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The Real Cost of that Tow
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
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Photo by Mikes Photos from Pexels
Note: My car isn't nearly this cool, but its headlights work better.
THE SCENARIO
Around a year ago, I parked my car on the street and left it for a few days (I work from home so I don't drive every day). When I returned to the spot where I parked it, 3 days later, I discovered that they'd posted 'no parking' signs in the meantime, and had towed my car. I was pretty upset about this, as the sign hadn't been there when I parked the car, and I knew that getting my car back was going to eat up a chunk of my day and a bunch of my money. I was right on both counts.
That afternoon, after I'd successfully gotten my car out of impound*, I was $350 lighter than I'd been the day before. But the impound didn't
just cost me the day and the $350. It also cost me the
earning power of that money.
The question: If I'd been able to invest the $350 for 10 years at 8% instead of giving it to the wonderful people at the impound lot, how much would it have been worth at the end?
* I wasn't the only person to have been hit by this - I met a couple of other people at the impound lot who'd likewise parked on Sunday afternoon with no No Parking signs up, and been towed Wednesday morning.
THE SOLUTION
This one is very straightforward - just a single simple calculation.
First things first, make sure the calculator is using 12 Payments per Year.
N: 120 (I want to find the value in 10 years, which is 10 x 12 = 120 months)
I/YR: 8 (I'm going to make 8% on the money)
PV: -350 (I paid $350 to get my car out of impound)
PMT: 0 (No money changes hands during the 10 years)
FV: (This is what I'm trying to find)
After 10 years, the investment I could have made would have been worth $776.87.
That was one expensive tow!
What do you think? Did I get off easy, or did they stick it to me too hard? Do you think it's useful to calculate the earning power of the money you spend on top of today's value? Why or why not? Let us know in the comments!
