Money Is A Tool

Personal Finance is not a complicated topic on it’s own, despite various books, blogs, courses and programs on the subject. For me, the concept of money itself has greatly informed how I look at personal finance.  All the advice, tricks, programs and apps in the world won’t truly make your life better until you decode what your relationship with money is really all about.

If you don’t know what is meaningful to you, money in your bank account means nothing. 

That might seem like a confusing, fortune cookie-like statement, but let me explain.

The reason the topic of personal finance appears so complicated is because every person (out of 6 billion on the planet) has a different relationship with money.  While many people have similar relationships, no 2 people have the exact same brain chemistry, upbringing, resources, experiences, etc.

The functions of money

The functions of money are simple.  Money acts as 3 things:

  • A store of value – you can trade money for coffee over the course of the month instead of holding all your coffee in your house
  • A unit of account – prices tell us how much of something we need to exchange our money for.  Imagine a trip to the grocery store if prices weren’t listed in dollars, but in bags of rice, pounds of tobacco, and numbers of t-shirts, among other things.  If you don’t know how much t-shirts are worth, you’d have a hard time figuring out how much food you could by for 3 t-shirts.
  • A medium of exchange – consider the prices example above.  With money, not only do we not need to know how much food we can buy for 3 t-shirts, we don’t need to know how many t-shirts a haircut or a house would cost.  We also don’t have to worry about getting paid in bags of rice and figuring out if they’re worth more or less than t-shirts.

So money can be exchanged for (nearly) anything, provides a consistent and agreed upon value for everybody, and makes earning and spending it incredibly simple.

But the money in our bank accounts means so much more, even if that’s not it’s function.

What Money Means

Looking back at our fortune cookie statement, and knowing now that money doesn’t really have any meaning on it’s own (only function), it’s time to figure out where the meaning comes from.

Some people view money as something that’s simple made to be spent, an ongoing transfer in an endless cycle.  Others view it as the solution to all their problems – if they just had more if it, they would be so much happier.  Still, others view it as pure evil, a corrupting unnatural force that destroys everything it touches.

I view it as a tool.  A dollar is a tool, and all the tools I have sitting in my bank account are useless unless I pick them up and do something with them.  I can use them to build a life that is meaningful to me.  But I have to know what I want to build, what I like building, and what I know or could learn how to build.  If I just start putting pieces of wood together with no purpose then I’m just wasting my time and energy.

Can Money Really Buy Happiness?

Not quite.  Replace buy with build and you’re a little closer.

But remember, money is useless until we pick it up and use it.  And even then it only has 3 simple functions.  A hammer only has a couple of functions too, but you can build a lot of things with a hammer if you know what you want to build and you’re dedicated enough

One last glance at that fortune cookie statement might start to look something like this:

Know what you want to build, then determine what tools you need.

Over the last two years one thing that’s stuck with me and made the biggest difference is realizing that meaning comes from knowing what I want to build and figuring out how to build it.  Going through the motions and just putting stuff together leaves me feeling unsatisfied and lost at the end of the day.

It’s true that most people are able to get by without ever having thought of money in this way – they’ll continue to go to work, maybe save a little here and there, and hopefully avoid any financial catastrophes as encountering one would surely wipe them out.  For those of you reading this blog post, who are interested in building a financial picture that works for you and will help you find happiness, it’s important to determine how you feel about money, and what role you see it having in your life.

Most of the questions I ask are questions about happiness.  I bring up money as a tool – one that can be customized, crafted, practiced with, and made more efficient – but it’s still just a tool nonetheless.

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