Money ~ we all have the same problems. How to get money, how to get more money, and what do we do with it when we’ve got some money? Trust me on this one ~ MONEY IS NOT WHAT YOU WANT.
My best guess is that most of the people who read my blog don’t have 30 years in the money trade, or have a Masters in Finance, and another in Banking, along with a shed-load of other qualifications, so we’ll start working on 1.01 Money. (If you are a money expert, please feel free to comment, and disagree with whatever I say, but you better be damn right or I will make you look stupid.)
Money by itself is worthless. Money only has value by the nature of the things you can do with it. And mostly you can do 3 things with money.
- Money as a medium of exchange. Money is an intermediate in the exchange of goods or services. You go to work for money, and then you swap the money for the stuff you actually want and need. You don’t want the money, you want what the money can get for you.
- Money as a measure of value. The amount of money you have determines what you can get for your money. If you have a lot of $ or £ or whatever, you can get a lot of stuff. We know how much stuff we can get because everything is conveniently priced in money. The value of your time is also measured in money. (there is a price for everthing, up to and including sex)
- Money as a store of value. Instead of buying more and more stuff you don’t need right now, you just keep money in expectation that you can buy the stuff you need at sometime in the in future.
Money is a
piss poor very bad store of value, especially right now. Just how bad depends on how you warehouse your money. The worst store of value is lending money to a friend, at 0% interest, on the expectation that you will get it back. Next worst is actual cash, then various types of bank accounts, and then managed funds and so forth…
ALL Money Loses Value Over Time. Thinking that your money will be worth just as much, or more, in the future is the biggest confidence trick that Governments and the Finance Industry have ever pulled. However you keep your money, from cash to in your pension fund / 401(k), the amount of stuff you could have bought with the money you have put in, over time, will be a hell of a lot more than the stuff you can actually buy when you eventually come to take it out.
Why Store Value In Money? So, why bother with a pension / 401(k) / managed fund? Why not just buy stuff right now, and keep it for when you need it? There are a couple of reasons:
- Security. Unless your money is in a very dodgy bank, the chances are it will still be there when you need it to exchange for stuff. You can’t really say the same for anything much else, including the value of your home. (Insurance is another topic, for a future date.)
- Liquidity. You need some money that’s easily got at. So, what if everything you own, every last penny save for the few dollars in your purse, is invested in your home? The snag is, what if you need money next Monday? Money is very liquid, while all other assets have lower degrees of liquidity. In general terms, the less liquid your assets, the more likely they are to increase in value over time.
So what does that mean to the poor working stiff?
- Don’t have a lot of cash on hand, or a lot of money in the bank.
- Have some cash, some assets you can confidently sell in a few days ~ without having to have a fire sale. Also have some long-term secure assets, and here, property has traditionally been the best long-term way to hold your wealth.
- Do not ever pay for financial advice. (up to and including from me.)
Please also read my post Money. Feel free to comment or ask questions.
Next Monday’s post will be about some ways the average working stiff can make their money really work for them ~ instead of the other way around.