Simple Financial Ideas

So while researching another post (yes I do actually do research on occasion (feel free to mock me in the comments section)) and came across a wonderful pair of sentences in The Atlantic that has awesome clarity for me in terms of personal finances.

With savings we pass today’s earnings to the future.
With credit, we pull expected future earnings into today.
-Derek Thompson

I read those sentences and had to put the print out down I was so dumb-founded by the clarity of it all.

Money, Coins, Pennies

Yes, it is a simple statement, and it is blindingly obvious once you read it, but the awesome clarity of it I just love.

The article it appears in was actually the topic I was going to write about, but that is for another day, this simple lightning bolt statement must be the first paragraph of any personal finance FAQ or rules to live by.

If I ever do a public speaking engagement on money I think this would be the opening statement or slide for me, it is a perfect explanation of what many people do not understand about saving and credit, and in many cases some people over complicate the concepts as well, but this one simple statement sums it all up very nicely.

The two sentences bring up two very important points to consider:

  1. What is the Future Value of the money you are sending into the future? It all depends is the simple answer, but remember if you put your savings in something risky, you may not be passing this money into the future (it might just disappear with time).
  2. What is your Future Earnings that you are spending right now? In my case I am actually making less than  I did 10 years ago (gross), so are you sure you are going to be making more in your future, because you are using that to pay for the stuff you are buying right now.

I really do like it when something I read resonates with me.

{ 2 comments }

{ 2 comments… add one }

  • Bryce July 29, 2013, 11:37 AM

    I do my utmost to stay out of debt, and it hinges on your point #2. I am also making less money now than I did a few years ago. I am glad I do not have any debt to be paid with my now lower income.

    Reply
  • Denis July 25, 2013, 7:16 AM

    The future power of money is amazing.

    In my case I have just thrown about $700 towards the first of 3 courses that will possibly help me earn an income. If that money can help me get a job then it is money well spent, but if not it is still money well spent as I improved my knowledge and might be able to use that knowledge in another way later.

    I am 51 with practically nothing set away for retirement, and taking this money away from my retirement hurts, but the possibility that it improves my income is important too…

    It hurts but I have to do it…

    Reply

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