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In finance there is a concept called, “Discounted Cash Flow” that is used to determine if an investment is worthwhile or not.
Without getting too into the weeds, Discounted Cash Flow helps address the future value of money received and tries to normalize it in today’s dollars.
In an inflationary environment, like we are currently in, a dollar in the future will have less purchasing power than a dollar today because of currency debasement (increased money printing, etc).
The further out you go on the time axis, the less valuable this investment cashflow becomes as you are getting paid with less valuable dollars.
A bird (dollar) in the hand now is therefore worth more than a future two in the bush because of the Time Value of Money equation.
Although discounted cash flow punishes the investor (especially if future returns are fixed), it is a boon for the borrower as the borrower is paying back the loan with less valuable dollars.
Example: If you have a 30 year mortgage this year and your mortgage payment is $1000 a month, that last payment will have the equivalent purchasing power of only $477 of today’s dollars (assuming a 2.5% inflation rate (110% cumulative inflation).
I really do like this financial concept and feel it could be applied to other facets of our lives.
Unfortunately most of us do not fully appreciate the finite lifecycle of humans.
Sure we can all recognize our own aging process but because the effects are so insidious we often do not pay attention to it.
As we age things invariably begin to decline, first physically and then mentally.
Unless your peak physical years are still ahead of you, which, according to “Here Are The Ages You Peak At Everything Throughout Life,” is age 25, most of us are faced with declining physical ability.
I would propose that these latter years should be deemed far less valuable than the years of life that surround peak physical ability.
We need to start thinking like investors about our lifespan.
Taking a page out of the Discounted Cash Flow playbook I am going to coin the term “Discounted Life Flow.”
A lot of us follow the delayed gratification method for wealth accumulation.
Yes this method is the quickest way to grow your net worth.
But there is opportunity cost at play for those practitioners.
We are often trading our peak physical/mental years working as hard as possible and making sacrifices in order to accumulate wealth so that our “less valuable” Life Flow years benefit.
What is the point of squirreling away money to save for a luxurious vacation that you may not be physically able to fully enjoy?
And that is assuming you even get to live long enough to enter your “golden years.”
My father, an Internist who died at the age of 50, never got that opportunity.
I am not trying to say that we should live like there is no tomorrow and try to spend everything now in one hedonistic celebration.
But there has to be some suitable compromise between the two extremes of parsimony and YOLO philosophies.
Moderation is thus key to find a balance between time, energy, and money.
If you do not address Discounted Life Flow you may end up as a poster child for regret, similar to a Twitter post I saw about the Irony of Age:
The Irony of Age : TIME/ MONEY / ENERGY-
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Practice what I preach.
I have to say that before I had my epiphany I was the epitome of the ant in the Aesop’s fable about the Ants and the Grasshopper.
I definitely wasted a decade or more of my life, which overlapped with my peak physical years, following the typical path of becoming a physician.
Those are years I can never get back.
Fortunately I am still in relatively good health and fairly fit for my age and physical limitations play only a minor role when planning for and enjoying vacations.
Although the pandemic did throw a wrench into the plans, I have taken more vacations in my 40s than the previous two combined.
I hope to continue the trend now that I am in my 50s and make use of the current overlap in my life of time, energy/physical ability, and money.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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