What is money really? Why is money so important? Why does money matter? In this post, I’m going to answer these three money questions and talk about how you can use money to create a great life. Money is a tool, and you can use your earnings and money to create a life which is forth living.
What is money?
This is a simple question, with a seemingly simple answer.
But, really, what is money?
Also, what is debt? Are they the same thing?
In this post, we will explore the simple question of what is money, why money is important, and how you can use money to live a life worth living.
What is Money?
I typed “what is money?” into Google and got a ton of hits – all from financial and information websites (Investopedia, the IMF, Wikipedia, and Economics and Liberty)
Most of what I looked at had similar definitions of “what money is”.
Money, simply put, is a medium of exchange.
Societies throughout history have used money to make it easier to exchange and trade goods.
Very early on in history, humans used bartering as the main way to exchange and trade goods. “I’ll give you 2 pounds of grain for 1 gallon of milk” was probably close to a common trade back in the day.
Unfortunately, milk and grain go bad after a certain point, and humans looked to other things they could use to facilitate these activities.
Silver, gold and other precious metals were used, and over time, paper and digital forms of money have been introduced to facilitate the exchange of goods, services, and capital.
The type of money (silver, goods, cash, etc.) is determined socially, be it by a governing body or by the people in a given market.
At this point, I could go into the functions of money, what are some of the properties of “good” money, and talk about “why fiat currency is the best form of money and why cryptocurrencies have no intrinsic value” (or is it the other way around?), but these are just distractions from the question we are trying to answer of “what is money?”
What I don’t like about the simple definition above is that is ignores the fundamental constraint of the world: energy.
Money is a Number for True Capital and a Claim on Energy
While many financial analysts, actuaries, and investment professionals believe in the energy tooth fairy (i.e. energy will always be plentiful because of technology or because oil never runs out), it’s my belief that energy needs to be considered when talking about finance.
With this in mind, our definition of money from above needs tweaking.
Here’s what I believe the true definition of money is: money is a claim on a certain amount of energy.
Think about it, with $25, you could pay someone to cut your lawn for you (which requires energy), or you could spend an hour of your valuable time and keep your $25 (but in this case, you personally have expended energy).
The more money you have, the more things you can do because you can afford to use a certain amount of energy.
Speaking a little more in general, the cost of buying something (monetarily), should be roughly equal to the amount of energy (be that actual energy, joules) put into producing that something.
Over time, as processes become more efficient, the cost of goods should decrease, because efficiency leads to lower uses of energy during production.
If Money is Energy, What Can We Conclude?
After establishing a definition, it’s good to look at some of the results and logical statements we can conclude from it.
First, if money is claim on a certain amount of energy, then we can say the following:
- Having more money is good, as it allows you more options.
- If money is a claim on a certain amount of energy, then debt is a future claim on a certain amount of energy.
With these conclusions, I want to try to answer a few questions.
First, why is money important? Second, how should you think about money? Third, why does having more money in the bank matter? And, finally, how can you use money to create and live an interesting and fun life?
Why is Money Important and Why Does Money Matter?
First, why is money important? Why does money matter?
Let’s start with an easy question: at a basic level, what do human beings need to live?
Shelter, clothing, food, and water.
Going a step further, some other needs include education, sanitation and relationships.
Unfortunately, there’s no such thing as a free lunch, and all of these things cost money.
The purpose of money, in my opinion, is a that money should be viewed as a tool for us to facilitate the purchases of our needs and wants.
Money is a tool. Money is a store of energy which can be used to create freedom, acquire things or experiences, and can give us a buffer for times of emergency.
Saving money allows us to not have to work later, and can be used to finance and fund a great life today or tomorrow.
Money should be viewed as just this: a tool which can be used to enrich your life.
Why Money Matters
It’s Wednesday night and I’ve just finished up dinner.
In 12 hours, I’ll be waking up, showering, and getting on the bus to go to work.
I have to go to work tomorrow because I have rent to pay, a mouth to feed, and other obligations to meet.
I’d love to stay at home and read a book. Or take a nap. Or work out.
At this point in my life, I can’t afford to not work – I need the money.
Money matters because money can help you become free. Financial freedom is my ultimate goal in the next 5 to 10 years. I don’t want to be a slave to the bank, a slave to my employer, or a slave to anyone else.
Financial freedom will allow me to spend time the way I want to spend it. Financial independence will allow me to pursue my passions for pleasure or profit, and I’ll be able to help millions with my talents.
There are so many problems to be solved out in the world, and I’m excited to be able to dive in and contribute to the solutions.
Now, I’m going to talk about how exactly you can think about money and how you can use money as a tool to create and live a life worth living.
How Should We Think About Money and What’s the Purpose of Money?
For you, again, thinking about money as a tool to fund your lifestyle and amplify your life and personality is a great way to think about money.
Money is a tool, and with this mindset, you can start thinking more strategically about how you want to spend your money.
So before you start making a plan to use money in the best way for yourself, I have some questions for you.
What Makes You Happiest and How Could Money Help?
On this blog, I want to help you with your goals and help you create a great life.
Figuring out what you want your life to look like can’t be found without breaking it down into smaller questions. These smaller questions can be used to get at the core of:
- who you are
- how you like to enjoy your time
- what you like to do on a daily, weekly, and monthly basis.
So now, first, here’s a big question for you:
When are you most happiest and what are you doing when you are experiencing this joy?
This is a simple question. When do you feel happiest? What activity or thing are you doing which brings the happiness?
For me, happiness comes from creation and helping others. I love creating content, building things, and solving problems. If life was a huge puzzle, I’d love it (which it kind of is, but the pieces are constantly changing 🙂 )
Happiness also comes from doing things on my own terms and having the freedom to create what I want when I want.
For you, how could you use money to do more of these things? What would that look like? How could you use your money and savings to bring more joy into your life?
How to Use Money as Tool to Create and Live a Great Life
Now that you have figured out what makes you happiest, now it’s time to come up with a plan to use your money to the fullest.
In my opinion, life is all about pushing towards doing what makes you happiest and understanding that while today might not be where you want to be, over time you can get there.
For you, what do you love to do?
Next, how would live change if you could spend 2 times as much money on that thing? What about 4 times as much money?
Now, what could you do to free up that extra money to do more of that?
- Do you track your spending now and know where you could cut some expenses?
- Could you prioritize your spending or budget to free up some extra cash?
- Is there any way you could save more money in the short term to have more money in the long term?
For me, I try to cut out spending my money on things I don’t like, and spend more on things I do like.
With this simple mindset shift, and looking at my money as a tool, I’m now living happier and feeling good about life.
What about you? Are you going to start viewing money as a tool?
Start Using Money as a Tool Today to Fund Your Dreams
With more money, you have more options. With more options, you can do the things you want with your life. You can live out your dream and you can be the person who you are meant to be.
After this post, now you know what the purpose of money is, why money is important, and how you can start thinking about money to bring happiness into your life.
I hope you’ve enjoyed this article about money and with this, now you have the mindset to create the life that you want to live.
Readers: what makes you happiest? Why do you do the things you do? Why does money matter to you? What is the purpose of money in your life?