Money Equals Work


 

Mushrooms

What is money?  I don’t mean the bills and the coins, or the little numbers on the screen when you log into your bank’s electronic banking website.   mean what is it really, and why do people want it so much?

Money = Work

Money is a little IOU that you get for some work that you have done.  (OK, it may also be an IOU for something you find on the ground, if you’re lucky enough to find a chunk of gold just sitting there, but most people aren’t that lucky.  Usually, even getting gold often takes substantial work as well).  For example, if you are a farmer, you spend several months growing corn  – a few weeks plowing the fields, a few days putting seeds in the ground, a few months from sun-up to sundown pulling weeds, spraying for pests, and fixing fences, hoses, and equipment, and then several days picking it, and several days packaging it.  Then you bring it to market, and someone who wants that corn to eat gives you a dollar for five ears or something else you both agree is reasonable.

You can then take that IOU and give it out to someone else to do work for you, such as cut your hair, make a pair of shoes for you (or you buy a pair they have already put the time into making), or maybe make a cup of coffee for you while you sit in the air conditioning and listen to cool jazz.  You have used your work to produce corn, but you can trade the results of your work for the results of the work of other people.  The beauty of this system is that people get to concentrate on the work they do best.  Many people would simply die if they had to grow and preserve their own food, find and gather their own water, build and maintain their own shelter, gather resources to produce their own heat, and make their own clothes.  With a free enterprise society, they can simply paint people’s nails and in exchange have all of these things done for them.  When everyone is doing what they do best, everyone does better.

Money does not come from your boss or your company.  They just create an environment where it is easy for you to trade your work for money and take a small amount of the value of the products you produce in exchange.  Note that if you produce something worth $15, like maybe an hour of service at a counter, taking orders, your company may keep $2, use $5 to pay for the building, lights, and inventory, and pay you $8.  (How exactly would they be able to pay you $15 per hour in this case, even if you really needed it, to live where you live?)

Money does not come from the government.  Many people think that the government can just pay for things, as if they have an unlimited amount of money.  But all of the money they have is from taking a portion of the work people in the country produce, or wealth given to them by other countries or taken in wars.  Sure, the government can print more money, but if there is no work behind those bills, where exactly do you think that the goods will come from that you want to buy with those bills?  If there is one bushel of corn, will printing vouchers for two bushels of corn allow two people to get a bushel each?

Money and Retirement

So you’re ready to retire and you still want to eat and have a roof over your head,  You also might want to take a cruise to Alaska and drive around the country in an RV.  How exactly do you pay for these things when you are not working?  The answer is that the younger you is working for you in retirement (unless you don’t save enough, in which case you are then having the government go out and forcing other people to do work for you).  When you were younger, you had the ability to do more work than you needed to simply meet your needs at that time.  If you were wise, you stored up those extra IOUs you collected to exchange for work when you were older and couldn’t provide for yourself anymore (or didn’t want to provide for yourself anymore).

You could have also used some of those IOUs to buy things called assets that cause others to trade you some of their work.  These are things like apartments, which others pay you to use, shares of stock, which support companies others work in and provide you a portion of the work they do in exchange for an efficient way to trade labor for money, or you let others use your money directly in a loan in exchange for them paying you back and giving you a little extra money for use of your money. 

If you use assets to save for retirement in addition to your own labor, it means you don’t need to do all of the work for both your younger self and older self.  You can actually exchange your work for more work than you did.  Start when you’re 18 and you can get others to do about 16 hours of work for each hour you did! 

Assets also help protect you from the effect of what happens when the government does print more money than they take from those who work – inflation.  If you simply trade an hour’s worth of work for cash when you’re 18 and stick it under your mattress, you’ll be lucky to trade it for half an hour when you retire.  Buy shares of stock with it, and the price of the stock will increase with inflation so you’ll still get your hour back, even if the company in which you invest does not grow.

