Money is fungible, but many of us don’t appreciate that

Quoting a Bits about Money article on credit card rewards:

Money is fungible, money is fungible, money is fungible, but many people don’t actually orient their lives as if this were true, and so the financial industry meets them where they are and then charges them for the privilege.

This is so very true. I learnt this through experience, after paying interest to a bank for no good reason.

I had some unexpected expenses a few years back. I had assets I could sell, but I didn’t want to sell them. I was too emotionally attached to be able to sell them. I decided I’d pledge some of my debt mutual funds and get a loan. My bank happily took the debt fund units as collateral and issued me a loan. I was paying over 8% interest on the loan while the collateral, the debt fund units, were appreciating roughly by 5%. It took me many months to realise that I was paying my bank for the “privilege” of holding on to a low yielding asset.

‘Money going down the drain’ by Rainbow International CC BY 2.0

It was easy once I realised my foolishness. I sold off the debt funds and closed the loan.

It makes no sense to pay a bank only to hold onto some assets. It is even less sensible if the asset in question appreciates more slowly than the cost of the loan.