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The Best Interest » Money is Fungible

Money is Fungible

Money is entirely fungible. Despite my earlier misconceptions, this idea has nothing to do with fungus.

Instead, fungibility is a synonym for replaceability, or the capability being used in place of another. While a crispy, fresh $100 bill might feel better than an old, wrinkly $100 bill, they can be used precisely the same. They are fungible with one another.

Many money mistakes occur when people don’t understand monetary fungibility. Let’s fix that today.

A Penny Saved…Is Less Cool Than A Penny Earned

Much more ink gets spilled on earning and investing than on simple saving and budgeting.

I’m guilty of that here on The Best Interest. I love writing about investing. But budgeting? Eh. I have a few articles, but it takes a back seat to investing.

Yet Ben Franklin understood fungibility when he wrote, “A penny saved is a penny earned.” If you can save $100 per month via a budget, that’s equivalent to a 10% annual return on $12000. It’s not as cool as investing, but the fungibility of money doesn’t care about coolness.

A dollar is a dollar. The invested dollar might feel cooler, but it has the same buying power as the uncool saved dollar.

Gift Cards – Not Ideal

This next lesson is going to sound crass: giving a gift card is the same as saying, “here’s a cash gift, except I’m actively taking away your fungibility.”

Again, I’m guilty of this. I’ve given gift cards. I completely understand the sentiment. “I know you like [insert hobby, store, restaurant, etc. here], but I don’t know precisely what you’d buy from there. So here’s a gift card.”

But gift cards steal choice. They steal the fungibility of money. A cash gift can be used to buy anything in the world. A GolfWorld gift card cannot.

My two cents: just buy your loved ones an actual item, and include a gift receipt.

Dividend Bros

I’ve taken down dividend bros before on The Best Interest. Their arguments are varied. One of the dumber pro-dividend arguments is that dividends provide a level of liquidity that non-dividend-paying stocks cannot provide.

This argument is, in short, made in ignorance of fungibility. Dividends are fungible with stock ownership (exclusive of taxes). The same income provided by dividends could be created by selling a portion of the stock itself. Stocks are fungible, cash is fungible, and thanks to the efficiency of the market, stocks and cash are fungible with one another.

(In fact, once taxes are considered, dividend payments are almost always worse than simply selling stock.)

“Buy Yourself Something Nice”

When Grandma gives you $20 to “buy yourself something nice,” she’s missing a lesson in fungibility.

In reality, Grandma’s $20 gets comingled with all the other available dollars to you, and any future $20 purchase is drawn from those comingled dollars. Grandma’s contribution only paid a small role in that purchase. Sorry, Ethel!

All the other purchases you make in the future – good, bad, or ugly – will use Grandma’s contribution too.

The same idea applies in other arenas:

  • Charities use a percentage of donations for their own administration. Every charitable dollar is comingled and then drawn against. Nobody’s contribution goes 100% to the charitable cause.
  • Many citizens use government assistance to purchase necessities (e.g. buying food with food stamps) and then use cash to purchase other items. That food stamp money is partially fungible. Food dollars can be replaced by food stamps, though food stamps cannot be sold for real dollars. If someone receives $200 in food stamp aid, they can spend $200 real dollars elsewhere. In short, a percentage of every real dollar spent is subsidized by the food stamp dollars.
  • When you find a $100 bill sitting in the parking lot and decide to test your luck with Lottery tickets. Hey, it wasn’t your money in the first place, right? Again, money is fungible and this line of thinking misses an important lesson.


A sudden windfall gives you an unexpected $50,000. What do you do with the money?

A common idea is to splurge on something nice – say, with 10-20% of the windfall – then save the rest. I’m on board with this idea from a psychological perspective. But this splurge does not jive with the concept of fungibility.

Because if you wouldn’t spend your own hard-earned dollars on a $5,000 – $10,000 splurge, you shouldn’t spend windfall money in that way either. These dollars are all fungible. Windfall money should be treated exactly the same as the other money in your life.

Now, perhaps you were already slowly saving for such a splurge. You were already setting aside hard-earned dollars for the splurge. The windfall simply accelerates your timeline. That makes sense.

What doesn’t make sense is for someone to say,

“I would never spend my own money this way, but I’m fine spending a windfall this way…”

Money is fungible. It is spent fungibly. It should be thought of fungibly.

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