Money or the Box?

I have taken some flak from readers regarding my insensitivity towards people who have no money to invest; made all the mistakes I wrote about and have no hope of earning the big bucks ever!

I have some GOOD NEWS!!!

You still have a remote chance of one of the following happening:

• Marry rich
• Win the Lotto
• Inherit from somebody you don't know

One of these can happen! But in the meantime, let me give you some good advice which we can call "Money or the Box".

This is a very simple game where I give you a choice between choosing the money or choosing the box where:

Money = Salary

Box = Lumpsum Cash

If you choose the money I will give you R10 000pm before tax for the next 25 years which will increase with inflation.

If you choose the box I will give you R1.5mil now.

NOW YOU CHOOSE!

To see which one is better, I will assume the following to make us compare apples with apples:

• You earn no other income thus your tax on the money will be R1 000pm. This leaves you with R9000pm spending money.
• Your actual expenses are R7 000pm in both instances.
• The monthly savings from the "money" as well as the R1.5mil lumpsum can be invested with a growth of 2.5% over and above the inflation rate.

Result:

If you choose the money, you will be able to survive for 36 years. So if you are 40 now, the money will be gone at age 76.

If you choose the R1.5mil cash, the money will be gone in 23 years (age 63 if you are 40 now).

Conclusion:

Your ability to generate an income is far more important than being a millionaire today.