An introduction to negative money


WARNING: This post contains a discussion of math.

In these enlightened times, negative numbers aren’t a big deal. Whether it’s your favorite golfer winning the tournament with a score of -12, or even the solution to “x = 3 – 6”,  most of us don’t blink when a number with a minus sign comes our way.

This wasn’t always the case. The Greeks, in particular, had a huge difficulty with the concept of negative numbers. Diophantus (3rd century AD) referred to a negative number as “absurd” (a petulance that would show up hundreds of years later in classrooms everywhere). Difficulties with negative numbers makes sense when you think of numbers as being representative of actual things. I can have three oranges, but how can I have negative three oranges?

And yet, we can very easily have negative three dollars. And if you’re not used to thinking about it that way, it’s worth it.

Being negative

You probably have negative money. After all, negative money is nothing more than debt (or money owed).

I think it’s useful to think of debt as “negative” money. To see what I mean, let’s look at negative numbers. We can all can conjure up a vision of the number line, with negative numbers on the left, and postiive numbers on the right.

Courtesy of The Math Worksheet Site
Courtesy of The Math Worksheet Site

Why is the number line useful? Well, for many reasons, but one of them is to see that positive numbers and negative numbers are similar. They are all on one line, negative and positive. Different sides of the same, er, coin.

It’s easy to think of debt as being this other thing, this annoyance for which these companies just won’t leave you alone! But when you start to think about debt as negative money, you can start to approach it in different, interesting ways.

Applications for graphic designer are open, by the way.
Applications for graphic designer are open, by the way.

A 24% return, guaranteed

People argue loudly about how much people can reasonably expect make when investing.

  • Optimists (and those with something to sell) tend to shout: “You can make 12%!
  • Pragmatists retort: “But the average returns over time only show 8%.
  • Conservative investors say: “Even still, you shouldn’t expect any more than 4%.
  • And the doomsday-ers lament: “It doesn’t matter; the stock market is going to crash and you’ll lose everything.

But I know a way that you can make 12%, 14%, 18%, perhaps even 24%.

Sound too good to be true? Nope, it’s easy. If you want to make a high rate of return like that, pay off your credit cards.

Let’s say that you have $10,000, and you wish to invest it in a mutual fund. Good for you. But unless you’re lucky, you’re not going to make 18%. You might, but over the short term, you might just as easily lose 18%.

But, let’s say that you have -$10,000, and that you owe that money to a credit card company, charging you, say, 18%. That means that any dollar spent toward paying back that debt is money that is not charged 18%. Money that is not charged a 18% penalty is money where you have earned 18%. So every dollar that you pay on this loan is money that you earn 18% on. It’s just the same as if you had invested in a product that returned 18%. Not bad!

Same thing with your 6% student loan. This is a guaranteed return of 6% for any time scale you choose, which no one can guarantee anywhere else.

Our goal, of course, is to get rid of negative money, but while you have it, you have a golden opportunity. Take advantage of it. And then don’t be so negative.

But enough about me. Do you think of debt as “negative” money?

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