Page 109 - Hard Goals

100 HARD Goals

And if there’s infl ation, you’ll end up losing money. But even so,
taking the year-out offer and treating it like a forced savings
plan seems wiser than taking the money now. I’ve done some-
thing like this while cleaning out my briefcase. I’ll fi nd a few
$20 bills and put them right back thinking, “If I take it out, I’ll
spend it on something stupid.” So I put the money back, make
myself forget it’s even there, and I fi gure it’ll be a nice fi nancial
boon in another six months. Yes, I’m a CEO with a long history
of fi nancial success, but I’ve also got an area of my basement
where I stack all the Space Bags and George Foreman Grills that
I’ve bought off late night TV. So perhaps my reasoning to put
the money back in my briefcase isn’t really that dumb.
The bottom line of all this is that we tend to value the pres-
ent far more than we do the future. It’s just a fact that most
people want $100 today rather than $100 in a year. However,
what if I offered you a premium? Could I then maybe tempt you
to wait and take the money in a year? What if I offered you $110
in one year; would that be enough money to get you to wait?
How about $150? Or $200? I can’t predict exactly what your
number will be, because it’ll depend on your current fi nancial
situation, other uses you might have for the money, how much
risk you think is involved, your expectations about the future,
and so on. But you will almost surely have a number, and it will
be bigger than $100.
Without getting too mathematical here, you can actually
calculate a number called a discount rate. This is basically the
extra money you’ll need to come up with in the future in order
to equal the same value as this year’s $100. For instance, If I
think getting $150 in one year is equivalent to getting $100
right now, I just divide my one-year increase ($50) by my right-
now number ($100), and that gives me a 50 percent discount