So remember, money is just an IOU for work.  You collect IOUs when you’re young and able to do more work than you need to provide for yourself when you’re old an unable to work.  If you collect money from the government, you’re having the government go out and take work from other people to provide for you.  Finally, you can purchase assets with some of the IOUs you collect, and other will willingly trade their work of use of those assets, such that you can receive many hours of work from other in exchange for a few hours of work you do yourself. 

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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Buy the SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy at https://www.createspace.com/4306997
Buy the SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy at https://www.createspace.com/4306997

I wrote The SmallIvy Book of Investing Book 1: Investing to Grow Wealthy to provide readers with the information needed to use stock investing to reach financial independence.  It could be used by people of any age who are interested in investing and setting up a healthy personal cash flow, but it would be perfect for someone just graduating from high school who hasn’t made costly financial mistakes yet.  Investing also favors the young since they have time on their side.

Given that this is my first book, I’d love to hear some feedback from anyone out there who has read it.  I might create a second edition after I finish Book 2, which will cover stock picking.  One thought that I have is moving the investment option descriptions further back (or maybe put it as an appendix) and start with the investing plan.  I’m sure that there are other suggestions.

Have you read it?  Or did you put it down after a chapter because it was too difficult to get through?  Are there things that were missing?  Things that you would take out or move?  Do you have some tips from the book you found useful?  Or useless?  Would you like to provide a review of the book for others (I’d be happy to put it in as a guest post)?

If you have any feedback, please let me know.

Got some feedback on the book (or the blog)? Please leave a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

If I Had a Million Dollars


Million DollarsPerhaps you’ve heard the Barenaked Lady’s song, “If I Had a Million Dollars.”  If you haven’t, listen to it now – we’ll wait…..

Back?  O.K.

So obviously many of the things mentioned in the song would be nice to have.  With the exception of the green dress, the Elephant man, and the Kraft dinner, I think I would like to have many of the things in that song, especially the tree fort.

But if you went out and bought all of those things, your million dollars would be gone.  With the exception of the house (and the fir coat, if they had bought a real fir coat), most of the things purchased would be worthless.  Their $1 Million would be gone after their little spending spree.

If they had chosen more wisely, they would be able to buy stuff and still have the million dollars.  They would have assets that would continuously replenish their funds as they spent a portion of the money, provided they didn’t spend too much.  If I had a million dollars, here would be my list:

1) $12,000 in bank assets.  This would include $6,000-$7,000 in a money market fund and the rest in CDs.  I would use this fund to cover the float – the money needed until my next paycheck or interest payment comes in, little emergencies that come up, and other events.  If I had to spend some of this money I would replenish it before I did anything else.

2) A $250,000 house.  Where I live, this would be nice house.  Get anything much bigger and it would cost a ton to heat and cool, plus I’d spend all day working on the yard or cleaning the floors, and who want’s to do that?  Paying cash for a house means that no matter what else happens, I have a roof over my head.  I know, the tax man can take it away, but you get the idea.

3) $500,000 in interest and dividend paying assets.  Things like bonds, bank and utility stocks, REITs, and the like.  I would try to get an average return from interest and dividends of something like 6%.  This would mean I’d have $30,000 in income coming in each and every year to buy things like Kraft dinner and pay my property taxes so that the government wouldn’t take away my home.  Note that I probably wouldn’t buy bonds at the current time due to the low-interest rates and the likelihood that they will get hammered when the Fed starts raising rates, but during normal times I would.  I would also only buy this many income stocks if I needed the income.  Otherwise I’d invest this money in stocks until I needed the income.

4) 200,000 in stock mutual funds and ETFs.  This is money that would grow over time so that I would be able to increase my income and keep up with inflation.  As I said above, I’d invest a lot more in stocks if I didn’t need the income right now.  I could also invest in stocks and sell a portion of the portfolio each year to raise money, but I would be taking the risk that I could lose a lot in a market downturn if I couldn’t afford to stay pat and let things recover.

5) $38,000 in individual stocks.  I’d have a small portion in 2-3 companies that I thought had great long-term prospects.  If I picked the next Microsoft or Home Depot, I’d have another million dollars in ten years or so.

What would you do with your million dollars?

 Got and investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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