From making money to spending it. Money at its very essence is the accumulation of your labour hours. Money, which is a made up concept, only exists as a standard by which you can measure the worth of what you create through your efforts. It is important because it allows you to save and trade it, even lend it to others in return for more wealth in the future. That latter is knows as ‘investing’.
The four key elements of money are:
1. Earning Money
2. Saving Money
3. Spending Money
4. Investing Money
Money is earned through:
a. exchanging your time (time and/or manual labour)
b. exchanging your ideas (sharing the value you create)
c. creating something new by managing resources and risks to create value (business)
The difference between what you earn and what you spend on an ongoing basis is your disposable income. If you save it in the form of some recognized standard (e.g. U.S. dollars, Canadian dollars, gold) it is considered savings and you can use it in the future. The difference between savings and investment is that savings are liquid (you can access them when you need them), whereas investments tie in your savings and don’t guarantee how much you get back or when you get it back.
People sometimes forget that saving a dollar is as good as making a dollar (plus income tax). By managing your spending habits, budget and planning/negotiating your purchases you can increase the rate at which you accumulate wealth.
Investing your money is actually taking the hours you’ve worked and stored and giving them to someone else to use and pay you back in the future with more money (labour hours). There are different levels of risk and return for your investment and usually the greater the risk the greater the possible return.
Types of Investment:
– Real Estate
– Mortgages secured against real estate
– Corporate Bonds
– Stocks (Blue Chip)
– Stocks (speculative penny)
– Direct Investment in business (equity)