Should you stock up on forever stamps??

Today we tackle (aka greatly over-analyze) the age-old question of whether or not you should buy forever stamps. According to Wikipedia, postal rates are set by the Postal Regulatory Committee (formerly the US Post Office Department from 1792-1970). Here’s how the process generally works1any stamp experts feel free to correct me if I’m wrong!: stamps are sold for a certain price. This price periodically gets raised. You can buy stamps for the current price when you need to mail something, or you can buy “forever” stamps in bulk at the current price. These stamps will still be good in the future, even when stamp prices have risen.

At a base level, it seems like you should buy forever stamps. After all, you will probably use stamps for the foreseeable future, so why not get them cheaper?

But of course, I wouldn’t write a whole blog post about this if we were just going to look at it from a base level. So, let’s take a real2If you get the subtle joke I’m making after reading the next section, you get an A+ look at how stamp prices change over time using this graph with a very poor color scheme which I’ve stolen from Wikipedia:

The darker blue represents actual stamp prices over time. As you can see, they go up. The lighter blue plots the same data in inflation-adjusted cents. Inflation adjusted cents are what matter, since those reflect the actual purchasing power of those cents. Though it’s been a bumpy ride for inflation-adjusted stamp prices, they’ve remained relatively constant. Especially in the last several decades.

So the question really becomes whether we can do something better with our money than simply keeping pace with inflation3Buying forever stamps is really just investing in an asset that keeps pace with inflation. . As any experienced M+M reader will know, of course we can! We can take the money we would’ve spent on stamps and invest it in an index fund that captures the entire US stock market. The market historically outpaces inflation by about 7% each year4This is also known as the “real return”. So when we don’t need stamps, we keep our money in the stock market where it will grow 7% faster than stamp prices. Then, we can use our stamp money to buy stamps when we need them and still have plenty of money left over. So to answer our question: no, you should not stock up on forever stamps.

In reality, the decision to buy or not to buy forever stamps is pretty meaningless. Even a frugal person like me can see that you’re not really going to affect your financial trajectory much over this 55 cent decision. But the reason I’ve dedicated 400+ words to this issue is that we can learn two very valuable lessons from it.

Lesson 1: You should think about money in terms of its future value.

We arrived at the conclusion that we shouldn’t buy forever stamps by thinking about how much they cost now, how much they’re likely to cost in the future, and how fast our money would grow, if invested, during that time period. We found out that our money can grow much faster than the price of stamps can increase. So we decide to invest. Indeed, every time we think about making a purchase we should not simply consider the immediate cost of the item, but the future value of the money that we’re debating spending. This is the true way to decide if something is “worth it”. Of course, some things really are worth the opportunity cost of your money compounding. But in order to reach that conclusion, you must actually count the cost.

Lesson 2: Delaying purchases is a profitable exercise.

In the stamp example, if we wait to buy stamps until we need them, we end up having more money and the same amount of stamps. This can be applied to any purchase that you can delay. In general, the price of stuff will rise with inflation (that’s exactly what inflation is, after all!). The value of your investments in the stock market will outpace inflation. I think this point is very important, because you often see young professionals eager to buy expensive things as soon as they start earning a high income. If you actually decide that an expensive item is worth it, it still pays to ask yourself whether you can delay the purchase. If you can, you’ll get the same item in the future and have more money to go along with it.

 

If you’ve made it this far, I hope this exercise has been beneficial. If you apply these two concepts to each potential purchase, you’ll end up with a lot less junk, a lot more freedom, and a greater appreciation for the things you do decide to spend money on.

 

2 response to "Should you stock up on forever stamps??"

  1. By: Ben Li Posted: April 23, 2019

    People can reach much financial success if they think about the future value of their money. Why spend $20 on something that will only ever be worth $20 when I could spend $20 on something that will be worth $100 (adjusted for inflation) down the road? It is worth noting that this is what makes donations even more meaningful financial sacrifices. You aren’t just donating $20, but you are giving up $20 in addition to the extra $80 that you could have gained by investing that money.

    I believe that the Scrooge got so obsessed with the future value of his money that it kept him from ever donating any of it. Very wealthy people probably have avenues for great returns on investment, making every donation a particularly pronounced financial opportunity cost. Hopefully thinking about the future value of money does not lead people down the path of becoming like the Scrooge. Save money, but save with a purpose, so that when there are things outside of yourself that you value, you can support them, even if it means taking big hits 😉

    • By: Joey Posted: April 29, 2019

      Benjamin. So much depth to this comment. I don’t even know where to begin. The idea of donating now versus donating later has really intrigued me. I think we should donate our money. But, if I instead save and invest my money, I’ll have way more to donate in the future. I think the counter-argument is that problems/bad situations, like money, also tend to compound and get much worse over time. So if you help with a smaller donation now you can alleviate things that would get much worse. I’m sure there’s a middle ground somewhere: maybe donating early and often so you get in the habit, while still saving, then when you’re in a position to donate a lot you’ll be ready to do so since you’re already used to giving. I don’t know. Either way, we’re working on a fantastic guest post on this very topic so your comment is timely. I would say more but I think I should save it for later. We’ll definitely come back to this very important topic!

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