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Preparing for gift season
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
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10bii
Financial Calculator for iOS, Android, Mac, and Windows!
THE SCENARIO
It's time for the end-of-year holidays, and for most people that means a large outlay of money to buy gifts for friends and relatives. Many of the gifts we buy, however, haven't become available right at the end of the year, and it's therefore not necessary to buy everything right before the holiday.
If I would spend $1,200 on gifts for my friends and family this year, but instead buy those items throughout the year when they're on sale (at a 10% discount), what would my ROI be? Assume that I spend money evenly every month for the whole year.
THE SOLUTION
The first thing we have to do is figure out how much money I spend each month on discounted gifts that I'll give to folks at the end of the year.
$1,200 works out to 1,200 / 12 = $100 per month. I'm getting a 10% discount on the items I buy, however, so I only spend $100 - 10% = $90 per month.
Now we're ready for the calculator portion of the solution.
First things first, make sure the calculator is using 12 Payments per Year.
N: 12 (I'm buying gifts throughout the year rather than waiting until the last minute)
I/YR: (this is what I'm trying to find)
PV: 0
PMT: -90 (I'm spending $90 per month on the gifts I want to give)
FV: 1,200 (I'm saving the end-of-year $1,200 I would normally spend)
If I buy discounted items throughout the year, I get an effective return of 22.74% on my money.
What do you think? Could you use this idea to save yourself some money and get a healthy return? If not, why not? If you have other ways of saving money on your gift-giving, how do you do it? Let us know in the comments!
