First thought you may have after googling those terms is “What is he talking about”?
I’m going out on a limb and saying that most people will google something they don’t immediately know what is, and in this case – that won’t help you. You will see the definition for “EMV” which stands for “Ending Market Value” and not much else.
DEFINITION of ‘Ending Market Value (EMV)
The Ending Market Value (EMV) is thevalue of an investment at the end of the investment period. In private equity, theending market value, also called the residual value, is the remaining equity that a limited partner has in a fund.
That also has nothing to do with what this article is about, other than being a similar acronym. Ending Wealth Value, which for the remainder of this post will be referred to as EWV, for our purposes is personal net worth at the end of your investing journey. That time when safe withdrawl is what you are concerned with. Many people think of it as traditional retirement.
Traditional retirement has such a negative connotation that I would prefer to say this is the number that matters when you choose to live life on your terms, or rather, are able to do so at any given time. It’s the end goal for many, the pinnacle, a peak.
So what is the point in discussing this if it’s the end of a journey and very few people who are already there will read this? Simple. Because if you reframe your decision making process on a daily basis about how things will effect the EWV, that can change everything about your behavior.
Everything. In a good way.
Trying to save and invest simply for the sake of doing so will become monotonous. Chasing your dream EWV will not.
The Law of Attraction is the belief that by focusing on positive or negative thoughts, people can bring positive or negative experiences into their life.
Applying that same principle to your EWV and we are starting to build a recipe for success. For different levels of success and incomes those daily EWV decisions can look extreme in either direction.
A couple examples:
- That $5 daily coffee, how does it change your EWV? Let’s do the math, $5 X 365 = $1,825. Your EWV is in this example 20 years away, so BEFORE compounding this daily decision will make a $36,500 difference in your EWV. That is nothing to joke about if you make $55,000 per year. If you make $550,000 per year it doesn’t really change your life. Add in compounding for a more realistic look and you get just under $100k, assuming an 8% return. Crushing the EWV of the average income earner. Ouch.
- Let’s go with a bigger decision, what does a $35,000 vehicle do to those two income earners we mentioned above? The higher earner is still fine in the end, but your average income earner? Total wealth destruction tool has been found for that individual. Let’s assume they keep the vehicle for 5 years, high average on the current American track. So in 20 years they bought 4 for a total cost of $140,000. That doesn’t tell the whole story, those trade ins helped them out a bit, say $10,000 each time, so the true cost is closer to $100,000. Assuming the average car payment for that time frame was $475, what does the compounding result look like? A staggering $281,649.93!
I’m not the type of person to promote a deprivation level lifestyle, but if you are planning to build wealth on an average income then you have to optimize those decisions and it should be easier to do so with your EWV in mind. Enjoy life but always remember the end goal,and from time to time do that simple math we did above to arrive at those “true cost” numbers.
Let’s do the math
Calculate your mortgage or work with the compound interest to see what it can do to expedite your wealth building.