What do Tic Tac Toe & Financial Success Have in Common?

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I want you to take a moment and think back to the first time you played Tic-Tac-Toe. Can you see it? Who won? My guess is probably the person who showed you the game. Would you lose (other than on purpose) a game of Tic -Tac -Toe today? Why not? It’s because you now know how to play the game, you learned the rules!

Well it’s no different with money. Just like Tic Tac Toe, if you know the rules you will play the game better. Probably the most important rule to understand is the role of Mr. Interest. Mr. Interest never sleeps. He is your best employee or your worst boss! Fortunately you get to decide where he fits in your life, but you can’t escape him. I have folks who tell me that they pay cash for everything so they won’t need to pay interest. However, they are still paying interest, they just don’t know it!

This leads to another basic rule, the effect of lost opportunity cost (LOC) on performance. So when you pay cash, the finance charge is the lost opportunity cost. For every dollar you have in your possession, there are only 2 things you can do with it, save it or spend it! If we save it, we earn interest (hopefully) and if we spend it, we lose the interest we would have earned. Hence, Lost opportunity cost (LOC) on performance. So when you pay cash, the finance charge is the lost opportunity cost. LOC is one of the biggest reasons folks have a hard time “getting ahead” in life. Unrecognized, it can make the journey to financial independence feel like you are riding your bike up a mountain, into a headwind with a 50 pound pack on your back. You may make it to the summit, but you will work very hard to get there.

This is the true cost of spending. In future posts, we will explore how to reduce the net cost of your spending and look at other rules of money that might be holding you back.
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