Just in the nick of time.

Previously I had stated that I was going to run my finances more like a business and created “Articles of Incorporation” to formalize it. Today is March 15, 2008 and I humbly present my February 2008 Current Report.

You’ll notice that I have simply put my Net Worth as the value of Stockholders’ Equity. As I work to understand how to prepare financial statements, I hope to figure out how to have the total be net worth and incorporate values such as retained earnings.

Stay tuned for goal analysis later today.

Last night Hu$tler wrote about how he has been hustled in the past in his article, How I Got Hustled. Instead of posting a comment, I decided that I’d share my experiences in being hustled.

Both of my experiences pertain to a single event, the purchase of my current car. I went to a local used car dealership, voted the best in the area, to check out their selection and ended up with an overpriced car with an extended warranty that turned out to be worth less than the paper it was printed on. I will refrain from using the name of the dealership, but here are my stories.

In September 2005, I was looking to replace my 1986 Plymouth Reliant Wagon, since it needed a new exhaust, tires and a few other high cost repairs. The dealership offered me a Taurus sedan with lots of bells and whistles, which tempted me enough that I made $100 deposit to reserve it over the weekend, so I could think about it. I didn’t go unprepared, since I had the foresight to purchase the latest print edition of Kelly Blue Book (KBB). I found the car in the book, looked up it’s retail value and made an offer slightly above the book value, to which the management effectively laughed in my face and offered a higher price, but still lower than sticker. At this point I made the deposit and left. By Monday morning, I had decided that I didn’t want the car, so I went back to tell them in person. While I was there, they took me to the financing department where I was convinced to buy my current car, a 2002 Dodge Intrepid, for a whopping $12,885.35, including rolling a couple debts that ultimately came back, the warranty and various taxes into it. This car is has a value of about $4,275 for private party in current condition, according to KBB. I’ll admit that part of it is my fault for not taking the time to KBB the car.

Now, roll forward to 2006. In the spring of 2006, I discovered that the A/C had failed during the winter (I checked it immediately upon purchase). When I went to have it fixed, I found out that the warranty company wouldn’t cover it, since it was caused by a leak. Ok, not a huge deal, but definitely annoying. What makes things worse is the stupidity of the company in August of 2006, when I had to have the transmission replaced… They wanted to pay $1,000 for a USED transmission that might have a 30 day warranty, instead of forking over an additional $825, which ended up on a credit card, for a REBUILT transmission that had a 12 month/12,000 mile warranty, meaning they were guaranteed not to have to pay for another transmission for a year.

What is the time-value of money? It is an estimate of what particular sum of money will be worth within a particular time-frame. From this you can see what needs to be done to achieve your goals.

There are two categories to this:

1. Future Value of Money: How much a particular present amount will be worth after a particular time at a particular interest rate.
2. Present Value of Money: How much an amount in a particular period is worth today at a particular interest rate.

Each category can be further broken down into an annuity or a single amount. An annuity is an amount paid in at the end of each compounding period. This makes comparing single amounts and and annuities difficult to compare with conventional equations.

The traditional equation for the future value of an annuity is , it can be converted from end of period payment to start of period payment by multiplying by , resulting in . In order to compare these, we also need the equation for the single amount, which is .

If you want to put away a certain total principle, it is far more powerful to take that amount and deposit it all at once, rather than as an annuity over the same period of savings. For example (see a chart here), an annuity of $1 per year for 40 years ($40 total) at 6% APR will grow to $165, but if you take that $40 and deposit all at once, at the same rate and period, it will grow to $411. That’s 2.5 times more than as an annuity and over 1000% growth compared to 400% for the annuity. This is not to say that annuities are bad, but shows how time can have a significant impact on a total particular principle.