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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.
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I have all three now – time, money, and energy. I gotta tell ya, the grass is green here, it’s wonderful!
You certainly have reached the promised land. Congrats on being a Plutus award finalist for blog of the year.
This is a wonderful and valuable analogy.Spend more and enjoy life in the “go”(85)
This is a wonderful analogy. Spend more in the “go” and “go-go ” and
less money in the “slow-go” and “no-go” years
Thanks. Yeah too often people, in the FIRE community especially, keep delaying and delaying to build up a nest egg that they may never get to fully enjoy. Have a great one!
XRAYVSN: Great perspective about life, energy and money. This idea really hit home with me this Summer after reading the book, Die With Zero.
It too puts things in perspective that I think EVERYONE should read…..
Appreciate that. Yes I think there has to be a better balance to life than what most of us practice (which is to keep working to accumulate with the plan of enjoying later). Tomorrow is not promised so have to enjoy the present as well. Have a great one.
We’re trying to design our family life so that we have as much time as possible to spend with our kids while we’re (relatively) young and with enough energy to semi-keep up with them. Great perspectives
Appreciate you stopping by and commenting. That is another great point, time while you still have your kids is far more valuable than time after they have left the nest and are adulting on their own. My story is a bit sad in that regard because on top of everything I had 6 years of my daughter’s life stolen from me (age 4-10) because of an evil vindictive (and proven later with psychological testing, mentally ill) ex. Wrote a little about it here: https://xrayvsn.com/i-have-pretty-much-made-every-mistake-in-the-book-part-ivb/
I have heard too many stories of people who worked like crazy to build up their money but never enjoyed it.
Exactly! Can’t take it with you to the grave. White Coat Investor had a great quote about enjoy first class now or your kids will instead.
XRAYVSN, I agree that moderation and balance are key. FIRE is an aspirational goal, but so is being able to live in the now. Finding the balance and stretching out your FIRE to enjoy the fruits of your current health is something often overlooked and I am glad that you were featured on the Allstar Money newsletter today to deliver this message! Keep up the posts and looking forward to reading around your site more.
Thank you for the kind words. Balance is sometimes easier said than done because the FIRE community is often laser focused on achieving $X of nest egg so that they can “begin living the life they wanted.” But enjoying the journey can be even more important than getting to the destination.
Completely agree with this post. Like Jeff above, I also recently read Die With Zero and think it should be on the required reading list. I do a pretty good job of practicing this way, but I have been thinking more lately of really maximizing physical adventures now that will surely be more difficult in 10 years (47 now).
I also had lost a parent at age 50 and that has definitely informed my thinking about how to use time over the years.
Appreciate you stopping by and sharing your story. It is tough to lose a parent at that age. Opens your eyes that life is not guaranteed and tomorrow is not promised.
I think it is wise to set time aside for physically demanding adventures now before they become out of reach later. I have a Hawaii trip planned in the upcoming months which I am looking forward to.