What is Money? Money is that piece of paper with green ink and pictures of dead presidents faces, that we trade for stuff we want to buy. With money, we can get food to eat, pay for a place to live, buy a car and have nice clothes to wear. This is about as much about money that most people ever understand, and by a strange coincidence, most people are always broke and never seem to have enough money. Worse still, most people are in debt because they have spent more money that they have earned. If you wonder if there is some connection between most people never seeming to have enough money and most people not understanding money, you are absolutely right.
There is more to understanding money than just thinking of it as a piece of paper that we can spend. I prefer to think of money as hours of my life stored up in each little dollar bill that I get. I exchange an hour of my life for some of those dollars. Those dollars are moments of my life, which are gone forever, transformed into something magical. Something that I can use whenever and wherever I want, to trade for anything I want. When I spend those dollars, I am trading away part of my short life. I can also choose to use those dollars, which represent my stored up life’s energy, to create more dollars, so I will have even more dollars in the future. The dollars I get from investing I didn’t have to trade any more hours of my life for. The dollars from investments let me spend more of the hours left in my life doing what I enjoy doing, instead of having to spend them working for dollars.
What is money? To me, money is not just something to spend, it is hours of my life that are just stored in another form. When I spend money, that part of my life that I traded those dollars for, is gone forever. Before I spend those dollars I wonder if what I am getting is worth that part of my life that I traded those dollars for. If someone knew nothing about money, how would you explain the concept of money to them? It is from this viewpoint that I will show you what money is and how it works. You might laugh at my simple approach as you read this chapter, but after I cover the basics with you, I will then challenge everything you believe you know about money and financial success. You might not agree with me, but you will give it some serious thought. You might even cry when you come to grips with the stupidity about money that you have been indoctrinated with throughout your life.
Corn & Money.
Corn is something that most people understand. If you have an ear of corn, you can do many things with it. You can eat corn on the cob. You can put the corn in vegetable soup, corn chowder or salsa. You can grind it up into corn meal and make tortillas or cornbread. You might even choose to eat some cereal made from corn. Or you can choose to feed the corn to cows and have hamburgers, roast beef, steaks, milk and cheese. You could feed the corn to pigs and have bacon and ham. Or you could feed the corn to chickens and have eggs and fried chicken. You could make corn oil or ethanol from the corn and have oil to cook with and fuel for your car. How many other ways could you come up with for corn? There are many uses for corn, but they all have one thing in common. They are all consumption. Once you have used that ear of corn, it is gone forever.
That ear of corn has two other dimensions. It can be consumed as we saw above, it can also be stored for future use, or it can be planted, where it will grow into more corn. If you store it, it will be available for you to consume at a time of your choosing in the future. If you take that ear of corn and plant it instead of consuming it, each one of those ears of corn has hundreds of corn kernels, each of which will become a corn plant. Each plant will then produce several ears of corn. Next year you will have thousands of ears of corn from that one ear of corn that you hold in your hand today. So you have a decision to make with your corn. Do you consume it now, do you put it in storage so you can consume it later, or do you plant it so you will have much more corn next year? If you consume all of your corn and leave none to plant, you will be happy this year, but next year you won’t be very happy, since you didn’t plant any corn this year, you won’t have any next year. At some point you will run out of corn and starve to death. Not a very happy scenario.
Or you could choose to save some of your corn and put it into storage. Tomorrow, next week or next year, you could consume what you have saved. You have made your supply of corn last longer by saving some of your supply and consuming it at a later date, but the amount of your corn you have has not increased. Your supply of corn will last you longer, but eventually it will run out and you will starve. Again, not a very happy scenario for you.
You could plant all of your corn instead of consuming or saving it. You would have lots of corn next year, but you would starve to death before the new corn is ready to harvest. The ultimate question becomes then, how much corn do you consume and how much corn do you plant, so you will have more corn next year? It is a question of balance. You want enough food to eat today, and enough to plant so you will have food to eat next year, the following year, and every year in the future. You have to make a choice. How do you decide? Is it better to have more corn to eat now, or is it better to have more next year? Feed or seed? Live it up now? Or plant it all and be wealthy in corn next year, only to starve to death before harvest time?
