Have you ever wondered what money is? Take a good, hard look at the green pieces of paper in your wallet. You know, the ones with funny pictures of dead people and numbers in the four corners. How about the pieces of plastic called credit cards? Or that number in your savings account?
Chances are you haven’t thought about this a lot. You take it granted you think you know what money is. Part of achieving financial freedom is to first understand what money is. Then shift how you think of finances.
Money is just an idea. It is more than just pieces of paper and numbers in your bank account. It represents both the potential and kinetic values people provide to the world.
The Barter System
Before the invention of money, people bartered. Let’s say I make my living as a baker (as in a purveyor of fine, multigrain breads). You are a sheep rancher. I want some mutton for dinner so I trade you however many loaves of bread we both think is fair value.
Naturally, this is a problem if you do not want bread or I do not want sheep products. We have nothing to trade. Also, it’s a bit impractical for you to walk around with sheep in your pocket and bread in my wallet!
Money was created to help keep the exchange of goods and ideas moving. It was and continues to be a practical way to represent value people provide one another. For example, construction of the electrical grid was the realization an idea. Motors and light bulbs show us how useful electricity is. JP Morgan and Thomas Edison competed against each other to build the country’s first electricity grid and deliver a service.
Yet before before that happened, people had an idea of what electricity was. The work of Nikola Tesla and Thomas Edison expanded the potential that electricity could bring. Money kept the ideas flowing.
The Gold Standard
What Money Is Not Any More
Money these days have intrinsic value. Before Richard Nixon took the United States off the gold standard, money had extrinsic value. Currency was tied to gold. You could literally walk into any bank and exchange your pieces of green paper for gold.
Being based on gold, this had important implications. It means the supply of money was limited as the supply of gold was limited. In order for you to be a millionaire, many others cannot. With money no longer based on the gold standard, suddenly everyone can be millionaires. It also meant that money became a fiat currency overnight. It only has value because the United States government says it does. That value is perceived by people around the world.
Why is gold valuable? It’s valuable because people think it is. Nothing more! The advantage of gold is its value is appreciated worldwide. It has been this was since civilization started. Dollars, Yens, RMB…they come and go. Gold will maintain its value long after these forms of money are gone.
How about the prices you see in a store? Ever wonder how they are set? The answer will surprise you. Prices are set based on what the seller thinks the buyer is willing to pay. Set it too low and the product won’t sell because people think it’s worthless.
What Is Gamifying Money?
Now that you understand what money is, you are in a better position to shift your money mindsets, work towards financial success, and gain ultimate freedom. Treating making money like a game helps make it fun, too.
One way to turn money into a game is to think of the greenbacks as tickets to more fun. Then the question becomes, “How do I get more of these tickets so that I can continue to have even more fun?”
Remember that if you want more money, you have to first decide just how much is “more money”. Ask yourself the question, “how much is enough?”
Next, you have to quantify how much money you’re getting; otherwise, how would you know you’ve reached your goals?
How do you do this? You have to track your accounts and your overall net worth. That way, you can see how much more money you have at the end of every day. Personal Capital’s net worth tracking tool is great for this reason. At a glance, you see your total net worth. Then, you get a breakdown by account. You also see your cashflow, whether it’s positive or negative, and how you’re spending. The tool breaks this down by categories.
In this way, the amount of money you have now looks like points in a video game. The goal is to get more points by trying a variety of different things. For example, if you’ve never invested in the stock market then start with that. Its barrier-to-entry is the lowest of the three traditional ways to make money (running your own business, real estate, and stock investments).
Money 2.0: What Is Money Now?
As you can see, money was invented as a practical means to represent stored value and to keep ideas moving. That’s why another word for money is currency. It ebbs and flows, just like currents in the ocean. Another hard thing to understand about money is that it needs to be in constant motion. It needs to circulate because we as people need to continue providing value and keep ideas flowing in order to feel fulfilled and satisfied.
This is the reason why sometimes volunteers perform a task better than paid employees. Volunteers are there on their own accord. They do the task because they enjoy it and gain a sense of fulfillment out of it. With that sense of fulfillment comes an obligation to attain mastery. In fact, a 2016 Gallup study shows 60% of Millennials feel disengaged or otherwise unsatisfied with their jobs.
That’s why you have to keep money flowing if you’re to bring in more money. Yes, I just said that you have to spend money. You are keeping values and ideas moving around in doing so. Set up a rule to spend at least 10% of your monthly income on fun things. If you “practice” spending money, then you’ll lessen the risk of becoming like Ebenezer Scrooge.
Are You an Over- or Under-Spender?
People fall into one two categories when it comes to money. They are either over- or under-spenders. Most are over-spenders, meaning they spend almost every dime of their paychecks. That’s why 70% of Americans have less than $1000 in savings. I, on the other hand, am a chronic under-spender.
This means I have a very hard time spending money. That’s why it’s important for me to spend 10% of my monthly income. Otherwise, I risk falling into a slump where it becomes very hard for me to spend. Soon I fall into a pattern of spending months researching. As a result, I ultimately do not spend the money. The cycle becomes self-enforcing, and it becomes hard to break out of over time.
The ideal plane is the one in the middle, where you spend just enough. If you’re an over-spender, then you’ll have no problems spending 10% of your monthly income every month on fun things. (Yes, I realized I just said I don’t know how to have fun because I can’t bring myself to spend!) This limit on spending helps you to keep your budget under control so that you hopefully fall back to the middle.
The Negative Connation of the word “Spend”
The word “spend” has a negative connotation to it. It sounds like we’re expending our energy or giving up something in reluctance. If this word or any other has a negative meaning to you or makes your queasy, then use another word.
For example, I prefer the words “wealth” or “prosperity” to “rich” because wealth and prosperity also includes an abundance of health and relationships. You can be the richest personal in the world but still feel lonely and sick.
What are good words to use in place of spend? How about exchange, gain, or enjoy? For example, I exchanged some funny numbers in my bank account for a ham radio. In return, I gain a new and fun toy I can now enjoy. I feel like a magician, dabbing in the black art of radio waves! I made new friends along the way and learned how to communicate better because I was very mic-shy. This has in turned helped me with networking in real life.
Grand Scheme of Things
What does this all mean in the grand scheme of things? It means you shouldn’t be afraid of spending money…errr…gaining something…especially when it comes to investing in yourself. If you feel guilty about spending $1000 on a new toy, think about all the learning experiences you’ll get. This in turn helps build up your skillsets and knowledge so that you can provide even more value to other people.
It also ups your social and communications skills as you’ll collaborate with other people. When you start doing things, you want to learn and do even more. You join clubs or meetups where other people share the same interests. For example, if you enjoy amateur (ham) radio, you also increase your ability to communicate in brevity and precision. Most people have a hard time communicating even in this digital age of being plugged in 24-7.
Start doing interesting and fun things! Stop spending money on things which fail to enrich your life. This building of knowledge upon knowledge is in part why currency exists. Money is almost always a tertiary consideration when it comes to doing anything. For example, think of when you bought something like a house. When you finally–really decided–money was far down the list in your decision-making process.
You owe it to yourself to acquire things and experiences which make life fun and interesting. When you become a learned person, you provide even more value and service to other people, who will pay you to help them solve their problems. That’s how you bring in more dollars and fun tickets.