. And that really is two beers! (I think.)

OK, I have to go to work across campus now, but I'll update with part II in a bit.

Posted by Byron at February 25, 2005 1:09 PM | Bookmark and Share | BallHype: hype it up!
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1 Comment

does this classify as too much in terms of time on your hands?

actually, me too. the virtual waiting room from hell does grant time.

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