Two Kinds of Money: A Framework for Financial Peace
A Five-Dollar Revelation
It was a crisp five-dollar bill that changed how I think about money. During my very first visit to New York, I found myself reaching into my pocket to pay for a taxi ride near Grand Central—a spot now shadowed by a massive brand new high-rise. What struck me wasn't just the transaction itself, but how unceremonious it felt.
Here was this bill that had once represented something precious—during my childhood in Poland, dollar bills weren't everyday currency but rather stores of value, almost like gold bars that you knew were valuable but wouldn't casually spend on groceries. Yet there I was, handing it over for a short cab ride without a second thought.
That five-dollar bill represented something profound: the existence of two fundamentally different types of money in our lives, and the purposeful journey money can take from one category to the other.
The Daily Dollar and the Forgotten Fortune
The first kind of money is what I call our "pocket money"—the funds we reach for easily to pay bills, rent, mortgages, travel expenses, and daily purchases. This money flows through our lives constantly, coming in as income and flowing out as necessary expenses. We interact with it daily, check our account balances regularly, and feel its immediate impact on our lifestyle.
The second kind of money occupies a completely different psychological space. This is what I've come to call "forgotten money"—capital we can't afford to lose but don't immediately need. It's the money we almost forget exists, money that holds a sacred place in our financial lives. When an investor, author, and podcaster, Jim O’Shaughnessy, asked me what kind of capital I prefer to manage, I answered without hesitation: "forgotten money." This is the capital that can be committed over long periods, invested in businesses, and allowed to compound undisturbed.
The Wall Between Worlds
The separation between these two types of money isn't just financial—it's deeply psychological. There's a portion of my own capital that sits behind what I think of as a wall, money that can be traced back to my very first paycheck, and even leftover scholarship funds from my graduate school days. All these small streams have fed into this pool like rivers flowing into an ocean, compounding over more than two decades.
Here's the remarkable part: I've never made a single withdrawal from this particular pool of money. The wall that separates it from my daily spending isn't just mental—it's become almost physical in its strength.
Natural Barriers to Spending
Life creates these walls for us in various ways. The equity in our homes grows largely inaccessible except through equity lines of credit, which is why real estate often becomes the primary inheritance people leave behind.
Retirement accounts impose penalties for early withdrawal, naturally creating another pool of "forgotten money" that compounds undisturbed. Trusts operate similarly, creating legal and procedural boundaries that protect capital from impulsive decisions while ensuring it serves its intended long-term purpose.
These structural barriers serve a crucial purpose: they protect our long-term wealth from our short-term impulses, creating the boundaries necessary for true wealth building.
The Blurred Lines Challenge
The challenge comes when these lines blur. Professional experience has taught me that money we think is committed for the long term can suddenly seem necessary for everyday expenses—fixing the kitchen, buying a new car, or handling some "urgent" purchase we didn't anticipate just weeks earlier.
This is why maintaining the separation requires constant vigilance and a firm mindset. It takes genuine soul-searching to keep these two pools absolutely separate while acknowledging that they can coexist and even support each other when necessary.
The Benefits of Separation
Psychological Peace: When market volatility strikes, having this separation helps immensely. You can view your long-term capital as something expected to be meaningful in the future rather than watching it fluctuate daily. Meanwhile, you might monitor your checking account regularly to ensure you can pay bills, but that investment account? It's better left in peace.
Uninterrupted Compounding: The biggest lesson in investing might be simply letting money be, especially during moments of distress when the whole world seems to be shaking. Touching that long-term capital interrupts the compounding that makes it truly powerful over time.
Emotional Clarity: If inherited money is involved, this separation gains another layer of emotional complexity. You become a steward of something that existed before you and will continue after you're gone—a responsibility that demands respect and careful handling.
Money's Ultimate Purpose: The Journey Between Worlds
But here's the crucial understanding: money exists to serve a purpose. The second kind of money—that "forgotten" capital—isn't meant to remain forgotten forever. Its power lies not just in compounding but in its eventual readiness to transition to the first kind when the time and purpose align.
That five-dollar bill from my New York story had made exactly this journey. Until that moment, it had been part of my long-term savings, carefully preserved and set aside. But that day, it crossed the invisible boundary—moving from my "forgotten" money into my pocket, then into the taxi driver's hand, finally serving its ultimate function of providing value when needed. When I handed it over, I was completing a cycle that reveals money's true nature: it's meant to flow purposefully between these two roles, guided by intention rather than impulse, throughout our financial lives.
Making the Philosophy Work
Any amount can transition between these two roles, but maintaining the separation is crucial for long-term investment success. Without it, it becomes too easy and tempting to commingle the pools, both emotionally and financially.
The key is creating whatever barriers work for you—psychological, financial, legal, or even physical—that make it harder to touch that long-term capital while still allowing for purposeful transitions when life's true priorities demand it. When left undisturbed for the right reasons, this "forgotten money" can do far more for us on multiple levels, and psychologically, it becomes much easier to navigate the inevitable ups and downs of both markets and life.
The five-dollar bill that started this reflection taught me that money's value isn't just in its purchasing power—it's in understanding the different roles it can play and the purposeful journey it takes in building a secure and meaningful financial future. Sometimes, the most powerful thing money can do is wait, forgotten, until the moment comes for it to serve its ultimate purpose.
Disclosure:
Blue Infinitas Capital, LLC is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.