“What is money?” you ask.
Well, there are certainly a lot of good answers here. But there’s only one right answer (Hey, I’m the author, so I get to decide! 😉).
Some good answers might be:
- A piece of paper with green ink on it?
- This would be a correct answer, but not the one I’m looking for. (Fun fact: dollar bills are actually 25% linen and 75% cotton. This is so they don’t tear as easily, and so that if they go through the wash, they aren’t destroyed like normal paper.)
- A means of exchange?
- Good answer. You have something I want, and I have something you want. You have the good, I have the dollars. We exchange them. And both parties are happy.
- A store of value?
- Yes, that’s true, it does hold value. And depending on which dead President’s face is on it, some money holds more value than others.
All good answers, but let me propose the correct answer: Money is purchasing power.
“Tony!” I hear the collective gasp of my readers. “This is boring! Please write about something else!”
To which I’d respond, a) this is important and b) come back next week for more good encouraging thoughts and lessons.
“Okay, okay, I’ll hang with you for a bit, but get to the point please…what do you mean by money is purchasing power?”
Well, imagine a big pack of gum. It costs $1.00. You love this gum, and you chew your way through the entire pack in a year. You go back to the store to buy another pack. You bring along your $1 bill and skip happily through the aisles to find your precious gum. Much to your chagrin, you see that your big pack of gum now costs $1.10. Your dollar now isn’t enough. You’ve lost purchasing power.
“How?” you ask.
Great question. Every good story has a villain. And this story’s villain is Inflation. The pack of gum increased in price because something caused it to cost more to produce. And the company that made it wanted to keep their profit margin intact, so they raised the price of your desired purchase.
By now, you’re crawling on your hands and knees down the aisle scratching for a dime so you can complete the purchase. That is, unless you’re reading my blog and/or you’re a client of mine.
You see, my audience and clients have no need to crawl down a grocery aisle seeking dimes to complete a purchase. That’s because they’re aware that the way to conquer the bitter foe of Inflation…is investing.
Far too many people want to “keep their money safe”. All in the name of not losing it. But what they don’t understand is that keeping their money in cash so as not to lose value, is in itself a losing cause. Because along the way, Inflation erodes purchasing power. And while you may have the same store of value from point to point (a $1 bill), you have lost the ability to buy goods and services in the same way as before. Your pack of gum, or retirement, or dream will be much more expensive in the future than it is today. The antidote, you see, is wise investing; if you do it right…you’ll outpace Inflation over the long term.
“But, I can’t take the volatility! Tariffs, wars, pandemics, meltdowns, crisis’, hurricanes, lions and tigers and bears… oh my! They are all so scary! Isn’t the only way to keep my money safe from these events is to stay in cash?”
Nope. Over time, the best run companies in the US and Internationally learn to adapt and manage through each and every historical crisis you can conjure up. A company’s goal is to sell goods and services to collect revenue and earn a profit. Whatever news event is dominating the headlines, the Management of these well-run companies are in strategy rooms and meetings figuring out a way to get through. And, over time, they do. And they’ve allowed the patient investor to “keep their purchasing power safe”. That is, to outpace inflation and create wealth and allow you to buy that increased cost of that pack of gum.
In the end, money is purchasing power. To maintain and increase your purchasing power, you must invest your money in such a way as to keep up with and even outpace Inflation.
Don’t know how? Call a financial advisor.
Don’t have one? Call my team and I. We’re trained to help steward your hard-earned money and protect your purchasing power.
“Thanks, Tony! Glad we hung with this! Very informative!”
And to that I say: You’re welcome!
