You’ve probably heard that a car is the second-largest purchase the typical American makes after their home, but that’s not really true. It might seem like it, since the median home price in the US was just under $190,000 last year, while a new Honda Civic starts at about one-tenth as much. When you look a little deeper, though, you’ll probably only ever own one home at a time, and when you sell it, you’ll get your money back. You might even make a profit on the sale.
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Monday, October 5, 2015
Rethinking Your Money With Apple Math
When it comes to your finances, it can seem like all the advice you get is deadly boring, unbearably abstract or both. For example, when it comes to paying off debts, how can you be expected to make a dent without first having a spreadsheet that compares all your credit cards and loans with columns for principal, interest rate, fees and maybe even frequent flyer miles? It’s intense. At the same time, when it comes to spending, you’re no better off. How do you compare the value of a fancy dinner to buying a new outfit for the kids?
In 1986, The Economist created “The Big Mac Index” as a way to compare currency values across eras and national borders. The index shows how many hours of labor it takes to earn the cost of a Big Mac. So, if it took you 10 minutes to earn the cost of a Big Mac last year and it takes you nine minutes today, you are – in theory – better off than you were before. That’s true whether those gains come from getting a raise, moving to a town with a lower cost of living or improvements in McDonald’s supply chain to save consumers money. While the value of a dollar changes over time, the value of a Big Mac to a hungry customer remains constant.