Change is coming and I want to be a part of it. We’re we told as children we are the future and we have the responsibility to change the world. Now is the time. Our financial world is difficult to navigate and it’s time to learn how.
This ten article series is on how to make your financial life easier by learning the basic fundamentals of money and debt and how human behaviour, your behaviour determines your financial success. These principles are a basic framework to understanding how to develop your financial success road map. There is not one strict set of rules that works for everyone; it’s the principles and values that are key. You do not need to be a financial guru and you especially do not have to worry about Wall Street’s latest hot product. Your greatest earning power is your day-to-day employment; forget about overnight get rich strategies. Before we delve into the preface let’s chat for a moment why you are on this journey.
Why are you here? You want your road map.
You have goals in life, a horizon off in the distance, a journey to create and live. However you need the financial resources to do the things you want in life and to get to that horizon. In front of you is maze, a puzzle to solve and you know it can be difficult. There is noise every and it’s overwhelming. All you want is a road map or navigator. Just like when you take a road trip or drive to an unfamiliar place you have your GPS or a good old map. Well folks you are here to look at the financial GPS. Everyone’s situation is different and that’s why there are no rules, it’s principles; principles do not falter and they cannot be broken. Enjoy your journey!
Money and debt
Money and debt were created by humans. Neither are a tangible item, and money is not something you can physically grasp, see or smell. The paper in your wallet, though it may be called money, is worthless in and of itself because it means nothing without the financial system, which is based on trust. Humans determined that bartering (trading) was inefficient and so money was invented to make getting what you needed more convenient. Money was usually in the form of gold, a shiny tangible object in our world which everyone loves. As this type of money was tangible we were able to have a greater understanding of what it meant to have it and to lose it.
However at one point it was determined that the average person on a day-to-day basis did not need all their money and the excess was lent out to allow for investments and purchases.
Fractional Reserve Banking
“In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (see Bank of Amsterdam). These notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of circulating paper money. As the notes were used directly in trade, the goldsmiths observed that people would not usually redeem all their notes at the same time, and they saw the opportunity to invest their coin reserves in interest-bearing loans and bills. This generated income for the goldsmiths but left them with more notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, to interest-paying and interest-earning banks. Thus fractional-reserve banking was born.” – Wikipedia, Fractional Reserve Banking
Now at this point we still had a good understanding of money, the debt that existed was backed by a physical object that we knew. Gold soon turned into paper money however our system was backed by Gold. But all this changed in the 20th century.
Dumping the Gold Standard
The 20th century saw an end to the Gold Standard. Central banks gave themselves the power to print money at will regardless of whether they had a tangible object, gold, to support the increase in the money flowing into the world. Debt was issued to no end because with no backing there is no upper limit of debt that can be issued. Money and debt became nothing more than trust with nothing tangible to support it. Debt levels from consumers to governments are higher than ever and there is not even remotely enough money to repay all the debt.
It’s scary; we all know and have forgotten. Remember 2008/2009? Can you really say you remember? Most people can’t. We never learned from it because the money we have isn’t real. If the system collapses it’s our own undoing because we built the system. And because we built the system we can live within it, live simple enough and you’ll find financial success.
Each of us has the ability and responsibility to acknowledge this recklessness in our financial system and take action to prevent it in our own lives. Use these ten principles so that you have enough money because money gives you the power to live the type of life you want.
10 financial principles to Live By
- Review your expenses each month
- Keep to good money habits – Financial success is 10% knowledge and 90% behaviour
- Use the smart debt elimination tools
- Save for the short-term, invest for the long-term
- Leverage knowledge of great advisors
Each week we will be discussing the next principle in our journey to financial freedom.
Disclaimer: the thoughts and opinion expressed by the author is general financial advice, please seek your financial advisor and/or accountant for individualized advice regarding your personal situation and any specific financial products. The views expressed are of the author and not any past, current or future employers.