What is the Point of Money?
Executive Summary
Why do we spend so much of our lives making money? Sure we need money to buy things in our life, but is that its only purpose? I believe that money is a tool to live a better life yet we all have a unique idea of what a better life is. Everyone has a unique perspective, but 3 things remain constant when discussing what the point of money is. Money represents: past effort, current security, and future dreams/ambitions. Having a better idea of what the point of money is then allows us to have a healthier relationship with money. Seeing it as a tool instead of a goal frees us to use it in ways that bring our lives more value.
Money is freedom. Money is security. Money is the root of all evil. We all have different ideas of what money is, but how should we think of it?
In our daily lives, we use money for everything from paying for our basic necessities to funding decades worth of retirement.
But money is not the ultimate goal in life. When we reflect on our lives, most people will not look back and think of all the money they made. Instead, people will reflect on the time spent with friends and family. The impact they had personally and professionally. They will also re-live the pain and joy they experienced throughout their lives.
When we die, we can’t take the money with us. Viewing money as a tool instead of a goal is a much healthier way to see money.
In that sense, money is a tool to bring more value to our lives. It represents past efforts, current security, and future ambitions and dreams.
Money is Past Effort
At birth, we have no money or assets. Instead, we are born with time. Over our lives, we exchange this time for money. When I was 14, I had a job as a caddy at a local country club. I would carry a golf bag around a course for 4-5 hours to get paid. At the end of the round, my pay was based on the effort I put into my job. If I did a good job and worked hard, I made more than the days where I didn’t work as hard.
For most people, the first way we start to earn money is with a job. Whether hourly or salaried, our pay is for our time and skills.
As we age, we have less time to exchange for money. We also develop our skills. So over our lives, the value of our time increases. Hopefully, since our time is more valuable to us, we receive more money for each unit of our time spent working.
As we exchange more of our time for income, we accumulate more and more money over our lives. We can look at our accounts and see the money we have earned. Outside of those accounts, we can look around to see all the things bought through our past efforts.
Money is Current Security
Life is uncertain. There are unexpected costs, changes in our values, and different needs. In the present, money gives us the security to handle the uncertainty of life.
If someone has too little money, they’re likely more worried about getting by day-to-day. Many Americans can’t afford a surprise $1,000 expense. It is stressful to live without money because an unfortunate surprise life event can lead to a downward spiral of financial despair.
On the other hand, if someone has plenty of money, they are more secure in living their life.
If someone has an adequate emergency fund, they are more likely to take on new opportunities because they know they are safe regardless of the outcome. Financial security enables us to live a more enjoyable life. We can take that trip when our friends invite us, we can pay for that car repair, and we can gift it to those less fortunate than us.
Money is Future Dreams and Ambitions
We all have dreams. Many of them require some or a lot of money to achieve them. It costs money to travel across Europe, raise a family, buy a home, and retire comfortably.
Without a lot of money, people cannot do many things they want to do in life. Knowing that money is the reason we cannot enjoy or participate in something is a terrible feeling.
We only have so much time in our lives, and we want to make the most of it. When money restricts us from doing something, it can lead to despair because we realize that we are not living the life we want.
When we have money, we can live a better life. We can say "Yes!" to opportunities that present themselves to us. It lets us dream big and then go and pursue those dreams.
If someone wants to start a business, the start-up costs require money. If the business succeeds, the money invested will add to our net worth, providing us with even more opportunities and dreams.
If someone has always dreamed of traveling to a destination, money allows us to make the trip plus enjoy the vacation to its fullest. If someone wants to have a family and give their family everything they need to be happy, it requires money to pay for food, education, activities, etc.
Money allows us to dream big and chase after our dreams. We have these dreams because they represent something important to us. Money is the tool to achieve those dreams.
We Do Not Want Money We Want Happiness
We all have this idea of what our dream life is. Your dream life may have experiences, connections, and impact.
Money itself does not give us any of these things. How we use our money is how we get our dream life.
Friends and family may not require much money. But without money, people may not be able to enjoy other activities that bring them joy.
Instead of seeing money as a number on a bank statement or in our investment account, we should see money as a tool to bring our life more happiness.
How to Obtain More Money to Live a More Fulfilling Life
As stated above, when we are young, we have to exchange our time for money. But there might be a time in our life when we cannot work for money. It may be an injury, a medical issue, or we are just too old to work much.
There is another way to make money too. That is through investing. When investing, an investor exchanges money to buy ownership of an asset that hopefully produces more money. Investing in a company represents ownership of a portion of the cash that the company earns.
When we invest, it allows our money to produce even more money. Historically, this has been a great way to generate even more money. House prices, stock prices, and the value of goods and services, in general, have increased over the years. When we invest, we hope to be a part of these increases.
When these things increase, so should our investments. Investing can provide more current security and more freedom to pursue our hopes and dreams.
Not all investments increase though. It is important to diversify investments like we have diverse interests. We all have many different interests that add to our lives. Investing all of our time and energy in just one interest may leave us less fulfilled than if we invested time and energy across many things we find valuable. Investing is similar. One investment may be all we need, but it is more likely that many different investments will lead to better outcomes.
What we found enjoyable ten years ago may not even be something we think about today. Investing in different interests and investments allows us to benefit from things we love today plus some things we may not love now but will in the future.
The Point of Money is to Live a Better Life
When we see money as a tool to make our lives more enjoyable, we can have a healthy outlook on why we earn money in the first place.
Not having enough money makes it more difficult to live our dream lives. Having a lot of money can open up our lives to many opportunities.
But money itself will not make our life amazing.
We all need to figure out what we want to do in our lives. Only then can we use money to go and live the life of our dreams.
Financial planning is about so much more than figuring out the optimal place for your money. Financial planning is truly about using money to maximize the enjoyment of your life. Focusing on what brings you joy and value is a key component of the financial planning process at Developing Financial. If you would like to begin uncovering what is the point of money in your own life, schedule a Meet & Confer today. This free 30 minute meeting is an opportunity to talk about money in a fun and confidential way. There are no wrong answers and by the end, you may better understand the point of money in your life. There is no commitment afterwards either. So why not schedule your meeting right now?!
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.