Bottom Line With Brad: Fungibility
As a child of the 1980s, I have always been a fan of video games. The release of the Nintendo when I was about 9 years old led to months of begging my parents for the system – but it didn’t arrive until a couple years later. My parents didn’t have a whole lot of extra money and couldn’t see the value in a gaming system in our home. As a parent today, I can certainly see where they were coming from.
While I waited for a Nintendo, I was occasionally able to go to Chuck E. Cheese for birthday parties where I could play all the games I wanted for an hour or two until my tokens ran out. Then we would watch the animatronic show, which I found (and still find) pretty creepy. If you have ever seen Five Nights at Freddy’s, that movie makes my mid-80s nightmares come alive!
But, I digress. One time at a Chuck E. Cheese birthday party, just as I had spent my last token playing Skee ball, I found a $10 bill on the floor of the arcade. After looking around to see if I could find the person who lost it, I had a choice to make. I had a lot of little jobs from a young age and was always focused on saving that money, but this money was “free.” Found money was somehow different in my mind than what I earned, so I headed right for the token machine and spent it all.
Which brings me to a fundamental principle in financial matters that young me didn’t understand – fungibility. It’s a funny word for a powerful concept. Essentially, fungibility means that money is money. Dollars earned or dollars found are actually indistinguishable from each other and are completely interchangeable. But that’s not the way most people think about money. Just like me at Chuck E. Cheese, somehow found money we can be careless with, but earned money we hold tight.
People use all sorts of expressions to justify this – one I hear all the time in the investment business is “playing with house money.” This is when you make money on an investment or a bet, sell or return your original investment and keep speculating with the remaining profits. As if somehow the money you made counts differently or is valued differently, than the money you put into the investment. This is a great way to lose the profits you made. In fact, the expression itself devalues the profits you made by making you think you can be frivolous with it.
But we all know that you shouldn’t be. It is obviously important to find joy in life and to spend money reasonably to support living a full life, but I encourage you to embrace the principle of fungibility. Don’t waste money, no matter what the source. And save yourself some nightmares and pass on the opportunity to watch Five Nights at Freddy’s!
