Is Your Money Fungible?

One of the most commonly overlooked features of money is its fungibility.  It’s an odd word, and seemingly strange concept, but one that is actually very straightforward and has the ability to save your money if you understand it.


Merriam-Webster describes “fungible” as “being of such a nature that one part of quantity may be replaced by another equal part or quantity.”  To expand on this, something is fungible if it is interchangeable or capable of mutual substitution.


Now think of fungibility in terms of money – one $20 bill is interchangeable for another and the same with assets and liabilities; however, that fact is commonly ignored and results in unnecessary expenses.


For example, take the simultaneous use of a credit card and a saving account. Many people try to save a portion of their monthly income to build up savings, but also carry credit card balances at the same time.  Overlooking the fungible nature of these accounts can result in borrowing money at an interest rate of 12% or more, while attempting to accumulate funds in a savings account that pays 2% or less.  Does this make sense? No.


If you’ve already thought of instances where you have made financial decisions that weren’t consistent with the fungible characteristics of money, you aren’t alone.  Nonetheless, fungibility is an important concept to understand given the implicit costs associated with it.  Use it to help you keep a broad perspective on your finances and employ all of the tools that you have available.

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