Paradoxes are fancy literary devices that can teach us lessons through the use of logical contradictions. Examining them allows us to practice our ability to hold opposing ideas in our minds at the same time. Paradoxes help us see the value in not clutching too tightly to one perspective. They give us a chance to practice sitting with the tension of opposition and seeing the necessity two views have in creating a whole and fuller understanding. Here are some financial paradoxes that might seem contradictory, yet the logic holds. I hope they’ll help you clarify your viewpoint and give you a chance to reconsider your financial behaviors.
Obsessing about security breeds insecurity
The desire for security and feelings of insecurity are the same thing. The idea of security, financial or otherwise, is an illusion; human life is inherently insecure. This doesn't mean we shouldn't be prudent with risk and diligent planners with strategies like saving and investing. However, seeking security is like many things; the more you try to grasp and obsess about security, the more quickly you will reach a point of diminishing returns. You will feel increasingly less secure at a certain point.
Sometimes debt is a necessary tool in building wealth
Using debt to build wealth might seem counterintuitive. After all, when you calculate your wealth, you look at what you own (assets) and subtract what you owe (debts and liabilities) to determine what your net worth (wealth) is.
It's easy to oversimplify that debt is bad and is harmful to your wealth. Because some debt is really harmful, like credit cards, all debt gets lumped into the category of “bad.” But some types of debt can be useful and sometimes necessary to create wealth. For folks that don't readily have access to large sums of cash or capital, debt may be the tool that allows them to expand.
Time is both our ally and our enemy
If you stash $100,000 in cash under your mattress in three decades, you might not have lost a single dollar, but the value of your money has undoubtedly gone down over time. Because of inflation, each dollar will buy you less and less over time—your purchasing power decreases. In this sense, time is cruel to the value of money and today’s dollar is worth more than tomorrow’s.
In the case of investments, compounding interest relies on time to reveal its true magic. Here’s how: a young investor can invest less money over a longer period of time than an older investor who invests more money over a shorter period and ends up with more in the end. Compounding returns grow exponentially, making time more than an ally – but a force of the universe driving growth. Time is certainly our ally in investing, but you’ll kick yourself wishing you had invested earlier when you witness compounding after a few years (or a decade).
Often it's more expensive to buy the cheap option
I can't remember the first time I learned of Captain Samuel Vimes' ‘Boots' theory of socioeconomic unfairness, but it demonstrates this paradox perfectly.
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought and wore until the soles were so thin that he could tell where he was in Ankh Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.
Terry Pratchett’s novel Men at Arms.
The more I learn, the less I know
From cryptocurrencies and NFTs to trying to understand why human behavior contradicts human desires, as I learn more about money in the world, I’m confronted with realizing how much more there is to learn. I don’t mind this at all. It’s freeing to admit we only know a very little bit about a very little bit.