What is Money Anyway?
I think that one of the reasons so many people have trouble handling money well is that they don’t understand what it is and what it represents. This article is my attempt to explain how I think about money and what it represents to me. My hope is that it will give you a new perspective and perhaps a better feeling next time you think, it’s only money.
Money is canned effort, or put another way it is the way that we trade our efforts for someone elses. Each time I go to purchase something I think, is that worth N minutes, hourse, days, years of my life? Because that is in essence what it represents. In order to make money I have to do something for someone else. Whether it’s wash a car, write a program, fly a plane, whatever. Most of the time when we do something for someone else they pay us, that payment represents our ability to then go out and pay for something we want. Food, housing, a new car, whatever. Like most people the only significant way that I can increase the number of dollars I have to spend is to work. This actually is not a bad model, to think of money as canned effort. If you make $1000 a week, then each $1000 in your bank account can be thought of as one week of your effort that you can now use at a later time.
Of course, not all effort is the same, thus the market decides that a weeks worth of Bill Gates time is worth much more than a week of my time. But then my effort is worth more than a high school dropout flipping burgers at McDonalds. Money simplifies our lives in that we don’t have to make all these decisions about who is worth what and find the proper person to trade our services with. Everything is reduced to a single number, its price, and we decide if that price is worth and equilivent amount of our time and effort providing services to others.
Thinking about money as stored effort gives you better tools to determine if you should purchase that item, do you want to trade an hour, month, year of providing services to others instead of doing what you want? If you think of things in this way you see how insane it is to borrow money to purchase stuff. You are committing yourself to future services in order to have something now. Rather than you owning that new car, it owns you. The only way you were able to get that car was to borrow money and commit yourself to working to no end other than your obligation to the car you already own, oh yes, and you have to pay extra for the privledge in the form of interest.
The idea of money as stored effort means that a large bank account represents freedom, freedom to not work for someone else, freedom to spend your time in the way that you want. Freedom to instantly call on the effort of others, whether it is to have them make you a car, a house, cook your food, or provide you with the results of some cutting edge medical research to keep you alive. Money is the ability to have the scarce resoure of another human’s time, energy and effort commited to you at a moments notice.