A Balanced Approach

[Brady Mullen]

I've been thinking this weekend about something I heard someone say about the cost of something over time.

It was something about purchasing a home with a mortgage, and having the total amount of money paid for that home over the life of the mortgage equal to more than 2.5 TIMES the so-called purchase price.

This is a fundamental (and common) mistake about how money works.

That's like saying that the dinner with my spouse didn't cost $100, but $2,000 because if I invested that money at 10% annually, compounded monthly for 30 years, it would be worth $2,000.

While it's true that spending money now that isn't necessary, means the forfeiting of some larger value in the future. But it's not the right kind of "true" that helps me navigate through life well.

I want to have dinners out with my spouse from time to time. I want to experience all sorts of things that wouldn't be considered "necessary". Also, my objective isn't to be the wealthiest guy in the graveyard.

One of my favorite books about personal finance is "The Richest Man in Babylon". It's about 100 years old, and it's as artistically written as it is helpful. While it may be a little simplistic for today's modern financial systems, it has the right idea about balancing the future and the present.

It promotes devoting a portion of your income for later and spending the rest in the present.

We are not guaranteed to experience the future anyway, so the present must have some value.

The point of all this is that extremes and ideologies are tempting, but they are ultimately dangerous dogmas. Living only for the moment is not wise, but neither is living like Ebeneezer Scrooge because it's what's best for your wealth.

Abiding by such ideologies swaps the role of master and servant played by you and your money. A balanced approach of living well and saving for the future is the key to maximizing the life experience.