Interest or Insurance


Many people, when looking at what they should be doing with their money, find themselves feeling the fear of missing out, or FOMO. Especially with regard to interest gains on investments.


Sometimes they have a large chunk of money sitting in a bank account somewhere earning little to no interest and it feels bad. Other times they may be the recipient of a large inheritance and wonder where best to place it. Others still may look at something like an emergency fund and be turned off because they can "make so much more in the market."


The thought process and conversation is usually centered around the interest one could or is not earning. I believe that this way, at times, isn't the best way to look at the situation. Consider insurance on your house. You pay a certain amount of money every one, three, six or twelve months to a company with the expectation that if something catastrophically bad happens, they will pay to replace the stuff. It is a cost you pay.


Perhaps it is better to look at the "lost" interest as a cost of insurance. You are, in a sense, paying the interest you aren't earning to insure you are able to more easily adapt and cover unexpected and large expenses. Consider also that you are insuring that you won't feel the drive to use credit cards or other short-term debt to cover your expenses. This insurance you pay can also help you be less fearful about these large costs. To have the feeling that what should be an emergency is really just an inconvenience can be another benefit of this "insurance" you pay.


I know that, at least for me, it is a cost well worth it. Next time you have the FOMO feeling, I encourage you to remember that perhaps you aren't really missing out, just insuring your future.