How money works in today's economy?

High Quality Financial Education Made Simple

Master Investor
June 05, 2023

Understanding The Lingo of Money

We are surrounded by it. How money works in today's economy?

We employ it frequently. We need it to survive. Do we know what it is, but are we sure?

Money.

Summary:

Money no longer exists as a physical item like gold and silver do. To make a lot of money, we need to understand how money works.
Most people don't get wealthy because they don't grasp how the financial system operates.
Knowing how money functions will enable us to comprehend the strategy employed by the wealthy to increase their fortune.

Knowing what money is and how it functions is necessary if we want to be wealthy, that is, have a lot of money. Unfortunately, a lot of people believe they are knowledgeable on these topics when in fact they are not. And that is among the reasons most people never become wealthy.

What is currency?

When we ask, "What is money?" we must first realize that the concept has changed over time.

Originally, people exchanged goods for "money" like chickens or milk, then shells and beads, and finally gold, silver, and copper coins. They were actual things that were exchanged for other things with equivalent worth because they were thought to have tangible value.

The majority of cash in use today is paper money, commonly known as fiat currency or an IOU from a government. Paper money has no intrinsic value. It is merely a derivative of the worth of another thing.

The dollar used to be a derivative of gold; today it is a derivative of debt, an IOU from a nation's taxpayers.

I am reading: How money works in today's economy?

How does money function?

Today's "fake money" is what we at Master Investor would refer to as. It's not that counterfeit money is useless. It is. Just like gold or silver, which have intrinsic worth and have always had intrinsic value, today's money, which is essentially currency, does not.

Sadly, the majority of people don't comprehend this. They think that currencies like dollars genuinely have value. This explains why so many individuals believe that saving money is a wise financial decision. But we already know that savers are losers if we have read some of our other articles.

We must comprehend how today's money functions if we want to be wealthy. The currency of today is money. Instead than representing something valuable like gold, it symbolizes the confidence that economies have in a nation's economy. This comes as a result of President Nixon's removal of the US currency from the gold standard in 1971. When it turned fake, that's when. It was only supported by the US's "full faith and credit"—basically, a huge IOU. Other nations did the same.

The word current is where the word currency comes from. Money today needs to flow like a current in order to survive. Here is an illustration of what occurs to money (or currency) over time.

As we can see, bogus money always has zero value in relation to actual money. Governments can create as much paper as they like since it is just paper and has no connection to anything of value.

Use of money by the wealthy

The wealthy are aware of this and consistently invest their money in assets, or things with real value. Additionally, they put their money into assets that generate positive cash-flow circle, which they then utilize to buy additional assets.

The velocity of positive cash-flow circle is what causes some people to be wealthy while the majority of others live in poverty.

The formula for velocity of cash-flow, which can be used to use money to get wealthy, can be found in another post, but we'll also provide it here:

Place my funds in a productive asset

Return my funds

Maintain command of the asset.

Put our funds in a new asset.

Continue the procedure

Read "Velocity of Cash Flow: The Secret to How the Rich Get Wealthier and the Poor Get Poorer" for more information on the formula and to see an example of it in action.

Watch Our YouTube Video On How Money Works:

We must understand the language of money in order to use money like the wealthy

A student who enrolls in medical school quickly picks up the vocabulary of medicine and talks about diastolic pressure as opposed to systolic pressure. A pilot has to acquire pilot lingo before enrolling in flight school. Soon he was using terms like altimeter, aileron, and rudder. We utilized several terminology, including cyclic, collective, and rotors, while talking about helicopters. If he didn't know these words, he wouldn't have been able to be a successful pilot. Learning the language of money is no different.

We must learn how to talk about money like the wealthy, if we want to be wealthy. Learning the language of money can help us communicate with the 90% of people in the world who do not have to worry about money. You have a better chance of being one of these 10% if we set aside some time each day to understand the language of money.

More importantly, by becoming familiar with the language of money, we will be less likely to fall for the old money maxims, such as investing for the long term in a well-diversified portfolio of mutual funds, buying a house, paying off debt, and saving money.

The good news is that learning the lexicon of money doesn't cost much. The majority of it may actually be learned for free by doing online research, borrowing finance books from the library, and reading financial news.

I am reading: How money works in today's economy?

Words are the basis of knowledge

Money is knowledge, so it stands to reason that words are the beginning of knowledge. Our reality is shaped by the words that fuel our brains. We will have poor ideas and a poor existence if we choose the wrong or poor words to utilize. Using subpar language is equivalent to putting subpar gas in an excellent car. We must speak the language of words?

Our free financial glossary on our ebook How to build cash-flow with he interest? It is a great place to start understanding the vocabulary of money.

But mere words are insufficient. They are merely an expression of your mentality. Starting with your words can help we change our mentality. The following are words that people in the cash-flow circle use according to their mindset.

(E)- Employees' words from the left side of the Cash-Flow Circle

The E left side of the right side cash-flow circle resident might declare, "I'm looking for a safe, secure job with good pay and excellent benefits."

Words like this suggest that security in the face of terror is a person's fundamental value. People who seek security as a defense against anxiety like to have agreements in writing so they know exactly how much money they will make and what perks, such as employer-provided health insurance, they would receive. Oftentimes, security is more essential to them than money.

Employees might range from company leaders to janitors. The contractual agreement they have is what matters to them, not so much what they do.

(S)- Self-employed's words from the left side of the Cash-Flow Circle

The S left side of the cash-flow circle resident might answer, "Their rate is $75 per hour." Alternatively, "Their standard commission rate is 6%." Alternatively, they might say, "they can't seem to find good people to work on this project and get the job done right." Or we could say, "We have invested more than twenty hours in this project."

The S sector prefers to "do their own thing" or be their own boss. People in the S from the left side of the cash-flow circle dislike having their financial security rely on other people. They expect to be paid for their labor if they put in a lot of effort. On the other hand, they realize that they don't deserve to be paid highly if they don't work hard. Their souls are fiercely independent.

(B) Business Owner's words from the right side of the Cash-Flow Circle Circle

A person in the B right side of the cash-flow circle would say, "Where we are looking for a new president to run our company."

Those in the B right side of the cash-flow circle are essentially the opposite of those in the S left side of the cash-flow circle. They like to surround themselves with individuals who are better at their jobs than they are. "Why do it ourselves when we can hire someone to do it for us, and they can do it better?" is actually their driving idea.

The Business Owner right of the cash-flow circle population takes pride in growing their companies and employing brighter people.

(I)- Inside Investor's words from the right side of the Cash-Flow Circle Circle

The question "Is my cash-flow based on an internal rate of return or a net rate of return?" can be posed by someone operating from the I right side of the cash-flow circle.

With money, investors make money. Because their money is working for them, they don't need to work. They are aware of how money functions as a result. We speak and comprehend the language of money with ease.

How do our words portray us?

Have we ever taken a moment to consider our words? This week, try slowing down and paying attention to ourselves. Check our language and delivery. We might discover that we are not who we thought we were at our heart.

The same is true for everybody you work with or for. This week, pay attention to their words as well.

In the end, our words are effective indications of what matters to us most. The good news is that once we are aware of who we truly are, we can choose whether we want to remain that way or strive to become someone different. But listening is the key to everything.

I am reading: How money works in today's economy?