Why You Should Not Trust Money

Why You Should Not Trust Money

Money bills are worth nothing!

Wuuaaa, that was a tough one….

There is one single mission with this blog post:

In the end, you will view money from another perspective.

Thousands of years ago, when people were producing whatever they needed for their survival, certain skills were developed among certain groups of the population. Some became good hunters, others cultivated vegetables and other products from the agriculture sector, and some became really good fishermen.

Quite soon, people saw that if my friend next door was a good fisher and I was a good hunter, let’s stick to what we were doing well and start trading products among the families. This kind of product trading was the first known tendency of trading or commercialization of products.

It took hundreds of years until people recognized this trading procedure as impractical. Carrying over 200 kg of meat, 50 kg of fish, and some kilos of potatoes was quite a difficult way of doing commerce.

When humans suddenly invented the value of certain metals, a price model was created where all food had a price in gold or silver and even copper and iron. From this point, money was born. With a system to buy food for a certain amount of metal with a determined value, the start of real commerce was a fact.

The birth of money

The use of coins can be traced back to 600-700 B.C.

Some people with the necessary skills started to manufacture shoes, clothes, and similar products that were not necessarily edible. These could all be traded for gold or silver, and the monetary system had come to stay. Later, these metals were more formally shaped into coins.

By that time, all money available was only coins, but with a real value, the value of the metal. In today’s world, there is not a single coin out there, no matter which currency, that has its real value. Re-establishing the real value would be a catastrophe, and we would all become truly poor people.

However, the craziness doesn’t stop there. When the bankers started to appear in the arena, they came to the conclusion that coins, which were quite heavy by that time, were not a very practical system. They invented the bills, which, in fact, are only a piece of paper promising the holder the corresponding value in gold when he or she so claims.

If you take a close look at a dollar bill, it says: Federal Reserve Note, and further down it says:

“This Note Is Legal Tender For All Debts Public And Private”.

All other currencies have the same setup.

All was good when you had a guarantee that the bill really was backed up by something with real value. In today’s economy, it is known in some cases and very doubtful in the rest of nations if there is a real value back up of all these paper bills.

There is no country in the world today that has a backup of currency in gold, and a good question would then be:

What is the money worth?

After the introduction of the monetary system, the world has faced deep recessions several times. The background histories have been different, but the common trigger to fall into recessions has always been a monetary policy without proper control, where the money printers normally start to produce more bills than can be backed up by real values.

In other words, more worthless papers are produced. A financial crisis normally starts with inflation reaching such levels that it can impossibly be controlled, more worthless paper bills being printed….and the circus is rolling.

Recession 2009

The recession we all lived through in 2009 is a good example of irresponsible monetary policy. It all started with an unsustainable mortgage borrowing “circus” in the U.S. real estate segment. Houses were literally constructed with money that didn’t exist. When it all took place, and the domino effect started, the financial tsunami pulled down everything on its way.

With the financial system we live in today, very few nations in the world have the tools to defend their nation and their economy if a new serious recession “snowball” is set in motion.

The middle class will always suffer the most

When a nation suffers from a recession, the middle class suffers the most. To understand how this is possible, we first have to see how broken people, middle-class people, and rich people behave.

We need four simple financial terms to understand and to view the three different categories in a fair way.

Cash flow – Money coming into your pocket

Expenses – Money going out of your pocket

Assets – Something you own; Something that pays you

Liabilities – Something that costs you

Until the middle of the decade of the 90^th,an asset was generally seen as something you owned, but with the book Rich Dad, Poor Dad by Robert Kiyosaki, the definition changed completely. In the book, he added that an asset has to pay you something. Otherwise, it is a liability.

The Broken People’s Behavior

The broken people (to distinguish from poor people, which is something completely different) get a monthly payment, and all of it goes to expenses. They buy stuff. They live from paycheck to paycheck with no assets and no liabilities. In case of recession, they just stop buying stuff and ensure that their monthly paycheck covers the most essentials, such as food and similar “survival” products.

Among people having some kind of income, you can say that this group of people positions themselves on the lowest steps in Maslow’s Hierarchy of Needs. Survival and spending the rest of the available cash on material stuff is their jargon.

The Middle-Class People’s Behavior

This group of people has a higher monthly cash flow, and besides buying stuff for the month, they make down payments for a new car, maybe a new house with the help of a mortgage loan, perhaps a boat, and the first installment to be paid for the upcoming vacation trip to the Caribbean. Month after month, all these purchases of assets with loans and credits will pop up on the liability side.

If there is a recession and monthly cash flow is lower, the first thing that will hit hard will be the difficulty of paying the liabilities. Banks and other credit institutions will immediately impose embargoes, and sooner than you can imagine, all your “rich attributes” will be gone.

These people are forced to charge their monthly salary to pay off all their self-created liabilities. In one sentence, you can say that these people are like:

Broken people with a rich surface.

The Rich People’s Behavior

The question of how to become rich has fascinated people for years. Many people have made it to something mysterious, and in some cases, they have even argued that it is a genetic heritage.

The glamour around the question disappears when the truth comes to the surface.

To Become Rich – No Rocket Science

The formula to become rich is no rocket science,

but an awareness of how to optimize the usage of the resources at your disposal.

Rich people before rich also needed to buy things, but the consumption pattern is more on a survival level. The rich people’s “secret” to becoming rich is to invest as much as possible in assets that pay you. The main part of the profit generated from the assets is re-invested in new assets, and the wealth will increase step by step.

You may be arguing that you have a house, and that is an asset to you. That is correct as long as you have no loans. Otherwise, it is an asset for the bank who gave you the loan and, you are only the “owner” of the corresponding liabilities.

Classical assets that will return money to you are:

Stocks, Bonds, Real Estate…..and…

In today’s world and especially with the fast-growing Internet involvement in daily life,

Education…..

has become an important and very fast-growing and important asset.

Not so many years ago, we viewed education as necessary to get a profession, get a job, and start trading time for money. Today, education in many different environments is more seen as a tool to acquire the necessary skill set to generate a rich life.

Online marketing is absolutely a skill set that will help many people escape the rat race they are in right now. To generate a lifestyle of freedom, many different income streams coming from your assets will be the engine to create such a rich life.

Forget about money as a thermometer of your wealth. Money, these worthless pieces of paper, are simple vehicles or bridges to a rich life. But traveling to where you want and when you want to do it is another ball game. Being with people you love when you want and not when the circumstances will allow you and developing the different passions you have in life is another case to consider.