The Value of Money - understand it
Financial trouble is often associated with a failure to recognize the value of money. Let's understand it, so we can save, invest and use it well.
Money is a type of exchange medium. You receive it in exchange for selling a product that you made or service you performed, and it allows you to exchange it again for other products and services.
It's a type of IOU, whereby you can obtain goods and services from other people without having to perform a direct trade or barter with another person.
So, from a functional standpoint, money allows us to conduct business with a wide range of individuals that we normally wouldn't be able to do business with because we don't have any product or service to exchange with them.
Instead, we exchange money. Now, all we have to do is figure out the value of money.
A friend of mine lost his entire life savings because he couldn't control his wife's ability to spend more than he made, and all that he had in savings.
She was a veritable "black hole" for cash, and he never put the brakes on. There are two lessons here:
- he didn't understand the value of the money he had
- she didn't appreciate it's value either - it was easy come, easy go
This also shows us that sometimes managing money requires that we manage others that want to get their hands on it.
Only when my friend and his wife were out of money and looking for a place to live did she recognize that $70,000 of the $250,000 that had been wasted would have purchased them a modular home free and clear. It was just way too late to recognize that less than a third of what had been thrown away could have secured them a very nice and comfortable home - debt free - just the thing that they were in need of.
One of the values that money represents is options. For my friend and his wife, with little money, they had few options with respect to a place to live.
If we fail to recognize the value of money, we'll be less apt to treat it as the valuable resource that it is. Recognizing its value is a key to managing money.
Done with The Value of Money, back to Managing Money