When Businesses Can Do Math

Published on Sunday, July 22, 2007 in , , , , ,

$100 billsHaving talked about when businesses can't do math, let's turn our attention to businesses that can do math.

It's always good when the math is done properly, unless the business is counting on you not doing the math.

The most common place to find this practice is among businesses that are loaning you money. If you have credit cards, there's two money traps you may already be in without realizing it. First, there's the minimum payment trap. JLP at AllFinancialMatters runs the numbers on a $5,000 debt, on making the minimum payment versus paying $100 every month. The results are startling!

The other trap is two-cycle billing. This is when your average daily balance is calculated over the past two months. This is less common, but it is out there. JLP explains this is greater detail, but it all boils down to the fact that you're effectively paying interest on money you've already paid back.

Probably the most eye-opening case of a business hoping you don't do the math are the payday loan places, such as CashCall.com. Have you ever seen this ad or this ad for CashCall? Watch them again, and look harder at the fine print at the end of the ad.

Get Rich Slowly took a closer look at these outrageous interest rates, and discovers some troubling facts.

Another way to draw your attention away from the math is to focus on features other than the costs. With environmentalism being such a hot topic right now, this has become a popular way to get a mathematical advantage.

For example, which is a better deal: The gas-powered Toyota Corolla that gets 33 MPG, or the Toyota Prius hybrid that gets 55 MPG? Most people would say that the environmentally-correct Prius, but when the numbers are run, the Corolla proves to be the better financial value!

Over at the Motley Fool's UK branch, they discuss environmentally-friendly financial products. A close examination of the numbers find that these products often cost so much more extra money that you can often do better by putting your money into a non-environmental alternative. With the money you save, you can put the extra money into environmental alternatives over which you have more direct control.

Lest these numbers discourage environmentalists, the UK Motley Fool reminds us that it is possible to save money while being green.

Neither this post nor the previous one were meant to scare you away from businesses. The entire point is to give you an idea of how easily the numbers can work against you, and to help remind you to be aware that extra time investigating the costs of your purchases may be the best thing you can spend.

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1 Response to When Businesses Can Do Math

7:56 PM


Thanks for the mention! I had fun putting those two posts together.

Take care,