Pay Tv What Is It Really Costing You

Let’s look closely at pay TV in Australia. Pay TV is just that, “Pay TV.” So in saying this, “is it a good idea to get it?” Probably not. Let’s look at what it is really costing you.

Pay TV has been in Australia from 1995 to present. And some people have had it and been paying for it for all that time. Let’s look at a made up person called Mr Smith. On 1/01/1995, Mr Smith takes out Pay TV for $50 a month. From then to present time (Sept 09) he has continued to pay $50 a month, each and every month.

So in total, he has paid this $50 out for 177 months. This is $8850 in total. Wow, that’s a lot! But for the sake of this exercise, let’s pretend he sticks it out for the last three months of the year to make it an even 15 years.

Now he would have paid $9000 even.

Let’s have a look if he deposited this amount each month in a savings account instead of purchasing Pay TV.

OK had he put $50 each month from Jan 1^st 1995 to 31^st Dec 2009 at 3% interest he would have had $11,348.63.

Had he been able to get 4% interest, he would have $12,304.52

Had he been able to get 5% interest, he would have $13,364.45

Had he been able to get 6% interest, he would have $14,540.94

Had he been able to get 7% interest, he would have $15,848.11

So as you can see, he has not only lost this money on Pay TV, but he also lost any benefit that he could have got from interest on the money he could have saved from Pay TV.

OK let’s say Mr Smith wakes up on Jan 1^st 2010 and cancels his Pay TV and decides to save the money instead. Well if he saves this money over the next 15 years, depending on what average interest rate he gets, he will have the same amount as the above examples on Dec 31^st 2024.

But let’s make someone else up and call her Mrs Jones. Mrs Jones on Jan 1^st 1995 didn’t get Pay TV. Instead she invested her money at an average of 6% in a savings account. Every month she added the $50 she didn’t spend on Pay TV. From the examples above we would know that on Dec 31^st 2009 she would have $14,540.94.

However what if she continued in this fashion for the next 15 years, earning an average of 6%. Now Mrs Jones would have $50,225.91.

Wow and guess what, this $50,225.91 is from a total investment of only $18,000. That means she made $32,225.91 from interest on her earnings.

Even if Mrs Jones had not done as well as 6% and only managed 4% over the 30 years, she still would have $34,703.34. A far cry from the $18,000 that she invested.

As you can see, $50 a month over a period of time does add up quickly. Thirty years might seem like a very long time to you but it will probably go quicker than you think. There is nothing wrong with having Pay TV if you can afford it. However don’t buy into the hype that you need it.

Let’s pretend that on Jan 1^st 1995, Mrs Smith not only saved $50 from the Pay TV that she didn’t have, but also cut out $5.00 a month from her phone bill, $5.00 a month from takeaway and $5.00 a month on saving money on electricity costs.

Now what would she have in Dec 2009 from putting this $65.00 a month away.

Had she been able to get 4% interest, she would have $15,995.88

Had she been able to get 5% interest, she would have $17,373.78

Had she been able to get 6% interest, she would have $18,903.22

Had she been able to get 7% interest, she would have $20,602.55

All this would have been achieved from savings of only $11,700.00. What about had she continued this for the next 15 years to Dec 31^st 2024.

Had she been able to get 4% interest, she would have $45,113.43

Had she been able to get 5% interest, she would have $65,292.95

Had she been able to get 7% interest, she would have $79,299.40

As you can see, the range varies from $45,113.43 to $79,299.40. This is all on the back of a total investment of $23,400. Or only $65.00 a month. Can you see how a small amount can really add up over the course of a lifetime?

$50 a month might not seem like a big deal. However if you think of it in terms of what it could become then it is.

Let’s think of this from a different angle. Let’s pretend Mrs Jones had resisted Pay TV at $50 a month for 15 years, plus found an additional $15 over that time to save.

Then on Jan 1^st 2010 she decides that she wants to give up that $65 saving and start using it. She still has between $15,995.88 and $20,602.55 sitting in a bank account depending on what interest rate she got. Let’s pretend she does not add one cent to it over the next 15 years to Dec 31^st 2024.

She lets it sit there to get interest. The following outcomes are what she will have depending on what rate of interest she continues to earn.

Had she been able to get 4% interest continuing over the next 15 years, she would have $29,115.72 an additional $13,120.72 in interest.

Had she been able to get 5% interest continuing over the next 15 years, she would have $36,721.38 an additional $19,348.38 in interest.

Had she been able to get 6% interest continuing over the next 15 years, she would have $46,389.73 an additional $27,486.73 in interest.

Had she been able to get 7% interest continuing over the next 15 years, she would have $58,696.85 an additional $38,093.85 in interest.

Now let’s go back to Mr Smith for a minute. Let’s say like in our first example from Jan 1^st 1995 to Dec 31^st 2010, he pays $50 for Pay TV. On Dec 31^st 2010 he has nothing to show for his payments but memories of TV shows.

Now he smarts up and cancels his Pay TV. He decides that he too can save $65 a month. He starts putting this money aside each month in a savings account. Over the next 15 years he saves $11,700. He also earns interest on this amount.

What amount of interest would he have to earn over this time to reach $29,115.72. Remember Mrs Jones will have that amount of money on Dec 31^st 2024 by saving $65 each month for fifteen years till Dec 31^st 2010 and then not adding to her money for 15 years. (This is at only 4% interest over that whole time)

Mr Smith would have to earn 11% interest over the next 15 years to be equal with Mrs Jones on Dec 31^st 2024.

Let me say something, there are very few places where you can earn 11% interest each year without a big risk factor. A risk that you could lose all your money in one hit.

Mr Smith and Mrs Jones in this case have saved the exact same amount of money over the same period of 30 years. However, because Mrs Jones saved hers in the first half and earned interest all the way along, she is in a much better position. Mr Smith is playing catch up.

The moral of the story is to save as much as you can and as early as you can. Each dollar and year makes a huge difference.