This is a very simplistic scenario. But by looking at something in it’s most simple terms, you can comprehend the really important issues without getting confused with extraneous, complicating factors. In reality you would not have such a simple solution. What if you figured out how much corn you needed for food, corn oil, livestock feed and ethanol today, put enough in storage to last you through next year, and then planted the rest. That would seem to be a reasonable solution. You would have enough to eat today and to last until the harvest of new corn next year. That is the goal after all, isn’t it, to survive today, tomorrow, next year and forever. If you planted enough corn, you would have enough corn in the future that you would no longer have to scavenge for food again. You could take it easy and retire, never having to work again. Every year you would have more corn than the previous year. You could eat all you desired, give away corn to friends, family and the poor, and still every year you would have more than the year before.
Now let’s add one additional element to this discussion. Figuring out how much corn you actually need is not as simple as it first seems. When you get ready to cook some corn for dinner, how do you figure out how much to cook? Do you figure out exactly how many calories you need to survive, and then figure out how many kernels of corn it will take to give you those calories? No, that’s not how most people would figure out how much corn to cook. For instance, if you figured that adults would eat two ears of corn each and children would eat one ear each, for a family of two adults and two kids you would assume that you would need to cook a total of six ears. But would most people cook six ears of corn? No, most people would cook a few extra ears in case somebody might want an extra ear of corn today, compared to what they normally eat, or guests might show up at dinnertime. So you would probably end up cooking seven or eight ears of corn. Occasionally someone will eat an extra ear of corn and there will always enough food on the table to accommodate everybody’s desires. But most of the time those extra one or two ears are left uneaten. They end up in the trash, totally wasted. Not only does that mean two less ears of corn to eat in the future, but also means that you lose the chance to plant those two ears, which would have turned into thousands of ears next year. That is what waste is, you neither get something of value, in this case nutrition, from consuming the corn, nor the bountiful harvest you would have if you had planted the hundred of kernels on those two ears.
Now let’s compare money to corn. They have a lot in common. Money, like corn, can be consumed, saved for future use, or planted so it will grow into more money. We call it investing when you plant your money and make it grow.
Consuming money takes many more forms than consuming corn. You need to eat, but instead of eating the money itself, you spend it on food. You have many choices of different types of food that you can buy with your money. You could buy corn, in a many different forms. Corn on the cob, canned corn, cream corn, frozen corn. Corn chowder, corn tortillas and popcorn. You could buy corn oil and cook some corn fed beef. Or milk and cheese from corn fed cattle. Fry some eggs that came from corn fed chickens. Or even fried chicken. If you are tired of corn related foods there are tens of thousands of other food items in a typical super market that you can trade your dollars for. If you don’t like to cook, you could buy food that has already been prepared by somebody else, either at a restaurant or getting take out. Your choices are unlimited.
You will also need to spend some money on clothes, unless you are a full-time nudist living in a tropical location. Even then you would probably want to occasionally wear sandals or shoes when you are walking on rocks. You will probably sometimes wear a hat to protect you face from the hot tropical sun, and you would most likely wear a feather boa to those formal dinner parties (we can’t forget those formal occasions now can we).
You will need some form of transportation to live in our modern world. Whether it is shoes so you can walk to where you need to go, or a bicycle, car, motorcycle, airplane, helicopter or boat, you will need to spend some of your money on transportation. You will need to spend some of your money on communication. Whether it’s a cell phone, or a land line, most people today have to spend some money on communication. Entertainment is considered a necessity today. Whether it’s cable or satellite tv, or going to movies, concerts and sporting events, most people spend money on entertainment. And of course we don’t want to forget travel and vacations which most of us consider a necessity.
But the biggest expense of all for most people is housing. Unless you are going to live in a cave, which is hard to do for most people, you are going to have to spend some money on a place to live. You could choose to rent an apartment or house, or you could buy a home of your own. Whichever you choose, it will cost you money, lot’s of money. For most people housing is the most expensive part of their cost of living.
Money, like corn, can be consumed today, or you can save it to use tomorrow, next week or next year. Money you put into savings does not give you more money to spend, but it does let you consume it at a later time. Money can also be put to work where it will grow into even more money. This is called investing. If you put some money to work, invest it, in the future you will be able to buy lots more than you could buy with that money today. Balance is the key to using money, just like it is with corn. You need to consume money to pay for your living costs today, and save some money to carry you through those occasional tough times when money is a little scarce, and then invest some money so that you will have a lot of money in the future. Enough money so that you won’t ever have to scavenge for money (work a job) anymore, and still have enough money to live on, give to friends and the needy, and even then your supply of money grows bigger every year.