Rethinking Money (Ep498)

[arve url="https://www.youtube.com/watch?v=ICfPwadNmuI" mode="lazyload" align="center" /] A bit of a different episode where I share a process of discovery I am going through about the properties of money and how we can think about wealth and money differently. Transcription: Hey everyone, a little bit of a different episode today we're going to be talking about rethinking money and what I mean by that. There's these times that I have in my life where I can feel this monumental shift happening in my mind and in the way that I think about things. Sometimes they hit me like a fricking truck and my mind just changes instantly like that. I see the whole world in a new different way. Other times it's a more slow progression to understand something that happens over the course of a period of months or even years until I get to a point where I see the world in a different way. I don't usually share those things until they're fully formed and I can express them. I'm making an exception today because I want to talk about this idea of rethinking money and I want to start to express this and kind of take you guys along the journey with me so we can start to flesh this out. So this is not going to be a fully formed thought. This may go all over the place. So you've been prewarned bit of a different episode here, not specifically related to property, but specifically related to how we think about money and how that might affect the way that we invest, the way that we save, etc. If you don't know me, welcome. I'm ryan. I run on property.com dot a u. I help people find it an invest in positive cash flow properties and teach people about general property investing stuff. Help them build up their skills. Money management is something that I've been working on lately, but this idea has been brewing on me that money is not what we think it is. So bear with me for this one. When we grow up or even throughout life, most of us just think of money as money is money, just like it just is in our life. Let me say, have I got some money here? Alright. So right now if you're watching the video, I'm holding up a $10 note. If you're listening to the podcast, you can't see it, but it's there. All right. I'm holding up an australian tyndall and note it's one of those new ones with the seethrough thing. They're really cool, but you grow up as kids and you realize that, okay, you need money to buy things. If I want to go to the corner store and buy an ice cream, then I'm going to need some money to do it, and you grow up thinking $10 is $10. That's just what it is. It's money. It helps you buy things. That's what it is. You can hand it over to the man or the corner store. You can get your Ice cream and some change in return and we go through life just with that same idea that money has just always existed. It's just always there. We use it everyday in our life, but we don't really think about what it means oR the properties of that money. So we think short. I'd like to have more money, but we don't think about what money exactly is and how that affects the way we use money. So If I've confused you, then welcome to my world where I'm very confused as well, but I'm working through this idea of what money is. So first, let's just admit that money is basically a construct that has been created by society in order so that we can do business with each other so it helps the world go round, that we can exchange value with each other and in the past or even today, money has been issued by the government of whichever country you're a part of. So if we really break it down, right? Let's just say we stripped society away. I've got this $10 note and I've got this $5 note. All right, the two pieces of plastic. Let's say that there is no governing body. Australia doesn't exist, the government doesn't exist. I'm just in the bush or something, I dunno. and I've got these two pieces of plastic. What are these pieces of plastic good for basically nothing, right? And then what is to say that this blUe piece of plastic that's a $10 note is worth more than this pink piece of plastic? That's a $5 note. Well, It's slightly bigger, it's a tiny bit bigger, but in actual fact it's worthless plastic. I could take a plastic bag from woolworths and you know, it's kind of similar. If I was in the bush, plus you back from woolworths is actually probably more useful. Can carry stuff in it, maybe still some water in it, use it to catch water, that sort of stuff. So. So all of it's essence. Something to first realize about money is that it's a construct. Okay. The plastic itself is not that interesting. It's not that valuable, but it's the value that we believe that plastic has that is valuable. So if we can first admit that money is made up, that money is make belief that money is only what we believe it is. then that is the first step towards really understanding money and understanding the properties of money. There's this really great tweet by vitalic. If you don't know vitalic, he's one of the creators of a cryptocurrency called a theorem, which is currently the second biggest cryptocurrency in the world and basically let's not worry about crypto, but basically he's saying arguing over what is or isn't money or currency is pointless. It's better to treat them as synonymous colloquialisms and talk about moe you o a n s o v. So that's what I'm going to be talking about right now. Moe stands from medium of exchange. Your way stands for unit of account. That's not as important to us. And sov is store of value. So this money that we are talking about is a medium of exchange that we can use to exchange with whoever we want. So I can give this to a friend, I can give this to the man at the corner store, I can put this in my bank account, I can send it, you know, across the world basically. And I can exchange value with someone for goods and services. So that's medium of exchange, their store of value. That's another thing. This money is worth something to other people. And so by keeping this money, by storing it here on my desk, you know, in a super safe place, just lying down here on my desk, I am storing this value for use at a later time in the future. So we've got medium of exchange. We can easily exchange it with people. You've got gold, right? Gold is great at storing value, but it's heavy, it's awkward to use. It's hard to exchange because it's so valuable. You would need such small amounts to be able to exchange it. So it's a poor medium of exchange, but it can be a good store of value. So that's what we mean with medium of exchange. Store value. Unit of account is a bit more, it's less applicable to us. Unit of account is talking about how you can compare everything in the world that's a value. And you can use money as an account to see how valuable something is. So let's say, and this is an example that I'm stealing from andreas antonopoulos, but let's say that you give haircuts. If you live in a small society, then you can barter and you can trade. And so let's say you trade your haircut for some vegan sausages or some tofu so you can trade with someone for some food, right? Or you could trade your haircut for a car service, etc. But that means you also need to keep track of what's the exchange rate between haircuts and food and car servicing and all of these other different things. So by Having money you can use that as a unit of count of account. And so you can say a haircut is worth $30 and then you can say a car service is worth $300 and show you've got this unit of account that you put everything against, you know, 10 haircuts is one car service. So that's all what we're talking about. We want to focus on medium of exchange in store of value. How this is going to affect us as we're saving, as we're budgeting, as we're investing. As you can see, this is not a fully formed idea. We're just going with it. So money is a great unit of exchange money that is issued by the government. It's an amazing unit of exchange. Medium of exchange. Sorry, so it's really easy to trade value between people, everyone in Australia except australian dollars, so it's a great medium of exchange. it fits in your wallet. We've got online banking now, so you don't even have to carry cash around. In fact, who carries cash around? Anyway, I saw people pull out a $200 cash to pay for something the other day. I was like, who has $200 cash in their wallet, but you know, some people do. That's just not soMething we do, but anyway, it's a really great medium of exchange, but it's not a great store of value. So money is inflationary because it's issued by the government. We trust the government to issue this money and that it's backed and that everyone in the country will use it. It's fungible, all this good stuff. So the government makes it as an amazIng medium of exchange within our country, which is really good. But the trade off of that is it's not a great store of value because the government can print money. It's not actually really backed by anything so they can print as much as they want. We have inflation and so that means that overtime, this $10 that I'm holding right now becomes less and less valuable. In fact I can, which means I can buy less and less with this money. Do you hear stories of your parents or your grandparents and how they used to go to the store and they would have half penny, so half a cent and they'd be able to buy all these lollies with half a cent or with a penny or with ten cents. You know, the stuff that people used to be able to buy with such small amounts of money is crazy. And so with inflation at about around two percent or something like that, this $10 in 30 years, half of the value of this $10 will be gone. So if I leave this $10 in the super secure place on my table were really. It could just blow away by the wind if I'm honest, but let's say I just leave it there.