What is money, anyway?

So far, I've consciously avoided writing about economics or finance here. I don't feel knowledgable enough to share something valuable.

However, given what we are witnessing around the world, I'm now reconsidering this position. Perhaps we should share whatever insight we have, no matter how small it is. It is up to you, the reader, to take what you find useful and discard the rest.

This post is divided in two parts: first some personal background and then a link to an article sharing the title with this post. If you are only interested in finding the answer to the question, jump directly to the bottom.

Personal background

Let me start by saying that my interest on these topics has been close to zero for the most part of my life. Maybe because I was brought up in a middle class family where “building wealth” was not a topic discussed at the dinner table.

My father always despised people whose world revolted around money, particularly those who pretended to be wealthier than they actually were. I think he despised even more those who were grotesquely rich without ever need to work a single day in their entire life. I am not any different, to be honest.

He taught us (my brother and I), first and foremost, the value of work. Money was somehow secondary ... even, filthy.

I'm not saying my parents didn't teach me how to handle money properly, on the contrary, I find their advice fairly straightforward and useful:

  1. Never spent more than you earn. Have a frugal life, never show off.
  2. If you earn more, save more and try to keep your needs low. Prepare for an uncertain future.
  3. Invest in real estate.
  4. Always remember: There ain't no such a thing as a free lunch.

However, I'm well aware that I'm not living in the same world that my parents lived when they were young(er), thus, I need to educate myself to face the uncertain world we're all heading to.

This was alarmingly obvious two and a half years ago, when governments all around the world—but particularly in the wealthy West—were shutting down their economies and started to print money as if there was no tomorrow.

From my formally uneducated point of view, that was no only irresponsible, but plainly stupid. It was clear, however, that those bureaucrats calling the shots won't suffer the consequences of their incompetence stupidity—some might even benefit from it.

Even more enraging, in the current system, the richest countries print the money and the poorer countries pay the bill.

So, I have been trying to get a decent grasp of the fundamentals of economics and finance so that I could find a good strategy to protect my hard-earned (yet modest) wealth. I can't afford to invest in real estate in the same way my parents did, even though I am “highly educated” and they are not—which already should tell you something.

Understanding the fundamentals of any field is extremely difficult, it requires time and effort, even artistry. That's the difference between those who know their craft and those who don't, their understanding of the fundamentals.

And this has nothing to do with formal education. I don't think schools teach foundational knowledge these days (at least not in general, you still find good educators in there, but they are more like an anomaly of the system).

On the contrary, I believe the current education system make us stupider. As Richard Feynman once said: “The problem is not people being uneducated. The problem is that people are educated just enough to believe what they have been taught, and not educated enough to question anything from what they have been taught.”.

Nobody needs a degree in Economics to gain valuable understanding in this area. In today's world, where access to information is not an issue anymore, you can educate yourself in any topic if you're willing to put the effort.

So, a good starting point on studying economics is to understand what is money.

Understanding money is crucial because it is so ubiquitous in our every day life that we believe we understand what it is, but we don't. Moreover, many economists believe they understand money, but neither do they.

If we don't have a background in economics or finance, where do we start?

One strategy is to find the books used in good schools or those sources hold in high regard on these fields and start there. That is difficult and very time-consuming, but well worth it and highly rewarding if you have the time to do that.

Another strategy—the one that I follow—is to find people with a deep understanding and learn from them. But let me emphasize something here: I don't automatically trust any self-proclaimed or officially endorsed expert. That word means nothing to me. I simply listen to people with whom I resonate with and after listening to them for a while I decide whether they offer something valuable (for me) or not. Even then, I never take whatever comes from these trustworthy sources at face value, I actively look for things they say that I disagree with.

And after learning the basics from them, it becomes way easier to follow/read other sources.

Back to the main question, What is money, anyway?

Among all the valuable financial analysts I've found on the Web, Lyn Alden is at the top of my list.

I love the way she dissects complex topics and explain them in plain English. Maybe I'm biased because she writes like an engineer (she has a background in Engineering and Finance).

A few months ago, she wrote a long article—or a short book—titled: “What is money anyway?”

This article is worth every bit in gold (if that makes any sense).

No matter what you do, where do you live or what is your financial situation, I believe this information will be useful. It might help you to take better financial decisions in the future. Who knows, it might even spark your curiosity to learn more (Lyn's free newsletter is a great way to start).

#Economics #Finance #LynAlden