A Brief Discussion About Money for Beginners

Money

Money is a way for you to turn your idea of “value” into something that allows you to get what you want and need.

Money Pebbles is dedicated to helping you grow your money over time (but you know that already). We will discuss many things throughout this process, but since this site is geared especially towards those beginning their money journey, I wanted to have a brief, basic discussion about money itself to refer back to in future posts. I’ll put these concepts in the simplest manner possible. Here we go:

What is Money?

“Money is a concept that revolves around the perception of value and faith in that perception.”

Long story short – Money is simply a perception of value represented in a tangible way that can be used as a medium for the exchange of goods and services. More simply, money is a way for you to turn your idea of “value” into something that allows you to get what you want and need. Example: You see a car that you want (idea of value) and you come up with the money to buy it (the medium of exchange to get what you want). Physical money actually has no real value if you think about it. A one hundred dollar bill is simply a piece of paper. One hundred dollars in your bank account is simply a number. It’s the fact that everyone perceives that number to have a certain value that makes that piece of paper or number in your bank account valuable. Furthermore, it’s the fact people have faith in this system of value that makes the whole concept of money work. When people lose faith in the value of money, we get into big trouble, but that’s a better discussion for later! For now, understand that Money is a concept that revolves around the perception of value and faith in that perception. For more depth, Investopedia has a great, quick summary on the concept of money here.

What can I do with Money?

Most people know the answers, but I’ll mention them anyway to get to a point: You can either Save it, Spend it, Invest it, or Give it. To put this another way, you can either save the value that you’ve created, spend that value, invest that value, or give away that value. I suggest a balance of all four for the following reasons (note that I’ve assigned mathematical signs to each as well to better represent what you can do with money):

  • Save (+): Provides a defense against unexpected events as well as a defense against having to go into what I call “indentured servitude” (debt) to cover large purchases. In short, saving helps keep you free. Therefore, money is essential towards building up a defense to help keep you “free from indentured servitude.” This does not mean that all debt in all situations is bad. It’s simply not an ideal long-term situation. Saving is a better solution.
  • Spend (-): Necessary for survival and enjoying life. Examples: Buying food, having a car to get to work, relieving stress through a vacation, and paying for a place to live. Spending is a necessary part of life, therefore we need money to take care of these necessities.
  • Invest (x): If saving can be thought of as “addition” then investing can be thought of as “multiplication.” It’s simply using the value that you already have to create more value, more quickly than simply saving. Money is the seed of such multiplication efforts, therefore money is needed to invest.
  • Give (÷): Provides resources to others in need or to worthy charitable causes. Money is usually a simple way to divide value among others. I believe in the concept of sharing and have seen the benefits of sharing with others, therefore I believe in the concept of giving (sharing) monetarily.

What affects the value of Money?

“Investing in some manner is important, since the value of the money you have saved will erode over time.”

In a word – Inflation. This is why investing in some manner is important, since the value of the money you have saved will erode over time. In other words, the $1,000 that you have saved today will be less valuable 10 years from now, even though you will still see “$1,000” in the bank 10 years from now. “Less valuable” means that you will not have the same purchasing power with that $1,000 ten years from now that you do now (you’ll need more money to purchase that same item that costs $1,000 today). For anyone that has read the biblical Parable of the Talents, the concept of inflation helps explain why the servant who hid his Master’s money in the ground got into trouble. He actually lost money (perceived value), even though it looked like he had the same amount of money that he started out with. As advised, he should have at least put the money in the bank so that he could have gained interest on the money and combated the effects of inflation.

How can I protect my Money?

“Make it hard for a fraudster to wipe out your entire savings by splitting it up among multiple banks.”

In addition to investing in order to protect the value of your money, I suggest protecting the safety of your money through bank diversification. This simply means splitting up your money among at least two financial institutions. Yes, your money is generally insured up to $250,000 if you have a US Bank Account, but this protects you only in cases of bank failures (yes, banks do fail at times). It does NOT cover you in cases of fraud. Make it hard(er) for a fraudster to wipe out your entire savings by splitting it up among multiple banks.

I hope you’ve enjoyed this brief discussion on money.




Previous Story
Next Story

No Comments

Leave a Reply

shares