The Rundown

Ground rules for the well meaning: Intro

She honestly can't help her self. She means well, she really does. But my mother-in-law has an almost psychotic NEED to move things around in a house. My house, her house, your house, VRBO rentals, hotels and if you stand to long at the DMV...there too. But she's not unique. Everyone has something they do almost compulsively. It can be a strength at certain times, but there is one scenario where it is a true weakness...Trying to build wealth on false ideas about money.

Let's quickly step back and do a 30 thousand foot view about this before we dive into the particulars though. What is money. I mean what is it really about? Well our money (US dollar) isnt actually money at all. Our bills are 'Notes'. To be precise they are Federal Reserve Notes from the US treasury.

You'll notice in the top left corner it says "this note is legal tender for all debts public and private." Seeing this you may say "see, that's money right there. It says you can use this note to pay for anything." But there is a small difference in what's going on here. The note is just an I owe you. In times past, this note functioned as a lighter placeholder to be used in place of actual money (gold, silver, etc). Because for many years our dollars were backed by gold. What this means in common terms is that they took actual gold and printed off a certain number of dollars to equal the value of that gold stored away. This made paper dollars actually worth something. Your paper dollar represented a fraction of gold. If you had enough of them you could actually trade them for gold. That's why the US dollar was the 'gold standard' for money.

More money more problems

The problem came in 1971 though when Richard Nixon changed the US dollar from money into a currency. Meaning, he ordered that paper US dollars didn't have to be tied to a physical fraction of that gold anymore in order to be printed. So if you had the ability to print more dollars then the gold it used to represent....what happens to the 'value' of that paper? Yes, it becomes more and more worthless every time you print more money then the gold it used to represent. To make this even easier, lets run this scenario. Imagine you feel thirsty for a second. You can go to the faucet and just turn it on to get whatever amount you want. How valuable is that water? Well, it's not. It's just a stream of water. It's not worth anything. Now imagine you broke down in the summer along a highway in the middle of nowhere. You have to walk about 5 miles in 90 degree heat to get to a little gas station. The gas station has 1 ice cold 16 oz bottle of water and it's being sold to someone in front of you. How much is that bottle of water worth now? Would you pay both the store and then additional money to the person in front of you for that water? Would you pay three times the sticker price? Why? What changed about the water? Well nothing actually. It's chemically the same as before. But your perception of its value changed. When there is an abundance of something it has little value. The more rare and useful it is, the more value it is supposed to have. Therefore, we quite literally have "MORE MONEY...MORE PROBLEMS".

Solution?

So this seems small but it's a nugget of truth you may not have known before or at least in some detail. But what does this have to do with you? Do the semantics help you pay your rent? Can you tell your landlord you have no money this month even if you have cash on you (because after all, it's not real money but currency). No, that knowlege alone doesn't help. But learning about two things. #1. The time value of money, and #2 Inflation. can help you understand something right now that can save you loads of currency right now, and in the future.

But how?

Glad you asked. What it means is this. As time goes on, because our dollar is a currency, it's value drops and drops and drops. Your power to purchase things with the same amount of currency as before goes down. That continual decline in value isn't just a theory. It happens at a known percentage we call inflation. General inflation (provided you don't have stupid leaders making things worse at the moment) is about 2%. Put the two together and it means that you have to constantly generate money making more than 2% of it's own value or you are literally "LOSING MONEY". So what type of things earn less than 2% right now? Well, the big one is more where than what. Where do you keep your money? Most of us keep our money in banks. Banks have lots of different accounts but a general savings account doesn't make any sense. They never make more than the rate of inflation. So the only thing you're 'SAVING' is the bank itself. The bank gets to use that money for other things at a MUCH MUCH higher rate than 2%. But they'll pay you less than that to let them use it. Does this mean burn your savings accounts and ditch the banks? No, it just means that you won't actually 'SAVE' anything.

In part two well go over what you can do to stop losing money and start creating it.

July 27th, 2022