Savings Coach » Uncategorized » I’m Saving 29% APR Paying My Daughter’s Dance in Full Instead of Monthly
I’m Saving 29% APR Paying My Daughter’s Dance in Full Instead of Monthly

by Coach Funk Aug 24 2017

With a new school year starting its also time to decide what other activities our kids are going to participate in. My daughter says she wants to dance again this year.  After 5 years of dancing she has worked her way up to a mini-compete team which requires they take five 45 minute classes each week. Dance season goes for ten months and will cost $145 per month which equals $1,450 for the year. My wife was busy last week so she asked me to sign her up and pay the first month. As I was reading the paperwork I noticed the studio offers a 10% discount if you pay in full upfront, for a total of $1,305. Me being The Savings Coach and financial geek, I immediately pulled out my calculator to see if this was a worthwhile discount. Simple math says it saves us $145 to pay in full upfront. But when looked at like other debt using compounding interest and time value of money, it’s really 29.07% annual percentage rate (APR). Wow, I’ll take it!

As a financial planner I help people see the real costs of their decisions and usually we are calculating mortgages, car loans, student debt, or credit cards in addition to their investment opportunities. But this dance expense can be calculated in the same way as other debts, it’s really just an installment loan. Your loan amount is the discounted price of $1,305 and it’s financed at $145 per month for 10 months.

While I’ve got the calculator out, let’s look at it like it’s an investment.  Let’s compare paying $1,305 upfront or leaving it in the savings account earning interest. A typical savings account today is earning a rate of 0.05% which equates to $0.25 for the ten months. Or I can invest it in paying in full and receive $145 in interest. That’s 580% better rate of return (financial stats are great).

Sure, it’s only $145 savings, but what other expenses do you have that might offer a paid in full discount? At your annual budget review, try to spot some large expenses where you can use this. Things I can think of include car insurance, cars (0% financing or $2,500 cash back), any offer of pay a year get one month free, or lifetime memberships instead of paying monthly/annual dues.

This is one example of when it is more expensive to be poor when one can’t afford the annual discount. Or said another way, it is one reason the rich live richer. I highly encourage everyone to build up your savings accounts to exploit opportunities like this to live life richer. Most people are living a year behind by financing everything they want. When, the better strategy is to build up a one year savings cushion by planning for expenses like this. So my plan is to pay myself $130 per month to my savings account so I’ll be prepared next year to take advantage of the discount again.

Anyway I hope our dance studio doesn’t read this and lower their discount. My daughter really loves dancing and has already stated she wants to continue dancing to get her 10 year participation trophy, (she just got her 5 year). And she has 2 younger sisters that are starting to show an interest. Oy these kids are a money drain! Managing money is full of choices. After our second child was born I reluctantly decided to turn in my season tickets to UM football and Detroit Pistons and now have season tickets to dance, gymnastics, little league softball, soccer, and so many other parenting treats. That’s a lot of future expenses…and potential savings if I plan it right.

– The Savings Coach

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