4.6.26 - Time & Money & Economic Rationality
One time in college, I was telling an economics Professor (who ended up being one of my recommendation writers for law school) that I was worried about going to into debt for law school and was thinking about working for a bit to save up.
He told me something that made me a lot wider, and much more financially irresponsible. Basically, he explained the concept of income smoothing to me and its changed how I view time and money ever since.
“People will save up millions of dollars just to be on a boat for weeks when they’re like 60. And how is it for them? They’re back hurts. They’re too tired to do anything. They sleep or lay half the time. If they just took out a high interest loan and did that when they were 22 they would literally just get more utility. But when people are young, like you, they worry about saving up for retirement. For what?
Someone like you will literally never have less money or less earning power than you do right now. That’s why you’re going to school. It actually makes sense to go into a ton of debt.”
For some reason this conversation really made everything click. Yes, money compounds with time and investing is good. But the utility of money also declines with time for some things. Its arguably which one happens faster. It’s probably experience specific. Some experiences––like having fancy clothes or going to fancy restaurants––probably don’t decline with age. So I really try to avoid spending money on such things too much (although I do here and there). Similarly, the utility of some goods and experiences probably actually increases with age and are low now––like having a nice place.
I never understood people who are in their twenties and splurge on a nice pad (especially dudes). No one in our age bracket is that snooty, we don’t have families, we have high thresholds for discomfort, having roommates isn’t fun but its never going to more acceptable than when you’re young, and being a student is a great excuse to have a shitty living situation socially. I always saved on living. When I was in New York I had a shitty spot. In D.C. I had a very old, carpeted apartment near the river. I currently live in a basement for under $1500. Housing is the dumbest thing to spend money on. I also don’t need a nice mattress or anything. I cheap out on those things.
But OTHER experiences rapidly decline with age, or stop being options altogether. Night clubbing? You won’t catch me on Fourteenth Street when I’m thirty man. Going to Atlantic City or Ocean City? Again, I’m already approaching an age where that’s becoming juvenile (I’m approaching the “Rohobeth” age). Domestic travel? I can’t imagine I can go to another state without my kids or wife for no reason alone when I’m older. While I’m in law school I happily put this kind of shit on my credit card.
Nixon spoke of this by the way, traveling when young.
I have zero regrets thus far of how I’ve spent time and money (except maybe too much on takeout in my early twenties). I think the most economically rational thing to do is max out on the experiences which are somewhat specific to a time period in your life. When I have little kids for example, I’m going to max out on enrichment activities, classes, travel for them. Because getting those later is just so qualitatively different. I took my current girlfriend to the Opera on law school loans my 1L fall.
This is all to say I’m very against delaying gratification too much. There is such a thing as irrationally delaying gratification––thrift is not unequivocally good. It’s kind of like your Roth IRA. There are some things where if you don’t use the opportunity in a set time you just lose it. You don’t get to make up for past years you didn’t put money in your roth! Something I don’t forgive my parents for is not taking me to see my family abroad more often during my teenage years even though we had the means. Grandparents get old, people move away, you miss little kids growing up. That’s the kind of shit worth spending money on. We are not here forever.
Sincerely,
knxnts