Consumption Delay Compensation

Soon after I graduated I began putting my finance skills to use by investing graduation money and other income I'd saved over the years via an online brokerage. There's a certain apprehension to placing large portions of your savings in investments that can potentially lose money--particularly in the short term--but it doesn't take long to discover the joys of yielding even the average market return. A consequence of this is that I am painfully aware of money sitting idly in my checking accounts earning practically no interest whatsoever and I'm constantly engaging in hand-wringing over how much cash (liquidity, to be more precise) I need to keep in reserve. Happily though, I've recently discovered some relatively high-yield savings accounts that allow to me to remain quite liquid while still giving me a great rate (5.05% APY in the case of one). Given that my goal is to live off the interest of my investments as much as possible during my year in Germany, this "risk-free" rate makes my goal a bit more realistic than it otherwise might.

Contemplating the time value of money also makes purchases a little more painful. As of now, I'm earning somewhere around a 25% annualized rate on my portfolio. This means that for every $100 I spend today, I'm forgoing $125 one year from now, $156 two years from now, and so on. Similarly, if I am rational, I would be indifferent to spending $1,000 today or $9,300 ten years from now. The example might seem straightforward, but I suspect not many of us think in these terms. As for myself, though I constantly fail, I try always to act as homo economicus.