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.