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Understand How Money Really Works

How money really works in today’s society? The money is supposed to transport value from one to another. It is a good way to do trade without needing something particular in return.

In this post we are going through a little bit of history of money as well as how the money system works and how you can use it to benefit you. Not all sources of money are equal, so think about, how expensive your money really is and how to make it cheaper. Let’s dive right into it.

Why we need money

Before there were any actual currencies, people still used to trade. However, the problem was that even if you didn’t need something one had to offer you, you could have something they needed.

This is where money in some form comes in handy. That might have been gold or something else valuable. In Finland, squirrel skins were used as money not too long ago. It was a very common form of trading value.

Gold and silver have also been good storage for value if you didn’t need what you were offered in trade. Even not too long ago, the US dollar and other currencies were tied to the price and amount of gold held in storage.

If interested in looking more into this topic, it can be found by googling “gold standard”. It was a widely used backup form for money, and before that, money was tied to silver. It was widely used around the world.

How money works

So, how does money really work? I am pretty sure everybody knows; you get money from going to work and you can use it to buy goods you need. On a deeper level, money holds value. It holds the value of your work.

When you work, you give value to your employer and in return, you get money that might be US dollars or Euros, for example. That is a trade where you sell your time to get money which has stored value and buying power in it.

The money you make from working at a 20-dollar hourly wage is expensive money. At least in my eyes. Think about money as time when you spend it, and that might help you spend it smarter. A post about thinking like this can be found here.

How to make money your friend

Make money your friend, not your enemy. By understanding how money works, you will spend it more wisely. You will also start realizing, how expensive or inexpensive the money you have really is.

Think about a billionaire who buys a million-dollar car. If your hourly wage was 20 dollars, which is pretty good considering that some people sell their time for even lower prices, you would have to work for 50 000 hours to afford that. With 0 taxes, and with taxes included, that would be closer to 100 000 hours.

Do you think billionaires worked 100 000 hours to get that car? No. Their money is time-wise, cheaper than yours. If someone has become a billionaire, they most certainly didn’t become one by selling their time for 20 dollars per hour. Yes, you might think that billionaires are a little too extreme, but the same applies to millionaires.

You might become a millionaire just by working and saving. However, after a quick googling session, I found that the average person works 90 000 hours in their lifetime. With 20 dollars hourly, even if you saved everything you got and inflation was 0%, you could barely afford that million-dollar car at the end of your working life.

Make your money cheaper

No matter how you get your money, the purchasing power is the same. All US dollars have equal purchasing power if you buy items from the same store. All Euros have the same purchasing power when used in the same store.

When you realize that money can be either expensive or cheap, you will start to find ways to make it cheaper. That can mean that you either start selling your time for a higher price or find different ways of making money than selling your time.

Not all sources of money are equal

Let’s take investing as an example. By studying 1000 hours of investing, which might sound like a lot, that can in the long term make you million dollars. There is no guarantee, but it just might. Now, if we calculate the hourly wage for those 1000 hours you spent learning, and 1000 hours of executing your investing plan, that will leave you with a 500-dollar hourly wage.

This was just one example of how money can be cheaper than one acquired from working on an hourly wage. Another one is starting a business. Yes, businesses have their own risks, but that is the price of getting your hands on cheaper money.

Even when starting a business, you would have to work a little bit longer days for some time and during that time didn’t earn as much, think about it long term. How much will the price of an hour of your time be if your business takes off and becomes a money machine.

If there is a chance of your hourly wage being 100 dollars instead of 20, and the chance of you succeeding was over 20%, it is worth a shot in my eyes. Even better is that you can have an impact on the chance of success with your work.

Money is like a game of odds, where you have to find the things that offer the highest return for an hour of work with the best risk-to-reward ratio. Working on an hourly wage is almost a 100% chance of success, but the reward is relatively low compared to what you could accomplish with your time. Time is the most valuable asset, and no matter how rich you are, we all will run out of it one day.

Final words

Hopefully this helps you think about money a little bit differently. I’m not saying to quit your job right away. I’m encouraging you to start thinking differently to save more time for things you love.

You might love the job you do and there is nothing wrong with that. Just know that there are a lot of different ways to make money and wealth than working 9-5 job. Think about what impact every hour you spend could have in the long run. Sacrificing short term 20 dollars could end up being 500 or 1000 dollars in the long run.

Other business-related topics can be found here.

That’s about it. Hopefully this was helpful. Have a nice day.