Understanding Money

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I think there are a lot of misconceptions about money, and it can cause a lot of pain in relationships and family.

There are misunderstandings about how much money you need to be happy, how much money you need to save, and what you (or your partner) should spend your money on.

Looking around I see countless people putting in the hours at work and trying to make every last dollar in order to one day have that happiness they dream about and then go and spend all of their money on things that do not bring them any joy.

It makes you wonder why, and if there is a better way?

What is money?

Money is a way to exchange present value for future value. Most often this looks like someone exchanging their time for money by providing value to someone else.

The more value someone can provide, the more money they can be paid for their time. From there they can take that money and spend it on an item that someone else produced. This is an amazing concept because it allows two people to pursue their passions and provide their own value to the world and from that, they can both use the money to acquire the items they otherwise could not make themselves.

The money trap

As discussed above, money is used to exchange time (the most valuable asset anyone has) for another item of value. People get into the trap of exchanging their time for money and then spending it on something that does not bring any more fulfillment in their life. I know this because I am as guilty of this as the next person.

I will buy a subscription to a training program thinking it would be so nice to have and yet not even use it or buy an avocado thinking this time will be different, but I never eat it before it is too mushy.

When someone buys an item that does not improve their life in a meaningful way, it is the exact same as wasted time. When someone spends extravagantly on an item that requires a loan it can be even worse. Not only are you exchanging your past time (the money that was saved), but you are also exchanging your future time. All in hopes that future-you will value this item more than the time it cost you.

The black hole

It is at this point that people become discouraged and feel like the world is out to get them and they need to make more money.

They have loans for vehicles, loans for the new furniture, loans for the quads and the boat, the credit card is maxed out on the most recent vacation and it all feels hopeless. From here they can think they need to just work more in order to make more money to pay for all these items, but this takes away their freedom and removes even more happiness. Not to mention this leads to burn out and (catch 22) they produce less meaningful work which provides less value to whoever is paying them.

There is no point to work more hours if you cannot use that exchange to then make yourself self happier or more fulfilled. It is a zero-sum game, or a negative gain when you work more and more but become less and less happy and fulfilled.

Money with families and partners

There are a lot of negative emotions wrapped around money.

I believe this mostly comes from a disconnect on what the money should be spent on. One person may want to enjoy life now, and the other person may want to save it all for security down the road. I think everyone needs to understand that all answers are correct, and what you spend money on just depends on what is important. The first step is to understand what things truly cost and be transparent with your partner or your family. If you are constantly overspending and not able to afford the real priorities in life you can look at what is being spent and ask if it really brings joy.

For my wife and I, it has been immensely beneficial to view money as a means to an end. To look at it as an exchange of time for an item and to ask whether or not it’s worth it. This is huge because we are spenders! and without a feedback loop, we will spend all of our money and then have to miss out on the more important things.

Take for example saving for a trip. We have a budget that we save every single month for future trips. When we then overspend on the rest of our budget it is much easier to remember that overspending now, for example on a dinner, is only hurting our future selves and what we really want.

As spenders we need to budget every single penny every single month, it is time-consuming and annoying. But it allows us to stay on track and be able to have money for our bigger dreams and goals, instead of me coming home with a complete set of Blanton’s Bourbon (which would be awesome by the way).

The solution

The good news is the solution is very simple, the bad news is that it is not easy. We just need to remember that money is an exchange of your time which is payable at the amount of value you provide. Buying something should be done with money you have on hand so you know exactly what it cost you. By taking a loan, or racking up credit cards you are hurting your future freedom for a gamble. Hope that your future self will still enjoy the item as much as your present. Therefore, the solution is to ask yourself, before each purchase, how will this bring me happiness and fulfillment?

Summary

• Understand money is an exchange of time for value
• If you do not like how much you are getting paid for your time, the key is to increase your value
• Avoid gambling on a purchase today that you need to pay off in the future (loans)
• Money is a means to the end. If what you are buying does not bring more joy or fulfillment than what it costs, you are being ripped off
• Often the best investment is in yourself