The Tale of Two Tellers - Part II
Building on the last post - we shared that over a lifetime relationship of a client - their contributing $80,000 in (checking, savings, cds, etc.) at 2% EPR OR LESS, and the bank lending that money at 8% EPR OR MORE created a gap. We call that the LAG - or liability asset gap. We said that would be worth $1M+ to the bank over their lifetime (which we use as 45 years) for a conservative time frame.
We'll be using our Simple Savings Calculator for many of the examples to follow, but here's a quick example of the LAG above and how to illustrate it.
Now back to our EPR example, the borrow has 3 loans at the following rates:
Auto Loan is 3.65% Mortgage Loan at 5.25% Credit Card Loan at 16.5%
How does EPR help with the Tale of Two Tellers? How are they making decisions daily based on this concept of EPR, and LAG?
The client has $4,500 in after tax income deposited into their checking account each month and their average expenses are $4,000. This leaves them at the end of each month with $500.
There are 3 Actions they can take: Spend, Save, Repay.
Spend - they go have fun and spend the $500 on lifestyle today.
Save - they invest the $500 to grow for their lifestyle tomorrow.
Repay - they apply the $500 toward an existing debt.
Which choice is the right choice? It Depends!
On what? On the EPR of the alternatives (financial decisions) and what brings them the most financial peace of mind (emotional decision).
TIP: If you want to follow along in this series and do the calculations for yourself - become a member of our site (It's FREE!) and you'll get access to cool resources like our Savings Interest Calculator as a member.