Calculation Error in the book “I Will Teach You to be Rich”
Written by Cathy
I have the privilege of being a part of Ramit Sethi’s private book launch community for his newest upcoming book, I Will Teach You To Be Rich. The first chapter is available for free at SlideShare: First Chapter of I Will Teach You to be Rich book. As pointed out on Lifehacker: Read the First Chapter of I Will Teach You to be Rich for free, and the book launch community, there is an error on the section demonstrating the power of compound interest on page 5. There is a mistake in the calculations matching the story.
The story says Smart Sally contributes $100 every month to a retirement account with 8% interest for 10 years, then stops contributing. She lets it compound for another 30 years until she retires. Dumb Dan starts contributing $100 every month for 30 years. The end result is supposed to show that Smart Sally still ends up with more money than Dumb Dan because of compound interest.
Here is Ramit’s table with the error:
The error is this. The compound calculation for Smart Sally never stops contributing $100 every month after 10 years. The total $349,856 is the approximate total if she had continued to contribute $100 every month for 40 years. The error for Dumb Dan is a little odd. The value $271,879 matches if the contributions for 30 years is adjusted to $182 per month, or $100 per month for 37 years.
I’ve attached a spreadsheet that shows the error calculation and what the numbers should be. Smart Sally should have $200,065 and Dumb Dan $149,036 if you follow the story.
Smart Sally vs Dumb Dan Spreadsheet
Read the full Review of Ramit Sethi’s Book: I Will Teach You to be Rich.
Update 3/23/2009: Corrected error in spreadsheet where Sally was still contributing $100 in the first month after year 10. Corrected formula in C row for consistency.
Update 3/30/2009: Added link for book review.
4 Responses to “Calculation Error in the book “I Will Teach You to be Rich””
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Great catch! I just confirmed it with my trusty TI BAII Plus calculator. I wonder who he had edit it? I guess they were not a financial wiz.
Hopefully they can get it fixed for the second printing.
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