At some point in your life, you’ve probably heard someone say that they don’t care about money; You may have said so yourself.
While this sentiment sounds great in theory, the reality – for better or worse – is that you shouldn’t underestimate the importance of money.
On this page:
Why do we need money?
Planning for the future
Why do we need money?
Money can’t buy happiness, but it can buy safety and security for you and your loved ones.
Humans need money to pay for things like shelter, food, healthcare bills and a good education to make our lives possible.
You don’t need to be Bill Gates or have a lot of money for these things, but you will need some money until you die.
Because money is needed to get the goods and services you need to survive, an understanding of personal finance is essential.
You must be responsible for the money you earn and save enough for the future.
To ensure that you will have enough left over when you can no longer trade your labor for money.
The sooner you start saving your money, the more likely you will never run out of money or experience financial stress.
In fact, if you save enough and invest wisely, you can even become financially free – which is when you have enough money to last you a lifetime.
Money is the universal medium of exchange
One of the reasons many people say they don’t care about money is because the love of money has been described as “the root of all evil.”
It’s true, materialistic people’s obsession with money can lead them to do bad things for their own financial gain. But actually money is a medium of exchange.
Money makes it easier to trade your labor for a variety of goods and services. The following are some things to consider about the value of money and why money is important.
- Without money, if you want food, you must find someone with food in exchange for a service you can provide directly or a product you can produce.
- Barter transactions like these are cumbersome and inefficient, not to mention a less reliable means of getting what you need.
- Thanks to money, you don’t have to hope that someone will give you something in exchange for something you have available for trade.
- Everyone recognizes that money has value, so you can trade it for desired goods or services.
- This increases market liquidity, which refers to how easily an asset can be bought or sold.
- Of course, this only works in situations where the value of money is constant — and that value derives from the fact that it is a rare commodity.
- If everyone could get as much money as they wanted by printing it, it would no longer be worth anything.
- To protect the true value of money, the central authority must ensure that the money supply remains limited.
- In many cases, the U.S. A central bank like the Federal Reserve controls the money supply and this.
- Ensures that we don’t run out of so much money that it is no longer seen as valuable – a process called inflation.
The existence of money allows us to trade our labor for things we value. Money has several key benefits including:
- Money gives you freedom. When you have enough money, you can live where you want, fulfill your needs and pursue your hobbies.
- If you can become financially independent and have the financial resources you need to survive without working, you will have even more freedom because you will be able to do what you want with your time.
- Money gives you the power to pursue your dreams.
- Having money enables you to start a business, build your dream home, meet the expenses associated with having a family, or accomplish other goals that you believe will help you live a better life.
- Money gives you security. When you have enough money in the bank, you don’t have to worry about having a roof over your head or having enough to eat or being able to see a doctor when you’re sick.
- It doesn’t mean you can afford everything you want, but you can enjoy a stable middle-class life.
- While money can’t buy happiness, freedom, security, and the power to pursue your dreams can go a long way toward making you happy.
- That is why it is so important to work hard, earn money and learn how to save and invest it.
- When you start investing your money, it starts working for you and helps you produce more — and eventually, you should have enough that you can retire on.
Losses of money
Of course, money also has some definite disadvantages, including:
- Obsession with money, or love of money, can cause many problems.
- Trying to get money at any cost, or constantly trying to get as much money as possible, can lead to unethical or even criminal behavior, such as stealing or cheating others.
- If you focus too much on money or material things at the expense of other people and things in your life, it can cause problems for you and your family.
- If you have only money, but no one to share your life with and nothing to enjoy, you are unlikely to be happy.
- Money can lead to disagreements: When you and your spouse or family member don’t agree on what to do with money, it can lead to a lot of conflict in your life.
- In fact, money is one of the leading causes of divorce for American couples.
- Most of these cons are not related to money, but to people interacting with money and people’s attitudes towards money.
- You can take a responsible approach to earning and saving money without letting it get in the way of your life.
Planning for the future
Money is something that you will always need, it is important that you plan as soon as possible to ensure that you will always have enough.
Sometimes, you need a lot of money to accomplish major goals — like buying a house or paying for college.
To make sure you have enough money to do these things, you should set clear financial goals and work to achieve them.
You have to plan for the day when you can no longer earn money from your labor because you are too old or sick to work.
The best way may be to save money in tax-advantaged retirement accounts like a 401(k) or IRA.
If you save money in a tax-advantaged account, it costs you less to keep the money aside because you’re not taxed.
And, if you invest it, it can earn good returns.
When your money is invested, the invested funds earn more money – this is called return.
The mechanism by which money makes more money — and the amount of money it makes — can vary depending on the investment.
When you buy bonds, for example, your investment gets paid because your money is loaned to someone (like a government or corporation) who pays you back with interest.
When you invest in stocks, your investment can make money because you have a small ownership in a company, which is likely to be growing and making revenue.
If you save enough money, you can get things like a house or a college degree that can give you a good income.
And, you can live off the returns you earn so you no longer have to trade your labor.
In this case, you have flexibility because you can do whatever you want in life and your needs will still be met.
The sooner you start saving, the more your money can work for you — especially if you’re taking advantage of compound interest.
Compound interest is when you earn a return on the invested funds and then you get a return on that return.
This can help your money grow faster.
If you invest when you’re young, compound interest over many years can turn a small investment into a large sum.
Bottom line: Money is something you will always need
Working to make money can seem daunting, especially if your job is mundane and you don’t like what you do.
Still, the money justifies your labor. Because you get paid for your work, you get something that allows you to live your life.
While the quest to make money can become corrupt if you take it too far, having enough money can be very liberating because it gives you the freedom to buy what you want and do what you like.
Just remember, it’s up to you to save so you can use the money to build your future.