Building wealth: Pay yourself, not the bank

 In general, there are three things you can do with money. First you can buy things (consumer goods, car, home). With the possible exception of property, most anything you buy quickly depreciates in value. Secondly, you can earn interest by loaning your money to the bank (bank account) or to a corporation (bonds). Finally, you can own equity in companies (your own company or stock). Over the long haul, one becomes financially self-sufficient by owning equity or investing in assets that appreciate.

 The antithesis of wealth producing activity is consumer debt. When you borrow money to buy consumables, you are not building wealth. In fact you are going in the opposite direction. You receive no value for your monthly credit card interest or car payment. You are just helping those that loan money and own loan institutions to become wealthy. Some self-discipline will pay off in the long run.

The HP Palmtop, HP Calc and Lotus 1-2-3 programs can play a significant role in strengthening your personal financial position. Use them to help you eliminate your consumer debt and start accumulating equity.

ON THE PALMTOP: You probably have a rough idea when you want to buy your next car and what you can afford a month. Suppose you can afford $500 a month and you would be willing to wait for 3 years. Suppose further you place that $500 a month in some conservative investment that earns 4% per year.

Go to HP Calc, press (CTRL)-(t) or (MENU) Applications TVM. Move the cursor up to number of periods. Enter 36 (months). Move the cursor down one and enter 4 (for 4%). Make sure Present Value is 0, and type in 500 for Payment. Press (F10), FV (or move the cursor down to Future Value and press (<Spacebar>)). You'll see that at the end of 3 years, you will be able to purchase a car for $19,090.78.

Using TVM to Calculate Savings: Graphic

 Now suppose in three years you hadn't been saving. Let's see what the monthly payments would be, if you were to purchase that $19,090.78 car.

 Assuming $19,090.78 is still on the calc line in the lower right, move the cursor to PV and press (ENTER). (Otherwise just reenter the number at PV). Type 0 followed by (F10), FV. For this example, let's assume your loan will cost you 10%, so type 10 and press (F7), I%YR. Now press (F9), PMT and your monthly payment becomes $616.01.

But suppose at car purchase time, you can still afford only $500 a month over a 3 year period. Type 500 (F9), PMT, (F8), PV. You will be able to purchase a $15,495.62 car not a $19,090.78 car.