When I was young I was taught that you had a choice. If you had a dollar you could spend it today or you could save it to spend tomorrow (i.e. the future). If you spent it today you wouldn't have it later. So if something you wanted more came along you couldn't get it. That was the price you paid for spending it today.
That concept was reconfirmed when I studied economics in college. Naturally, being college, the theory had a fancy name. There it was called "opportunity cost". In other words, if you spend the dollar today you gave up the opportunity to spend it later. Basically the same thing that my parents taught me.
So I started living by that. The theory was easy to apply. Before spending money it became a habit to think about whether I'd regret that purchase later when I wanted the money for something else.
After college came a job and greater responsibilities. The theory served me well. But, an extra ingredient caused a bit of a disruption. It came in the form of a little piece of plastic. You know where I'm going. Along with the gas cards I had kept during college in case my old car broke down, I acquired a couple of bank cards that could be used anywhere.
They promised that if I spent my money today and found something I really wanted tomorrow that I could have it, too. Instead of paying for it with cash, I could use my handy, dandy credit card. And, while that was true, my training allowed me to see the trap. By using the credit card tomorrow I would be giving up my choice for the thing I wanted the day after tomorrow. So there was still an opportunity cost.
The way that we fought that temptation was to agree that if we couldn't pay the credit card bill off in full each month we'd cut up the card. We were able to keep that promise to ourselves. (I admit I don't know what would have happened if one of us had gotten seriously ill or we both lost our jobs in those early years before we built up some savings. Quite possibly we would have run a balance. But I'm fairly sure that we would have limited our purchases to necessities. Fortunately we never had to face that crisis.)
A number of years have passed. I still think about opportunity costs when I spend money. But, I've learned something else about the theory. It needs an amendment. It is true that if I spend a dollar today I won't have it to spend tomorrow. But, (here's where the amendment comes in) if I don't spent the dollar today, I'll have more than a dollar to spend tomorrow.
It may take awhile before that dollar turns into two dollars, but if I keep it for more than a few days, I'll earn at least some interest on it. And, thanks to the benefits of compound interest (read more on compound interest here) if I don't spend that dollar for quite some time it can become many dollars.
Of course, the flip side is true, too. If I spend both today's and tomorrow's dollars using a credit card, I'll have to pay them back plus the interest I owe. So I need to be very careful about using those convenient plastic cards.
What's the bottom line? I like knowing that I have a couple of dollars in my pocket. It gives me a sense of security and also means that if I see something that I really want to buy I'll have the dollar to make that happen.
Do you have a "dollar today, dollar tomorrow" story? I'd love to hear it. The best part of assembling FI each day is sharing the ideas we get from you!
