The Decaying Curve vs. the Time Value of Money

This summer, a few old friends and I rappelled down a remote, sheer 150-foot coastal cliff, then made a technical, anchored climb back to the top. The trip had been a year in the making, and I was excited. It also cost a fair bit: new rock climbing shoes, a harness, and a friction descender to replace my 30-year-old gear, plus my share of a three-way split on new ropes and assorted extras. I considered it money well spent.

The day didn’t live up to expectations. At 59, with slightly arthritic joints, I found the exertion on the wet, rotting rock left me thoroughly miserable and acutely aware of my own mortality. The rock didn’t help, but the real problem was my age. Three decades ago I could lift a leg comfortably above my shoulder without so much as a groan. Now I was grunting just to reach the next foothold.

Contrast that with the $12,000 I “wasted” in my early thirties. I had never been in a car rally before, and I haven’t been in one since. After a late-night chat at a party, I impulsively bought out a friend’s stake in a Paris-to-Dakar Rally entry. He was part of a group of ex-military friends who had become private military contractors, and he’d run into financial trouble and needed out.

Two months later, I was in the support vehicle. We never finished; the French broom wagon, the truck that sweeps up the stragglers, collected us on day 16. A waste of money? On a spreadsheet, it was a terrible allocation of capital. Plenty of frugal people would wince at what that $12,000 might have become if left to compound for 30 years. At 7%, it’s somewhere around $90,000.

Yet I loved every minute. It remains one of the most singular experiences of my life. Today, the mere thought of taking part fills me with dread.

That set me thinking about the granddaddy of financial theory: the time value of money. The principle is simple and sound. A dollar today is worth more than a dollar tomorrow because today’s dollar can be invested and grow. But it mistakenly assumes something else as well: that a dollar buys the same enjoyment whenever you spend it.

My two experiences, extreme as they are, suggest otherwise. The money was just as good at 59 as it was in my early thirties, yet my capacity to enjoy what it bought had decayed far faster than any interest rate could offset. Your mileage may vary, of course. I know people still happily scaling cliffs at 60. But for most of us mere mortals, some of life’s returns don’t compound. They depreciate with age.

An experience, though, pays out twice. First comes the enjoyment on the day, which depends entirely on what your body and nerve can give you at the time. Second comes the memory afterward, which collects interest for as long as you’re around to retell it. The Dakar trip has been paying out for nearly thirty years. The cliff will pay out too, mostly as a cautionary tale about acting my age.

The first return decays. The second compounds, but only if you start early enough to give it time.

Building financial security matters, which is why I don’t subscribe to the gung-ho “Die With Zero” philosophy (spend it all before you go). Taken too far, it easily becomes an excuse for reckless spending. But the practical lesson here is simpler:

To the best of your financial ability, sort your wish list by shelf life, not by price.

The physically demanding, risky, high-novelty experiences have the steepest decay curve, so they belong at the front of the line. The gentler ones, like long train journeys and slow cruise ship dinners, will probably still be waiting at 75. When it comes to the experiences we put off, deferral isn’t saving. It’s a cost the balance sheet never shows and one you might regret.